Week In Compliance: Blatter Loses Control, Swiss Open Investigation

US Deputy Attorney General Yates publishes memo that explains six changes that will take place in FCPA enforcement and investigation. DOJ intends to focus on individuals and will not resolve any related corporate involvement until all related individuals’ cases are resolved. FBI has tripled its International Corruption Unit in order to make this more than lip service. You can read the memo HERE (PDF).

Baby Boomers are targets to securities fraud in Free Meal Seminars. North American Securities Administration Association, association of state securities regulators, warns “senior investors to be aware that a combination of “free lunch” seminars, misleading professional “senior specialist” designations, and abusive sales practices can create a perfect storm for investment fraud. Remember: there’s no such thing as a free lunch.” Read the full warning HERE (PDF).

ABA Chip Card Inforgraphic
ABA Chip Card Inforgraphic

American Bankers Association released Chip Card Infographic:

Financial services firms have been getting blackmailed by DD4BC (Distributed Denial of Service for Bitcoin). In Q4 2014, there were only 10 reported cases. In Q2 of 2015, there were 83 reported cases. BitCoin is a decentralized currency and transactions can be performed in complete anonymity. The US treats BitCoin as an ordinary asset rather than currency, requiring a gain/loss realization calculation for every transaction, as one would if one sold a painting. While this makes the use of BitCoin cumbersome, it does legitimizes BitCoin. It also means, it is not treated as currency for reporting purposes to the OCC. – Olivia Solon for Bloomberg

For a better, more entertaining explanation of this type of extortion, RadioLab recently published a podcast that explains a similar type of extortion as an introduction to its episode about Darkode, a place on the internet where hackers could buy and sell hacked assets or rent access to hacked networks. – RadioLab

Credit unions might not be filing appropriate SARs and CTRs, says Jennifer Shasky, Director of FinCEN, at National Association of Federal Credit Unions. – Kevin Funnell, BankLawyersBlog.com

Durbin Amendment has had a mixed impact on the costs of accepting debit cards, the retail price of goods and services and restrictions on debit card use. – DoddFrankUpdate.com

FIFA 15, the game on XBox, Play Station and PC, was 15% of EA Sports’ revenue in 2014. FIFA 16 came out this week to great fanfare, now that women’s teams are also on the game. Due to the bribery scandal being investigated by the DOJ, many fans are boycotting the game. EA Sports has sued FIFA in relation to this outcome. This impacts not only FIFA 16, but all future FIFA games by EA Sports. Their contracts lasts through 2022. – Ilya Zlatkin from FCPA Blog

Swiss authorities open criminal proceedings against FIFA president Sepp Blatter – Christopher Elser, Tariq Panja and Hugo Miller at Bloomberg

“During the first half of 2015, FINRA reported $37.5 million in fines from monthly disciplinary actions, compared to the $42.2 million reported in the first half of 2014.” – The Compliance Digest at Quest CE

“… renewed concerns that compliance officers could be blamed for violations committed by others at their companies.” –  Matt Rybaltowski at Reuters

FDIC to provide regulatory relief to those affected by fire in California. – FDIC

Jobs In Compliance

Opinion: Compliance at Credit Unions 

I think this is a major issue. Credit Unions are usually smaller than Community Banks, but they offer almost as many products. CU’s face all of the same risks associated with those products, but they tend to have less resources to prevent, deter and investigate money laundering or other financial crimes. With the recent news about the statistical analysis that concluded that Credit Unions are way under-reporting suspicious activity, this issue isn’t likely to go away. Ever since the financial collapse, a lot of people have taken to move their money to CU’s. For good reason. Since these institutions are not profit driven, they are operational efficiency-driven, any excess funds beyond capital funding is returned to depositors. If these depositors are effectively customers and investors, we can assume that when it is convenient for them to be one or the other, they will. In order to pay for acquiring the compliance resources, the CU’s will have to return less money. But if they aren’t returning much money to begin with, then they might still be underfunding compliance programs. For criminals, this situations is perfect. There are several ways to solve for this. One solution would be to centralize the compliance of credit unions. Along with the solution comes the problem of making the credit unions too uniform and, possibly, losing the very efficiency they strive for. Another solution is to subsidize compliance programs. Then the issue becomes the fairness of the subsidy amounts. Another solution would be to close down CU’s that are not meeting the regulatory requirements. This leaves a vacuum in the market, which is also not ideal. But that would force criminals find other ways to finance their activities, and those alternatives aren’t as good, for the most part. All of the solutions have are accompanied by major negatives. I am not leaning toward any one or combination of them. I think, though, the issue of compliance programs at CU’s should be given far more attention than it is receiving.

How do you like the new weekly round up?

Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Beyond Uniting Nations

In light of the opening of the 62nd session of the United Nations General Assembly on September 18, I argue it needs a transformation of purpose and strategies. The United Nations views conflicts in two forms: one nation against another, or one nation against its own people.

This was a fine way to see the world when people had so little access to weapons. During the World Wars, people were equipped with state-issued nation-crumbling weapons. And then the weapons were taken away. Since then, weapons have been subsidized and widely distributed by the most powerful members of the UN, the very body created to sustain peace. Since the American industrial dominance, corporate shares have become a tool to extract value from man and natural resources without having to invade the nation with them. On the other hand, this tool, like weapons, have been heavily subsidized. Both nation-crumbling weapons and corporate shares are available across borders more freely than ever. As long as the UN resists changing its inflexible view of the world and accept subsidies as the norm, it will fail to keep peace. And nations will play a supporting role.

Man has always been highly tribal and nations grew to become the ultimate tribal formations in the nineteenth and twentieth centuries. They were so powerful, most of the tribes of men fought in a devastating World War. To avoid such atrocities, the most powerful tribes on earth convinced the rest of the other tribes to join a peace-keeping discussion group, which is the essence of the UN. Having convinced most of the tribes to join, the same elite group developed more weapons. In order to beat out competition, governments subsidized the sale of weapons by commissioning new weapons and giving money to other governments to buy them. As a result, the world has more weapons now than at the inception of the UN. This is one prima facie measure of the UN’s failure. Theoretically, there is a quick and easy fix: stop financing the sale of weapons. Practically, the fix is unrealistic: there are no willing nations. At least the optimists have the theoretical possibility.

Both theoretically and practically impossible, the UN will never regain the role as the keeper of peace as long as it doesn’t invite non-state actors to the discussion group. Non-state actors like ISIL or Boko Haram want recognition and legitimacy. They want to be heard. Say what you will about not negotiating with terrorists, as long as diplomacy is off the table, they will take up arms and form new tribes, even if these new tribes have no land to call their own. They understand that nations are not dirt on the ground; nations are people. If the world won’t listen, they will make themselves heard. The UN cannot succeed without sharing the light of peace with everyone.

The UN is failing to keep peace by not dealing with the non-state actor commonly known as the corporation.

The corporation is often defined as the legal entity that exists to economically benefit its owners. What such definitions fail to capture is the essence of the concept. Some people (shareholders) own a share of the productivity of other people (employees) in exchange for gambling on ideas that could not find financing in other ways. This is an exchange of money for work. Work is an activity, not an asset. Still, governments insist on removing humanity in the corporation in order to subsidize it with lower taxes.

Unfairness through subsidies were more apparent when the UN was conceived because such distinctions on income didn’t exist. Now, one need not live in a shareholder-less nation to see their lives being left in the dust of the few. The divide has made clear how we have perverted capitalism. It is a political economy Adam Smith would be ashamed to be associated with.

Governments either promote or succumb to this definition of capitalism. And by doing so, non-state actors will remain in demand, both the corporate-kind and the terrorist-kind. The whole raison d’etre of non-state actors is to reject governments in great part because of this subjugation.

The UN doesn’t involve itself in philosophical discussions of fairness, but shouldn’t it? Isn’t the lack of fairness fueling terrorism and creating non-state actors, the same non-state actors with whom the UN is not willing to engage?

The most powerful UN members are those that have been subsidizing shareholders for a very long time. These members have been in denial for too long. Free market capitalism has brought incredible prosperity to the world but it passed its optimal free-ness a long time ago.

Plus, the definition of “free,” as in liberty, no longer seems to include “fair,” or “just,” or “moral.” How fair are different tax rates for the economic benefit from the work of others? How just is it to hear the concerns of some people but not others because they don’t have land of their own? How moral are subsidies for equipment designed to kill over things that bring happiness? Imagine a United States that gives money to Egypt to purchase massages from US masseurs rather than weapons from US defense firms. Wouldn’t financing shoulder rubs better relieve tensions and keep peace than grenade launchers?

The evidence keep mounting. More and more nations lower tax rates on the sale of shares rather than making them equal to income. More and more non-state actors are being created to represent values and interests of people rather than an elite few. More and more dissatisfaction is communicated using weapons rather than words.

In order to be the true representative of peace, a transformation is necessary. The United Nations will have to advocate weapon-less peace, engage with land-less people and promote subsidy-less free markets. The United Nations will have to go beyond uniting nations. The United Nations will have to unite people.

Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Week In Compliance: White people get better interest rates on loans

The CFPB and DOJ determined that more than 235,000 minority borrowers paid higher interest rates for their auto loans between April 2011 and December 2013 because of Ally’s alleged discriminatory pricing system. – ACA International

The Chinese government, which has long used its country’s vast market as leverage over American technology companies, is now asking some of those firms to directly pledge their commitment to contentious policies that could require them to turn user data and intellectual property over to the government. – Paul Mozur at The New York Times

Though many small to mid-sized financial institutions (broker/dealers or registered investment advisors) have the requirement to manage customer complaints, still they do not have the need nor resources to employ a complicated and expensive system. 17a-4, llc has developed a workflow / retention solution using the Law Department DeskTop to provide a solution starting at $600 per year. – PR Web

A stock broker in New York admitted Wednesday that for five years he traded on inside information stolen from one of Wall Street’s best known law firms (Simpson Thatcher). – Richard L. Cassin for The FCPA Blog

This is not saying, however, that Operation Choke Point is dead, but only that it is being dismantled. – Richard Kohrumel of FTI Consulting for ACAMS Today

CFPB has released an infographic regarding the new mortgage lending standards. The new standards simplify the organization of the loan information for borrowers. This takes into effect October 3, 2015.

Click to enlarge
Click to enlarge

Jobs In Compliance

Opinion: Don’t discriminate against banks, apply IHC rules to all companies 

You may or may not be aware of this but foreign banks are required to create a Intermediate Bank Holding Company as both the shareholder and operator of its various financial services operations in the United States. This may see small, but because of the way this is applied, it goes against the fundamental American belief that the economy works best when it is fair. So, why is it that only financial institutions are required to create an umbrella company? Why  not all foreign entities.

I understand the need for IHC’s: accountability. When something goes wrong, we want prevent accountable parties from abusing safe harbor rules to dodge punishment. In the case of financial institutions, if they have access to the Fed Window, then they have access to the printer of our money. We would like heightened controls on these entities. By requiring IHC’s organization, the Fed is forcing foreign financial institutions to take operational ownership of its umbrella entities. This ownership varies, but at least if something goes wrong at a Midwestern bank owned by a European Megabank, the European Megabank will be punished, forcing it to take a look at whether the Midwestern bank is worth owning without careful due diligence and controls.

But why not do this for all foreign entities. If a German firm owns a number of unrelated factories, why not make the German firm create an umbrella organization to hold it. All of this organization’s US operating assets will be placed in it. Now the operating risk is spread across the umbrella organization. That means, the German firm cannot create a “bad factory,” we sometime do by creating “bad banks.” The result is a well endowed foreign firm will have to look at all of its US business as a single portfolio. This firm can get in and out of any business as it did before, but when in, it must accept that it is not shielded from the liability that comes with ownership.

How do you like the new weekly round up?

Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Week In Compliance: Bankers believe that their employees do not want overtime pay

American Bankers Association reports that banks believe their overtime exempt employees do not want overtime pay, as stated by Christeena Naser, Vice President and Sr Counsel. This opinion stems from the Department of Labor’s new interpretation of the Primary Duty Test. “The term “primary duty” means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.” (DOL). ABA goes onto to state that the Test’s objective was to identify obvious non-exempt employees, but the new interpretation would seem to try to identify obvious exempt employees. The difference in nearly $27,000, or about 30 Million employees across all industries.

The Financial Crimes Enforcement Network (FinCEN) today announced a settlement with Desert Palace, Inc. d/b/a Caesars Palace where Caesars agreed to pay an $8 million civil money penalty for its willful and repeated violations of the Bank Secrecy Act. In addition, the casino agreed to conduct periodic external audits and independent testing of its anti-money laundering compliance program, report to FinCEN on mandated improvements, adopt a rigorous training regime, and engage in a “look-back” for suspicious transactions. – FinCEN

CFPB reported that it has handled 677,200 complaints nationally. – SubPrime Auto Finance News Staff

Big companies are some of the worst offenders in foreign corruption cases, but they are also increasingly policing themselves and self-reporting instances of bribery, new data show. The Organization for Economic Cooperation and Development analyzed 427 cases of foreign bribery in 17 countries to determine who’s bribing who, and how authorities are discovering corrupt practices. – Kathleen Caulderwood at International Business Times

FTC can sue companies for inadequate cyber-security protection, so says the United States Court of Appeals for the Third Circuit. – Dan Appleman at FCPA Blog

Caesar’s Palace to pay $8 Million penalty on poor compliance regime. FinCEN has also forced the Palace to take on additional action for boosting compliance an a lookback program to seek noncompliance in past transactions. “When it came to watching out for illicit activity, [Caesar’s Palace] allowed a blind spot in its compliance program,” says Jennifer Shasky, director at FinCEN.

“Whistle-blowers and insiders play an increasingly important role in our work,” says David Green, Director of the Serious Fraud Office in the UK. “I suggest… moving away from the identification principle of corporate criminal liability in English law and embracing something closer to vicarious liability, as in the USA,” he said in his speech at the 33rd Cambridge Economic Crime Symposium.

By performing an assessment of OFAC compliance programs and establishing a culture of compliance throughout the organization, a company can position itself to better understand and identify potential risk exposure. – Sven Stumbauer, Director in the Financial Crimes Compliance Practice at AlixPartners, LLP at International Banker

Jobs In Compliance

Opinion: FRB of Boston says Prepaid cards can be a savings tool, and I agree 

credit Danny Choo

Prepaid cards from credit card companies have grown significantly in the past decade. They offer credit transactions to those who do not have the credit history to have credit cards. They offer a way to build credit for those who cannot even open a bank account. These are people and families who make $25,000 or less. If you are reading this, you are very likely a person with a bank account and a credit card. You might not know, but there are people who do not qualify to have a bank account. I was once such a person. But I wasn’t the norm of such a person. I had graduated from college and I didn’t yet have a job. During college, I had a college student checking out. I was moving back home 2,000 miles away from my bank. So, I needed a local bank. Wells Fargo said that I had overdrafted too many times and I do not have a history of income that would otherwise let them overlooking this. I was shocked. I didn’t know that banks refused to open checking accounts. Even more astonishing, this was at a time when checking account were not free. I went down the street to Key Bank, who opened an account for me. I got a job and Key Bank had my business for many years. But most people who do not qualify for checking account aren’t in my position. They have never made enough money to have any savings at all, which means even if they had a checking account, it would sit empty. Even having an account for someone open a bank up to various risks, which all have a cost. But financial institutions have come up with a solution: Prepaid Card. This uses the credit network for transactions but at no time transactions beyond the amount in the card can be made. And banks do not have to offer any services, keeping all of the information on the card. Actually, in Eastern Africa, the same type of decentralized banking system is growing through cellphones. And if you think about it a little longer, Bitcoin and other cyber-currencies are just another decentralized payment system, albeit with more value involved. What Prepaid Cards offer is not merely a way to make transactions. It can be method to store value, as economists would put it. That is, a person can save money in such cards. The difference for the user is minimal for the most part. Sure, it is less secure because if you lose it, you’ve lost all of your money, just like cash. But it is safer than cash since it is possible to have an account on that card, even though it wouldn’t have any of the protections of a checking account. At least, there would be a remote way to stop transactions on that card, if lost, unlike cash. For the financial system, prepaid cards balances cannot be used to lend money. But banks are not starved for money right now. The Federal Reserve is offering money below the inflation rate, which means, banks are being paid to just hold money. The card balance does not flow through the system until it is used for a transaction, but it a clear benefit to the consumer who cannot afford to be connected to the financial system through depository banking. For banks, it allows them to have a credit history on those people should they eventually want to join the financial system. The banks also make money on the credit transaction. And for the system as a whole, it reduces risks involving money laundering, fraud, theft and cyber crimes.

How do you like the new weekly round up?

Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Bankers believe that their employees do not want overtime pay

Williams Sisters, unlikely to be affected by new Primary Duty Test Standards | credit Youtube

American Bankers Association reports that banks believe their overtime exempt employees do not want overtime pay. That’s not exactly what Christeena Naser, Vice President and Sr Counsel, said, but she might as well have in her comment letter. The Letter goes onto to state that the Primary Duty Test‘s objective was to identify obvious non-exempt employees, but the new interpretation would identify obvious exempt employees. The difference in nearly $27,000 per eligible employee, or about 6.3 Million employees.

“The term “primary duty” means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.” (DOL).

The change in Standard would reach approximately 30 Million employees across all industries, 6.3 Million of which are in financial services. The previous Standard deferred to states because many state standards were more inclusive than that of the DOL. The new DOL standard is much higher. being raised from $23,660 per year to $50,440. One should know that while these figures are yearly, the Standard applies to overtime pay on a weekly basis.

“The salary standard would reduce the number of individuals eligible for the exemptions by 6.3 million salaried employees, ” ABA’s comment letter states. The implication is that banks would reduce hours of 6.3 Million employees to the lowest end of full-time status as much as possible in order to avoid paying overtime. It also implies that DOL have reason to believe that the guarantee in employment due to the salaried nature of a role is worth very little. Considering how little guarantee there is, the DOL is onto something there.

Just because a bank employee makes more than $50,440 per year without overtime pay does not mean that that employee cannot be on an hourly wage. DOL has moved the cap on all hourly wage employees from $100,000 to $122,148. This means hourly employees can qualify for overtime pay as long as the non-overtime pay is less than $122,148 per year. ABA objects to this as well.

All of these Standard change-levels are based on data from the Bureau of Labor Statistics.

ABA objects to the Standard not be adjusted for geography. This is quite valid. A community bank in rural Iowa will be hit harder than a community bank in New York City.

But the rest of the complaints, and they are truly complaints, read as veiled threats. There are a lot of justifications based on what will happen if these Standards are applied. All of them are dire. All of them do not bode well for employees. For that strategy to work, the bank would have to assume that its employees do not know what is good for them. The direness of the predictions imply that banks will be forced to hurt their employees by complying with the new DOL mandate.

If enumerating all the ways the ABA’s Comment Letter fails to make its point to someone who might have helped craft this new Standard at the DOL, the failure can be summed up thusly: ABA’s Comment Letter fails to convince the Department to stop the pursuit of the new Standards because it fails to address the issues that are important to employees as seen by the Department. At no time does the Letter acknowledge the good that the Department is trying to accomplish. So, when the Letter provides alternative solutions, it carefully avoids stating what the such solutions provide. By avoiding such valuation, the ABA avoids having their alternative compared to the Department’s solutions. And by avoiding the value of their solutions, the ABA makes their members seem unconcerned with the wellbeing of bank employees, and does not avoid to address how the new Standards are not as beneficial as they can be.

Overall, the letter is a carefully crafted legal argument wrapped in economic concerns. The DOL, I assume, are seriously concerned with economics and less so with legal intricacies.

I have read ABA’s Comment Letter for you so that you don’t have to. If you don’t like how I interpreted ABA’s Comment Letter on the new overtime exemption and HCE standards, comment below.

Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 


Take Home Compliance

OCC concerned military service members are not adequately protected by financial institution, citing 65 violations of the Servicemember Civil Relief Act. – Brian Honea at DSNews

Compliance departments are having a very difficult time overseeing corporate social media presence. But how difficult? New study shows that financial institutions faced “over 250 compliance incidents per company.” Presumably, this is during to course of a single calendar year. That’s very troubling. – Susan Byellin, Esq. for Reuters Inside Financial & Risk

Indian Central Board of Direct Taxes has announced that persons or entities earning money through offshore ewallets on gambling and gaming will have until September 30th to register. If you are in either payment technology or gaming industry, you might have outsourced vendors who have part of the operations in India, making this requirement relevant to you. – The Financial Express

In another sign that BitCoin is becoming more legitimate medium of transaction, itBit BitCoin Exchange has hired Daniel Alter from New York Department of Financial Services. – Pete Rizzo at CoinDesk

Section 21F of the Securities Exchange Act of 1934 disqualifies compliance officers from being classified as whistleblowers. The idea is that it is their job to blow the whistle. But history has shown that compliance and related officers usually defend their firms. But in 2014, a compliance officer was awarded monies for blowing the whistle on his firm. Here’s an article that informs compliance officers when blowing the whistle is advantageous for you. Priya Cherian Huskins at Inside Counsel

There are major regulatory compliance challenges for cross-jurisdictional meetings. Si-Yeon Kim, Chief Compliance & Risk Officer, American Express Global Business Travel, enumerates three biggies for Incentive Travel & Corporate Meetings UK.

Jobs In Compliance

Has your firm ever refused to listen to your advice that made you want to blow the whistle?

Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Limit to compliance – taxes

from The New York Times

Privacy is important, but for what? Is ownership of real estate an issue of privacy? If you were a person of interest, like a celebrity, it might be an issue of privacy. But how about the rest of us?

Obviously, New York City Mayor De Blasio does not believe that real estate ownership information is subject to privacy. (Note: We are not discussing residence information, we are discussing ownership. Residence information is already considered to be public information.)

In times when New York City is witnessing an incredible growth in luxury apartments not just in Manhattan but in all of its boros, more and more people are being priced out of their homes. Rents have been going up much faster than wages, let alone the very sticky long-term unemployment rate. It is really indeed a shame that people must move away from the meager jobs they possess to be able to afford rent, even though that move might cost them their career network, the very group of people who will help them find a job should they lose one. Starting in a new place is very difficult.

Here’s an issue where the tax revenues that usually offset such disparities somehow have not been and are not. It is getting worse. On a line-by-line basis, everyone might be paying their correct taxes, but on an aggregate basis, there are many who do not seem to be paying.

This is very likely because of an accounting issue. A taxpayer can be completely compliant with all taxes, but still be paying less than economists have predicted because economists forgot to take into account a very important change that takes place when profits are earned by a corporation but is kept to raise the price of shares. The only way for investors, which are a class of people who can afford to buy much more than their needs and can afford to buy the productivity of other people, can only reap the benefits of the productivity of those people’s work they own through shares by… selling the shares. When those shares are sold, it is sold to other people who can afford to buy the productivity of people who work in a public corporation. Share prices rise due to increased net income, but rise in share price is not taxed at the earned income rate as employee’s must pay.

In this particular case, shell corporations are a great way to make real estate investments into parcels of interest rather than land, allowing shareholders to sell their interests even if the real estate generates net income.

Here’s the limitations of compliance. Compliance professionals in financial services cannot work on these types of policy issues because it requires changing the economics of our economy as a whole. Until this situation continues, compliance officers can only continue to make sure that the system perpetuates.

Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

Central African Militia Leaders Sanctioned

Habib Soussou, Alfred Yekatom and Oumar Younous, as shown on the Recent Actions page of the Treasury Department.

Sanctioning individuals is relatively recent phenomenon. Up until several years ago, only nation-states received sanctions. And then individuals and specific business concerns started to be sanctioned. While the use of sanctions in this manner seemed tenuous at first, the success of sanctions against Russian President Vladimir Putin’s cronies solidified the practice and they are here to stay.

Who do you think should be taken off of the sanctions list? Why?

Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE. 

China’s Complicated Compliance

Shanghai Stock Exchange

China has many of the same compliance rules in its stock market exchanges as the major exchanges around the world. But as with many other things in China, there is an unavoidable twist.

The recent drops in the market at the Shanghai Stock Exchange has uncovered some of the nastiness that had been hidden. A recent report came out stating that state-owned Citic Securities has found price manipulation going on by its employees. This seems like a simple case since it is the work of a group of employees. Fire and prosecute those employees.

But is it that simple?

The police investigators have uncovered a government-promoted vicious cycle. If the employees were doing what they were supposed to, then they were supposed to help the state manipulate the price of stocks higher.

Here’s how it works. The government promotes to Chinese citizens to invest in the market, which Citic Securities, along with others, sell shares. Citic and their counterparts are supposed to, then, drive the price of the stock up so that the investors are richer. Citic, of course, receives a portion of the rise in the market. And, as long as Citic continues its role as price drivers, the China Securities Regulatory Commission has no problem with it.

Since providing false information is important for the Chinese government, sending the true information might get you in trouble. While it is unknown about what happened at Citic specifically, but the Chinese news agency The People’s Daily Online is taking a hit. Its Editor in Chief has been arrested. A little too much truth slipped through the censorship, one might guess. The charge, one would assume, would be spreading false information, although “false” would have to be qualified in this case.

So, now it is up to the CSRC to prosecute this case. CSRC has the difficult job of seeking actions taken by these employees that show the Chinese people that the Citic employees were not doing what Citic wanted them to do and the means of which they were doing their illegal activity was for their own benefit. Both need to be satisfied because simply not doing what they were supposed to be doing isn’t likely to be a prosecutable regulatory offense but a company issue. And, if the activities were for the benefit of the Chinese market, then it is an excusable action.

For the director who was involved, this might be easier to find. The lower level employees are a little more difficult. Director has the power to help decide what is good for Citic, its clients and for the market. But the employees have no power to do the same, making them executors of the director’s decisions.

Riding a fine line to prove this will be important because without it, what the Communist Party will have on its hands is a way for investors to file suit on the government for encouraging the creation of a bubble, requiring it to compensate the investors for their losses.

If you’ve been following the news on the Chinese stock market, you may have heard that China has begun to sell US Treasuries. This is to pay back some of the investors on their losses. Currently, there seems to be some sort of strict criteria to cashing out and then getting compensated, but with this case, the CCP will be faced with a choice of intervening in the market on the side of the investors/citizens or taking down large sections of the securities trading operators.

You probably do not have access to the Shanghai Stock Exchange, but have you bought into Chinese funds?

Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE.