28 posts tagged with "linkedin"

Dodd-Frank Section 1502 – Conflict Minerals: Still a great deal of work!

A quick glance at the corporate world ABCs and you will find that most often than not, C stands for Compliance. And Compliant is what you strive to be as a company. However, in our pursuit of compliance, we may tend to overlook the other C that also stands for Conflict. It has become inconceivable since last two years to think that Compliance can be achieved without paying adequate attention to Conflict minerals requirements, more so when the month of June approaches. It’s also noteworthy that companies do not seem to have gathered much experience or clarity although it’s a second year of filing.

The US Dodd-Frank Wall Street Reform and Consumer Protection Act (Sec 1502) adopted an amendment in the form of Sec 13(p) of the Securities Exchange Act of 1934 which provides for the annual reporting of products containing Conflict Minerals to the Securities Exchange Commission [SEC]. The minerals notified as Conflict Minerals by the SEC are 3TG (Tin, Tantalum, Tungsten and Gold) minerals which originate in the Democratic Republic of Congo and the adjoining countries (Covered Countries). The provision applies to manufacturers as well as the issuers who “contract to manufacture”. The disclosure is mandatory only for the products for the functionality or production of which the use of Conflict Minerals is necessary. The Regulations issued by the SEC with respect to the Conflict Minerals discusses this new disclosure requirement in detail and gives us the Final Rule.

While we all understand the intention of the Congress to inhibit the ability of armed groups in the Covered Countries to fund their activities by exploiting trade in Conflict Minerals, we must also appreciate the use of securities laws disclosure requirements chosen by the Congress to create greater public awareness towards the source of the issuer’s Conflict Minerals and to promote the exercise of due diligence on the Conflict Mineral supply chain. However, such an amendment is anticipated to be one of the biggest challenges in making the company compliant with this latest disclosure requirement. Given the enormous chain and wide spread of suppliers for each manufacturer, tracing the suppliers through all its tiers and reaching the origin of these minerals seems to be neither feasible nor practical for the issuers. Anticipating this at the stage of drafting, the SEC’s Final Rule relies on a reasonable design and good faith execution approach in tracing the origin of Conflict Minerals without stipulating any legal steps and measures for doing so. However, the attempt of the Commission to base the inquiry of the country of origin on reasonableness and good faith has not been of much help to the issuers, the reason being the chances of disapproval of the parameters of reasonable inquiry by the SEC at the time of filing the Conflict Mineral Report, when the issuer may be helpless and will not be able to do much about it. The SEC has not laid down any parameters of reasonableness except certain clauses such as ‘the issuer need not necessarily hear from all its suppliers as long as it does not ignore warning signs or other circumstances indicating ... originated in the Covered Countries’ without stipulating even a vague figure for this exemption. Upon being requested by commentators to at least formulate due diligence guidance for issuers, the SEC agreed but also recommended the issuers to take recourse to the OECD Guidelines which are more recognised internationally. The disclosure requirement for each issuer starts from identifying the products for the functionality and production of which 3TG is necessary, however, it does not stop at due diligence of the supply chain but goes on to include an independent private audit of the Conflict Mineral Report before filing it with the SEC. In addition to this complex set of requirements, the fact that the first Conflict Mineral Report was due to be filed with the SEC by May 31, 2014 took a toll on all the issuers.

Subsequently, in the year 2014, as a result of the decision given by the U.S. Court of Appeals for the District of Columbia Circuit in the legal action against SEC’s Final Rule, the SEC issued a statement wherein pending the further action, it struck off the IPSA, Independent private-sector audit requirement unless a company voluntarily describes a product as DRC conflict free. However, the challenge remains in determining the company conflict free although the transition period is provided by the SEC.

Thus, on the one hand, the amendment of the SEC Conflict Minerals disclosure requirement sheds some light on the humanitarian impact of industrialisation by reinforcing corporate governance of the SEC’s issuers whereas on the other hand, such amendments constitute a great deal of work to be done by the issuers in a relatively shorter frame of time. Having said this, the Rule is making companies more vigilant and aware of their supply chain and proves as a check on companies’ risk management capabilities.

(Please Note: This is only a research based article providing personal analysis concerning the given topic.)

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Google Antitrust Probe in the EU and US

When there is a market, there is competition. In fact, a market is made up of several competing players in the same domain which give/offer a variety of choices, innovations, prices and quality levels to a consumer. Most jurisdictions have introduced Competition and Anti-trust laws to protect the interests of consumers and promote competition by preventing anti-competitive agreements and business practices. Strict enforcement of Anti-trust laws is the key to open and free markets. The unbundling or break-up of a company is one of several strict actions that antitrust regulators can take to stop the company from abusing its dominant position in the market. The term is a burning issue occupying a huge space in the media for the last few days after the European Parliament was expected to call for the unbundling or break-up of Google Inc. for its alleged dominant business activities.

The search engine giant is being investigated for its alleged anti-trust activities by the European Commission since the last 4 years. The EU through its press release of 30 November 2012 had declared initiation of proceedings which was followed by complaints from other search engine service providers.

While this action was being taken by the EU, Google’s competitors in the US had already charged Google with anti-trust-related allegations before the Federal Trade Commission. The company faced multiple allegations of abusing a dominant position in online search through various methods. Google was investigated by the Federal Trade Commission following the complaints received by the Commission from Microsoft Corp., MyTriggers.com, FairSearch, Yelp, etc. of the main allegation was that Google was unfairly downgrading its competitors from the search-engine results to direct users towards its own competing products. The investigations went on for 2 years and Google Inc. was given a clean chit by the Commission. The Commission through its Press Release of 3 January 2013 stated that “the evidence the FTC uncovered through this intensive investigation prompted us to require significant changes in Google’s business practices. However, regarding the specific allegations that the company biased its search results to hurt competition, the evidence collected to date did not justify legal action by the Commission…..The evidence did not demonstrate that Google’s actions in this area stifled competition in violation of U.S. law.” The decision of the Commission was highly criticised by the rival complainants. However, the Commission mentioned in its Press Release that “FTC’s mission is to protect competition and not individual competitors”.

Although Google Inc. is now free from anti-trust allegations in the US, the decision of the European Antitrust Regulator is still pending. The four-year old investigations have now taken such a turn that Andreas Schwab and Ramon Tremosa, the European Parliament members recently revealed a draft resolution proposing the separation of search engine services from other commercial services, which might ensure a level playing field for competitors. This move of unbundling or breaking-up a company is opted for as a measure by regulators when they conclude that the company has become anti-competitive. The draft resolution proposing unbundling is still in the form of a motion and is currently being debated by the European Union Legislators.

Although Google is undoubtedly a dominant player in the search engine services, it is necessary to determine whether it uses unfair means for retaining this position over other competitors. The question of whether the European Parliament will be able to directly enforce ‘unbundling’ over Google Inc. still persists. Although the answer is no, the resolution is likely to pressurise the European Commission to impose unbundling on Google. Can a body of politicians take over the investigations from the regulator and influence the regulator in their decision of the case? On the contrary, the resolution passed by the European Parliament members is likely to benefit the business community in Europe and hence, the Parliament members can also influence the regulator with a view to achieving a positive result. Let us hope however that this unusual stand of the European Parliament does not set a precedent. Whether Google Inc. is convicted by the EU regulator or not the decision must not be influenced in any manner much like the FTC in the US.

(Please Note: This is only a research based article. It only provides information and personal analysis concerning the given topic.)

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"One of the best examples of tick-the-box compliances is the privacy policy. They are either copied pasted from other websites or drafted very poorly"

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"Quality is not an act, it is a habit."

We are pleased to announce FlaggGRC Techlabs, led by Hrushikesh Mehendale. FlaggGRC Techlabs will be focused on the technology platforms developed and serviced by FlaggGRC.

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Regulatory reforms and the challenges on the Compliance front“Only in growth, reform, and change, paradoxically enough is true security to be found” says an American author. Banking and financial markets, where security in its literal sense is of prime importance, have strongly been affirming this through their reforms. It is indisputable that the 2007-08 financial crisis took a toll on almost all the major economies of the world. The crisis shook the stability of these economies and created the need for another big reform in banking and financial regulation. While it is necessary for regulatory bodies to bring in such reforms to maintain financial stability, it also gives rise to new regulatory compliance challenges for corporations, banks and financial institutions.

The key regulatory bodies including the Fed, CFPB, SEC and FINRA introduced the Dodd-Frank Wall Street Reform and the Consumer Protection Act to prevent excessive risk-taking and to bring back financial stability. While banks and financial institutions are still coping with new compliance requirements under the recently introduced Dodd-Frank Act, more amendments are expected in this already complex piece of legislation. Additionally, the geographical scope of applicability of acts such as the Foreign Corrupt Practices Act (FCPA) and the Foreign Account Tax Compliance Act (FATCA) is increasing globally with a view to targeting internationally located American companies and SEC issuers. Thus, non-compliances can no longer be brushed under the carpet under the pretext that issuer corporations are located outside the USA. A good example of this expanding scope would be conflict minerals-related compliance requirements under Sec. 1502 of the Dodd-Frank Act and the OECD framework, which drill down to the smallest branch or subsidiary of the SEC issuer irrespective of its location on the map.

Like American regulations, European directives too have adopted Basel, which requires adherence to vigorous risk management and compliance arrangements. For example, in the European market, Basel was incorporated into Germany’s Banking Act, which mandates robust governance arrangements. Basel II recommends that banks have their own risk management systems. Consequently, Sec 25a of the Banking Act as well as the BaFin now stipulate the minimum requirements for risk management and appropriate internal control procedures. Similarly, Pillar III of Basel II prescribes stricter disclosure requirements that are incorporated in Sec 26 of the Banking Act. For those operating in the insurance domain, Solvency II Directive Pillar II imposes qualitative requirements including risk management and compliance. Pillar III contains stricter reporting and disclosure requirements. As a result, the regulatory reforms undertaken in Germany recently are going to create numerous challenges for German corporations, banks and financial institutions until they come to terms with the updated compliance requirements. The rapidly increasing compliance and risk management requirements are certainly going to make them burn the midnight oil!

Another smart move by the regulatory authorities involves offering huge monetary returns and imposing hefty penalties. The significance of whistleblowers is ever-increasing. They are encouraged to speak up and given huge monetary awards for reporting non-compliances. This has made it easier for even common employees to report non-compliances, thus creating a new challenge for corporations on the compliance front. Also, regulatory bodies have always been using hefty penalties as a deterrent for non-compliances as an effective measure. With these new penalties set to attain even larger proportions, corporations will end up paying a much steeper price, possibly endangering their existence. For example, the dreaded penalty of 3.25 m euros, the largest penalty ever was imposed by BaFin on one of the investment management companies in the UK for incorrect and late disclosures under the Securities Trading Act.

On the one hand, regulatory reforms and stricter measures for non-compliances is the need of the hour for regulatory bodies in order to effectuate a steep drop in non-compliances. On the other hand, the broader ramifications of such reforms will make companies adopt a drastically different approach with regard to Compliance.

(Please Note: This is only a research based article providing personal analysis concerning the given topic.)

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