Our pick of key compliance stories this month
- McKinsey to pay $122 million for bribery in South Africa
- Banker wins unfair dismissal case after paternity leave
- Citi sues former employees for trade secrets breach
- Adidas HQ raided in €1bn tax evasion investigation
- JPMorgan Chase fined for misconduct by relationship managers
- Nomura's CEO takes pay cut following attempted murder by ex-employee
- Shein and Patagonia use isotopic testing to combat forced labour
- Help! McCartney wants laws to stop mass copyright theft by AI firms
- Mulling over your Christmas work-life balance?
McKinsey to pay $122m for bribery in South Africa
Christmas is a time for giving, but sometimes gifts are not appropriate…
A McKinsey subsidiary will pay over $122 million to settle claims that bribes were paid to officials at two state-owned companies in South Africa between 2012 and 2016 in return for lucrative consulting contracts.
Former senior partner of McKinsey's South Africa office, Vikas Sagar, previously pleaded guilty to conspiracy to violate the FCPA. McKinsey Africa paid bribes to officials at Transnet SOC Ltd, the state-owned custodian of South Africa's ports, rails and pipelines, and Eskom Holdings SOC Ltd, a state-owned energy company.
In return, McKinsey Africa obtained sensitive, confidential and non-public information about consulting contracts from Transnet and Eskom. It also submitted proposals for engagement, knowing that the firm with which it was partnering was using a percentage of its fees to bribe officials.
McKinsey and its subsidiary McKinsey Africa made profits of $85 million. McKinsey said it had investigated and terminated Sagar's employment over seven years ago, adding that it was "deeply remorseful" and had "zero tolerance" for bribery. It had also repaid the fees in full to the state-owned companies.
Key takeaways:
- Know our gifts and hospitality rules - be sure to comply with the limits and thresholds
- Ensure adequate supervision and oversight of anyone working directly with government officials - especially those working remotely, off-site, or through agents
- Arrange training for your team - so they can identify red flags and practise appropriate responses in advance
- Put systems and controls in place - so that gifts and hospitality with government officials require extra approval from Compliance or Legal
Banker wins unfair dismissal case
Goldman Sachs unfairly dismissed a banker during his six-month paternity leave, a UK Employment Tribunal has found.
Jon Reeves, who had worked at Goldman Sachs since 2007, had struggled to manage his work commitments and childcare. But when Reeves raised his concerns with his manager, he was told, “You’re a grown man, you can sort this out”.
Reeves worked at the bank's Salt Lake City and Sydney offices before relocating to London in 2013. He worked in the Control Room, where he was responsible for maintaining the bank's information barriers and the flow of sensitive corporate information to meet regulations.
Widely seen as a rising star, he was "cross-ruffed" at one stage for promotion to Managing Director. Reeves had notified the bank that he intended to take parental leave from November 2021 to May 2022 after the birth of his second child.
However, Reeves was dismissed from his compliance role before he returned from paternity leave. Reeves claimed this was due to his extended leave, "I was discriminated against. What happened to me would not happen to a woman at Goldman Sachs, 100%".
Goldman claimed that there were longstanding performance issues. On one occasion, when an urgent matter arose at work, Reeves had been driving to Cornwall, so he missed an important email from his manager, Omar Beer.
He was unaware of the problem until another manager, Ada Liu, rang him the next day. Reeves was described as "lazy" and "underperforming" while on parental leave and excluded from work meetings by Liu, who claimed this was done so he did not worry about work while on leave.
However, the tribunal found Liu's explanation "disingenuous" and said the bank made no attempt to ensure "a fair process" before Reeves was dismissed.
Reeves is seeking £3.8 million in compensation, but the panel will reach a decision in January.
"The firm is deeply committed to supporting working parents, with hundreds of Goldman Sachs fathers having taken up our market leading 26 weeks paid parental leave since it was introduced in 2019. We are carefully reviewing the judgment and the reasoning supporting its findings."
Key takeaways:
- Treat people fairly and consistently apply our equality policies - in day-to-day activities and work-related decisions
- Be proactive - don't slavishly follow our rules if you think they are wrong, if they create unintentional bias, or lead to some groups being treated less favourably than others (in this case, Reeves was treated less favourably than a woman taking maternity leave)
- Mind your language - check that all communications are free of discriminatory or biased language. Careless language and stereotyping, however unintentional, can create a perception of inequality and make people feel vulnerable
- Use objective criteria when making decisions on recruitment, retention and promotion - this ensures decisions are always made on merit
- Watch out for indirect discrimination - make sure that your company policies don't inadvertently put certain groups at a disadvantage
Citi sues former employees for trade secrets breach
Citibank NA has won a court order requiring two of its former private bankers, who joined its competitor Bank of Montreal (BMO), to return its client information and stop using its trade secrets.
John Mitchell and Benjamin Carr were among 18 banking and investment professionals who left Citi's Global Wealth at Work unit to join BMO US Wealth Management in October.
Citi claims that Mitchell and Carr took or retained Citi's confidential and proprietary information when they left. This was thought to include details of clients' cash balances and the maturity dates of savings accounts.
Citi claims that Carr, its former Senior VP, "engaged in highly unusual activity", accessing information about clients on Citi's systems just two days before resigning. Allegedly, Carr then shared that information with Mitchell, who used it to try to persuade a Citi client to switch banks.
Soon after joining BMO, on November 4, Mitchell emailed his former client offering deposit rates "better than Citi" on the exact day the client's multi-million dollar certificate of deposit at Citi matured, according to the lawsuit.
Citi accused the pair of breach of contract and misappropriating trade secrets and confidential information.
Mitchell and Carr deny wrongdoing and say Citi wants "to punish their former employees for exercising their right to seek other employment".
BMO has declined to comment.
Key takeaways:
- Follow the rules - only allow those with a legitimate "need-to-know" to access sensitive and confidential information
- Maintain information barriers - avoid sharing information with other teams or departments as their access permissions may be different
- Watch out for inadvertent information sharing - take extra care with communal facilities or areas (e.g. presentation or meeting rooms, photocopiers, flipcharts, etc) and ensure that sensitive information is not left behind
- Set the tone at the top - make it clear to new joiners that they are not expected to share trade secrets in a bid to impress their new team
- Implement a proper exit strategy - ensuring that confidential and proprietary information (including trade secrets) are returned and IT access is promptly withdrawn when people leave, move roles or jobs, or take a sabbatical.
Adidas HQ raided in €1bn tax evasion investigation
Investigators have raided Adidas' German headquarters for a second day as part of a years-long investigation into suspected tax evasion.
The European Prosecutor's Office (EPPO) said on its website that it had carried out evidence-collecting activities in Germany and Austria and: "It is suspected that a corporate group trading in sportswear was involved in the evasion of import duties to the detriment of the EU budget."
Searches had been carried out at several business locations and also employees' private homes, according to the Financial Times.
The three-stripe sportswear giant confirmed that it had been in talks with customs authorities "for several years". The investigation is believed to cover the period from October 2019 to August 2024 and an estimated €1.1bn of unpaid taxes, according to the Handelsblatt newspaper.
Adidas said it was cooperating and did not expect "any significant financial impact". It claims that the issue is due to "different interpretations of German and European law".
JPMorgan Chase fined for misconduct
JPMorgan Chase has been fined $1.8 million for failing to prevent and detect misconduct committed by its relationship managers.
Relationship managers made inaccurate or incomplete disclosures to clients in over 24 over-the-counter bond transactions, resulting in clients being charged above the agreed rates.
The Monetary Authority of Singapore (MAS) said that JPMorgan Chase did not have proper processes or controls in place to ensure relationship managers stuck to agreed rates.
"The bank has refunded the overcharged fees to affected clients. The bank has also enhanced its pricing frameworks and internal controls to prevent the recurrence of such misconduct," the regulator said. It is still investigating the individuals involved.
While pleased to resolve the matter, JPMorgan Chase said it "represented a very small portion of the total trades processed during the related period".
The bank has now updated its internal controls, monitoring and training framework "to ensure our trade governance, pricing transparency and compliance principles continue to be upheld".
Nomura's CEO takes pay cut
The CEO of the Japanese bank Nomura has taken a voluntary 30% pay cut after its former employee was charged with robbery and attempted murder.
Kentaro Okuda and nine other Nomura executives agreed to return between 20% and 30% of their pay after a wealth management employee was arrested and charged by the Hiroshima District Public Prosecutors Office with attempted murder, robbery and arson.
The former employee, who gave asset management advice, had allegedly drugged an elderly client and their spouse in Hiroshima, stolen their money and set fire to their house. He was fired in August.
Bowing in unison at a press conference with fellow executives, Okuda said, "We would like to express our heartfelt sympathy and apologise to our clients who suffered because of this incident. We also apologise to all those affected by the trouble it is causing."
"We take this matter very seriously. An incident like this must never happen at a financial institution entrusted with looking after its clients' assets." The bank has now introduced stringent measures to safeguard clients and "strictly manage" client visits.
"For the foreseeable future, a manager will accompany employees when they visit clients' homes or speak to clients over the phone around the time of each visit."
Employees must also take compulsory block leave to enable the bank to detect potential wrongdoing.
It's the second pay cut that the CEO has volunteered in recent months. Okuda promised to forfeit 20% of his pay in October after Nomura was fined for market manipulation of government bond futures.
Key takeaways:
- Consider different safeguarding measures to protect customers and employees during home visits - for example, using remote technology, making visits in pairs, using digital check-ins or Body Worn Video (BWV) if permitted in your jurisdiction, and so on
- Insist employees take compulsory block leave at least once a year - to allow scrutiny of their work activity (whether trades, supplier/client relationships or something else) by an independent and qualified person
- Watch out for red flags - remember, not taking time off can be a red flag of fraud, insider trading and other misconduct, too.
Shein & Patagonia use isotopic testing
Finished your Christmas shopping yet, or are you still seeking inspiration? Christmas socks or festive family pyjamas, anyone?
How far would you go to check whether this year's gifts were made using child or forced labour?
Companies are under increasing pressure to prevent goods linked to human rights and environmental abuses from entering their supply chains. To avoid repeating some of the mistakes of the past, some companies are turning to science - specifically, isotopic testing - to help combat the risks.
Isotopic testing establishes the makeup of different materials in products by looking at environmental factors, such as rainfall, soil, and so on. By examining these chemical 'signatures', companies can determine whether suppliers have been honest about the true origin of materials.
Interest in isotopic testing has grown since 2021, when the US banned goods from China's Xinjiang region. Regulations targeting deforestation in the EU may also soon require greater certification of the origin of coffee, timber, and so on.
Fast fashion companies like Shein and Patagonia are investing heavily in the science to prevent cotton from Xinjiang being used in T-shirts, socks and other garments.
Following a pilot test in 2021 with Oritain, outdoor clothing retailer Patagonia has increased its use of isotopic testing.
Patagonia's VP Matt Dwyer says isotopic testing provides deeper insights into where its cotton is sourced from. He said, "To be able to statistically say where something was grown in the world is incredibly powerful". Shein has partnered with Oritain since 2022, testing thousands of products for Xinjiang cotton.
However, some scientists are sceptical of such widespread use of forensic testing, claiming that the chemical 'signature' of cotton from different parts of the world can be identical.
Despite this, Dwyer is optimistic about the potential:
"Whether it's confirming that it's Merino wool from New Zealand or hemp from Kentucky or down from Poland, if I could have another thing in my pocket that verifies their origins, I'd be over the moon."
McCartney wants laws to stop mass copyright theft
Paul McCartney is the latest high-profile figure to voice concern about how AI is threatening the creative industry. He has called for laws to prevent mass copyright theft by firms using copyrighted material to train generative AI models.
The UK Parliament will soon debate amendments to the data bill that could let creators decide whether or not their work is used to train AI models. Under the amendments put forward by Beeban Kidron, companies that scrape internet content to train generative AI models would need to comply with copyright laws.
Last year, the former Beatle used artificial intelligence to extricate John Lennon's vocals from a 1970 recording in order to create the "final Beatles record", Now and Then. But such use is different to AI firms scraping the internet and using copyrighted material to train large language models without reimbursement.
McCartney issued a statement in support of a campaign by creatives who want to ensure they are treated fairly by AI firms who use their work. Author Kate Mosse also wants to see creators being able to negotiate fair payment for the use of copyrighted content.
"As a writer, I want to engage with AI, and I do engage with AI. But we are looking for the F word – fairness. Copyright exists. Intellectual property exists. But the law is not being kept and there is a clear obfuscation... If copyright is watered down, it will severely damage the creative industries and without there will be nothing left."
Publishers, like the Financial Times and News Corporation, have agreed to licensing deals with OpenAI to use their content, whereas the New York Times is suing for copyright infringement.
So, to quote the Fab Four, is it "Come together " or "Get back"?
Mulling over your Christmas work-life balance?
And finally, some festive cheer…
Filippo Gori, JPMorgan's EMEA CEO, has promised to take the "opportunity to take a lead and try and change" the brutal hours culture of junior investment bankers.
Speaking to Financial News, Gori said that the bank wants to address work-life balance and overhaul its long-hours culture but there's still some way to go.
"When I was an analyst 25 years ago, I was 26 - a little older than others - and the expectation was that the analyst doesn't leave until the associate has left, the associate doesn't leave until the VP has left, the VP doesn't leave until the managing director goes… it drove me mad," Gori said.
"Even at a young age, I could recognise it was not a good way to work. Even now, we still see some of that behaviour embedded in the culture." There's been fresh scrutiny of the long-hours culture following the deaths of two Bank of America employees - Leo Lukenas and Adnan Deumic - earlier this year.
JPMorgan has been proactive, banning junior bankers who are not working on live deals from working more than 80 hours a week. The Wall Street bank has also appointed Ryland McClendon to oversee the "wellbeing and success" of junior bankers and introduced a 'pencils down' policy from 6pm Friday to noon on Saturday.
"Our first thought was that we need to look after the welfare of our people. We are the biggest investment bank in the world, so we have the opportunity to take a lead and try and change this. We recognise it is not simple and there is a lot to be done."
CEO Jamie Dimon has also said that the practice of dumping work on juniors last-minute has "got to stop". The bank is threatening to dock bonuses so "people know we really mean it". Gori has promised to hire more analysts if the cap on working hours is regularly broken.
"It's a journey, and there's a lot to do - it's not yet at the endgame."
Happy Christmas, Sláinte, Prost, Skål, Santé, Saúde, Cin cin, Salud, 건배, 乾杯, and, er, pencils down...
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