This is the fourth blog in a Hillard Heintze series on the top trends in 2015 we expect to see driving best practices in investigations, security risk management and law enforcement program improvement in the U.S. and worldwide. 

Arnette Heintze

This month, we have highlighted the top 2015 trends in security risk management as well as law enforcement program improvement.  Today’s post is the first of two on the leading trends we believe will help define the corporate investigative arena this year.

Trend #1: Anti-Money Laundering Compliance Will Remain a Critical Priority  

U.S. regulators continue to pursue banks and financial institutions, charging them criminally or levying significant fines for failures in anti-money laundering (AML) efforts and programs or violations of sanction regimes.  To comply with the Bank Secrecy Act, U.S. financial institutions are required to keep and maintain certain records and report potentially suspicious transaction activity.

On the heels of institutional failures such as JP Morgan’s London Whale scandal, we expect to see banks continue to increase the focus on AML compliance this year.  If 2014 was any indication, the government will continue to seek criminal charges and fines as they did against a number of financial institutions including in mid-June when the French bank BNP Paribas pled guilty and agreed to pay $8.9 billion after illegally processing billions of dollars of transactions through the U.S. financial system on behalf of Sudanese, Iranian and Cuban entities subject to U.S. economic sanctions.

Trend #2: Government Oversight of Business Practices Related to FCPA and Emerging Markets Will Remain Robust

We expect to see a few major corporations pulled into the media spotlight in 2015, as governments vigilantly pursue and prosecute corrupt business practices by multinationals.  Case in point: a recent record $772 million fine against French power and transportation company, Alstom S.A. for a decade-long bribery scheme across multiple continents suggests.  In January 2015, the FBI announced it was tripling the number of agents assigned to fight international corruption and bribery under the Foreign Corrupt Practices Act (FCPA) which makes it a crime to bribe foreign government officials in a quid pro quo to win business and other benefits.

Companies need to take potential FCPA violations seriously and must have strong compliance initiatives in place while also conducting – and outsourcing – their own investigations.  Companies operating in emerging and other less-developed markets where institutional corruption is rampant need to pay particular attention to their local agents.  The opening of Cuba to American companies will be worth tracking.

Trend #3: Third-Party Risk Will Require Deeper Investigations into Vendors

While globalization and international trade open markets and opportunities, they also increase risk.  Companies rely on more and more business partners and suppliers, with supply chains for some multinationals involving tens of thousands of vendors.  The traditional risks – supplier performance, business continuity, financial strength and credit risk – have changed and now include reputational, privacy, security, regulatory and legal risks.  This year, it will be just as important as ever for companies to leverage risk-based approaches in vetting vendors and conduct enhanced due diligence when controversial or inconsistent information arises, or when further investigative measures are warranted.  At home, companies will need to be vigilant internally as well with their own employees charged with managing outsourced vendors and suppliers.  Without the proper internal checks and scrutiny a company can quickly find itself in the victim of a large fraud or embezzlement scheme.

Trend #4: The Medical Marijuana Business Will Drive New Investigative Demand

Today, 23 states as well as the District of Columbia have passed laws to legalize medical marijuana. This number is likely to increase in the years ahead.  In 2015, we expect to see a surge in investigative activity related to medical marijuana, particularly with respect to the following:

  • Compliance: The cash management of these businesses will impose a compliance burden on financial institutions.  In some states, banks are not authorized to take cash deposits and proceeds from marijuana-related businesses.
  • Due diligence background investigations: In each of these states, we expect to see stakeholders from investors and law enforcement authorities conduct due diligence into the backgrounds of the companies managing the cultivation, sale and security of the inventory.
  • Penny stock manipulation: In May 2014, the U.S. Securities and Exchange Commission issued an alert – based on investor complaints – about the possible manipulation of penny stocks with operations in the marijuana industry and suspended trading in a number of the companies’ shares.  Fraudulent trading in these shares can include classic pump-and-dump schemes – i.e., thinly traded shares are aggressively and optimistically promoted through a barrage of press releases that help pump up share prices.  Shares are then sold by brokerages or insiders to uninformed investors.

We’ll wrap up the Top Trends in 2015 later this week with the remaining top trends in investigations. If you find these posts informative, consider subscribing to the Front Line blog.