May 4, 2015
By Richard H. Girgenti, KPMG Forensic Advisory Services
Corporate directors are subject to increasing scrutiny and pressure from regulators to ensure that they are fulfilling their responsibility to provide effective oversight of their company’s management of regulatory risk. The challenge that directors face in fulfilling this responsibility is daunting when one considers the speed and volume of regulatory change, the multiplicity of government enforcement agencies who in any given matter are bringing state, federal and global regulatory enforcement actions, and the increasingly aggressive tactics used by government enforcers resulting in record fines and penalties, class action law suits, lost earnings and reputation damage. Understanding the mindset of those responsible for bringing regulatory enforcement actions and the issues that they are focusing on is essential for a director to fulfill his/her responsibility of effective oversight. Below is a top 10 list for 2015 of emerging or continuing areas of regulatory enforcement and government tactics and strategies that should be top of mind for every director.
Areas of Enforcement
Enforcement Strategies and Tactics
The risk that the above areas of enforcement brings is greatly increased by the enforcement strategies and aggressive tactics that government enforcement authorities are prepared to use. These include:
a. Expanded use of whistleblowers
In a recently released report by the SEC, Sean McKessy, Chief, Office of the Whistleblowers, commented, “Fiscal year 2014 was historic for the office (SEC) in terms of both the number and dollar amount of whistleblower awards.” In 2014, nine awards were made (nearly doubling the number made since the program began in 2010), totaling well over $31 million. Other government agencies have found whistleblower programs to be a valuable tool in their enforcement arsenal. In 2014, whistle-blowers who exposed fraud and false claims made against the government were awarded over $435 million under the False Claims Act. This trend will continue.
b. Greater and more effective use of Data & Analytics to identify wrongdoers
We already know that the agencies, such as the SEC, Financial Industry Regulatory Authority (FINRA) and U.S. Commodity Futures Trading Commission (CFTC), are using sophisticated data analytics and trade surveillance techniques to make market manipulation and insider trading cases.
c. Increased global cooperation amongst enforcement agencies
In addition to parallel enforcement actions by state and local agencies within the U.S., perhaps the most pervasive change over the last few years has been the increased cooperation amongst global regulators and government enforcers. This has been especially true in the areas of anti-bribery and corruption, anti-money laundering and market manipulation.
d. Increased use of Civil Fraud complaints and Administrative Law Judges by the SEC
In an effort to bring greater efficiency to enforcement, the SEC has increasingly turned to the use of civil fraud complaints and administrative proceedings.
e. Continued government attention on individuals within the organization, as well as the organization itself, with emphasis on gatekeepers
The challenges that directors face in fulfilling their responsibilities in today’s regulatory enforcement environment are unprecedented. Understanding the enforcement priorities of government regulators is an essential starting point.
About the Author
Richard H. Girgenti is KPMG LLP’s National and Americas leader for Forensic Advisory Services. He has more than 35 years of experience conducting investigations and providing fraud risk management advisory services to public and private corporations, as well as federal and state government entities and not-for-profit organizations. Prior to joining KPMG, Richard held a number of high-level legal and law enforcement positions including having served as New York State Director of Criminal Justice and Commissioner of the Division of Criminal Justice Services, where he oversaw and coordinated the policies and initiatives of all of the state’s criminal justice agencies and worked closely with all federal and state law enforcement agencies.
KPMG LLP, the audit, tax and advisory firm, is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 162,000 professionals, including more than 9,000 partners, in 155 countries. KPMG Forensic Advisory Services helps organizations in their efforts to achieve the highest level of integrity and to manage the cost and risk of litigation, investigations, and regulatory enforcement actions by assisting with the prevention, detection and response to fraud, waste, abuse, and other forms of misconduct; the avoidance and resolution of disputes; and the collection, discovery and analysis of electronically stored information.