Until recently, cryptocurrency exchange FTX was the second largest crypto exchange in the world, after Binance. It had risen to prominence with support from major investors, such as Sequoia, BlackRock, Temasek, and OTPP. At one time, it was worth $32 billion and spruiked by celebrities, such as footballer Tom Brady. FTX’s then CEO was the second largest donor to the democrats.  Today FTX has entered bankruptcy with users of the exchange set to lose large amounts of money. A new CEO to oversee the bankruptcy process. Ironically, that CEO is John J Ray III, who also oversaw Enron’s bankruptcy proceedings.  Enron is often seen as the gold standard for corporate fraud, malfeasance, and complacency, with the scandal leading to the largest bankruptcy reorganisation so far in U.S. history. 

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The Occupational Health and Safety Administration (“OSHA”) levied a hefty penalty on Wells Fargo on September 1, 2022, for its violation of the Sarbanes-Oxley Act (“SOX”). OSHA found that the company unlawfully retaliated against an internal whistleblower who raised concerns that the bank was engaged in illegal practices. The agency ordered Wells Fargo to pay the whistleblower more than $22 million in damages, including back pay, front pay, interest, lost bonuses and benefits, and compensatory damages.

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On Nov. 2, CoinDesk’s Ian Allison lit the match that set the FTX empire built by quixotic founder Sam Bankman-Fried on fire. Looking at financial reports dated June 30, Allison noted that FTX proprietary trading arm Alameda Research had $14.6 billion in assets on its balance sheet but that its single biggest asset was $3.66 billion of “unlocked FTT” and the third-largest “asset” was $2.16 billion more of “FTT collateral.” Nearly 40% of Alameda’s assets consisted of FTT, a coin that Bankman-Fried himself more or less invented. It wasn’t an independently traded stablecoin or token with some volume and a market price or actual fiat in a reputable bank. Allison wrote that the situation suggested that ties between FTX and Alameda were unusually close.

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Auditors in Iraq have uncovered a massive scheme in which a network of businesses and officials embezzled some $2.5 billion from the country’s tax authority, despite layers of safeguards. The scandal poses an early test for Iraq’s new government, which was formed late last month after a prolonged political crisis. Prime Minister Mohammed Shia al-Sudani has vowed to crack down on corruption, but few expect any senior officials or political leaders to be held accountable. The scale of the embezzlement -- around 2.8% of the 2021 state budget — is remarkable, even for an oil-rich country where corruption has been rampant for decades. Transparency International, a global watchdog, rated Iraq 157th out of 180 countries on its 2021 index for clean

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A trend evident over the past few years is for more fraud to be uncovered during an internal or external audit. Companies should exercise management awareness as their first line of defense in preventing and detecting fraud – as by the time systems of control have already been breached and the damage done. The current environment is conducive to fraud with a poor economy; working from home in the aftermath of Covid-19; rising unemployment and even inflation. But before all those justifications lies the motivation of poor internal controls. Nor is it restricted to lower-level employees, but equally to management and even top management.

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Recent months have seen a resurgence in interest in the Foreign Corrupt Practice Act (FCPA) and related matters as a result of enforcement activity that have yielded significant fines, penalties, and disgorgements. In one instance, a company had to pay a $700 million settlement to resolve FCPA claims brought against it (not to mention additional fines in other countries).

So far in 2022, FCPA enforcement authorities have targeted businesses involved with a variety of industries, including natural resources, financial services, waste management, healthcare, steel manufacturing, aviation, insurance, and technology. In some cases, these companies were headquartered outside the United States – a clear reminder of the extra-territorial jurisdiction that U.S. authorities continue to assert when pursuing FCPA cases.

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Are you a US-headquartered company with international business operations? How confident are you that your company and its agents, employees, affiliates, or subsidiaries are not dealing with foreign countries, geographic regions, entities, or individuals that are the subject of economic sanctions? The US and other international actors most recently deployed economic sanctions in response to Russia’s invasion of Ukraine. And the spotlight became a bit brighter when US Deputy Attorney General Lisa Monaco called sanctions “the new FCPA.” As we previously discussed, the Foreign Corrupt Practices Act (FCPA) generally prohibits companies and their employees and representatives from the payment of bribes to foreign officials to assist in obtaining or retaining business. This article provides a brief overview of the US economic sanctions regime, how it is enforced, and ways that companies can strengthen their sanctions compliance programs to mitigate the risk of violations.

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The biggest FCPA resolutions yearly show enormous variation and no predictable pattern. Although four of the biggest cases for each of the past ten years settled for more than $1 billion, with an overall average settlement size for the ten cases of about $996 million, a couple of years were laggards. The year during the past decade with the biggest FCPA enforcement action is 2020, with Goldman Sachs’ $3.3 billion resolution.In contrast, the biggest case in 2021 was just $122.9 million, and in 2015 the biggest case was a paltry (by FCPA standards) $25 million. Seven of the companies with the biggest FCPA settlements for each year since 2013 still appear on the FCPA Blog Top Ten list, where the “smallest” resolution amounts to $700 million.

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Control Quotes:

“Leadership is a matter of having people look at you and gain confidence. If you’re in control, they’re in control.” 

–Tom Landry