GRC: Compliance (Part 4).

November 12, 2012

This is the fourth and final installment in a series on devising a structure to address that ever-expanding and increasingly complex (and crowded) intersection of Governance, Risk, and Compliance (GRC).  This is the new paradigm for compliance programs in modern business, but one should always bear in mind that any Compliance Program should be structured with due consideration for the Scope (range of products and/or services offered), Size (number of employees), and Span (geographic spread, and number and range of legal regimes to which it is subject) regarding the entity; including any and all subsidiaries and any cross-national requirements.

Progress so far: What have we covered?

The corporate compliance function can be defined as “those persons, processes, and protocols whether active or automated, that are employed and deployed by the subject entity to ensure on a continuing basis that governing laws are adhered to, governance is responsible and responsive, risks are contained within acceptable parameters, and that failings on any or all of these priorities, are speedily and sufficiently addressed in accordance with applicable laws, whether general, or case- or situation-specific”.

We started in Part 1 (GRC: An Overview),[1] with a quick review of the essential requirements of an effective corporate compliance and ethics program as devised for Canadian and US. Federal jurisdictions, respectively.  We also looked at some of the similarities and differences between these two regimes, and some of the factors and related laws that impact upon ethics in general and corporate compliance functions.

Next, in Part 2 (GRC: Governance),[2] we set framework parameters in a chart or matrix.  There were 3 category columns on the X-axis, arranged horizontally; 7 category rows on the Y-axis (with 2 additional but reserved rows), arranged vertically; and as a third or “depth” dimension, containing 5 more categories.  We also ran through a much abbreviated presentation and analysis, using only the first category column (Governance), as we addressed some of its intersection points with the 7 category-rows, as well as with selected elements of the third simultaneous analytical element, the depth dimension (Function, Industry, X-national, Employee class, and Division).

Recently, in Part 3 (GRC: Risk),[3] We presented an analysis using only the second category column (Risk), and addressed some of that column’s intersection points with the 7 category-rows, as well as with elements of the depth dimension (F-I-X-E-D).

Compliance.

Now, we address some compliance or control options and arrangements (involving persons, processes, and protocols) as they intersect with category-rows and the depth dimension.  What additional compliance and control arrangements as encompassed by a compliance program, might be available to address the challenges of governance, government regulation, and the risks that have been identified in the preceding installments of this series?

Regulatory:

In the U.S. financial services industry, for example, passage of Gramm-Leach-Bliley in 1999 ushered-in a Financial Privacy Rule (mandating the entity’s provision, prior to commencing the business relationship, of a privacy notice to customers, and also restricting the entity’s collection, use, and disclosure of customer personal information without consent, along with instructions and the opportunity for customers to opt-out); a Safeguards Rule (mandating the creation by entities, if not already existing, of a comprehensive, written plan and procedures to secure and protect customer information, along with assigned oversight, risk analysis, testing, and modification as needed); and instituting Pretexting protections (primarily through ongoing training of financial industry employees in counter social engineering, to better detect, deflect and report unauthorized attempts to access protected, nonpublic customer personal information).[4]

An effective compliance program with regard to Gramm-Leach-Bliley, for example, would therefore involve entity leadership at the highest levels, recruitment and retention of competent advisors, access to industry best practices through associations, and a painstaking exercise of “checking all the boxes”.  Fraud Risk Assessments (FRA) should also be periodically conducted, with regard to the potential for collusion, whether between insiders, or between insiders and outsiders, combined.  Entities involved in ultra-hazardous activities, national security, or work with the vulnerable sector (children and youth, the elderly, and healthcare or social services), should also be especially mindful of their often enhanced regulatory compliance requirements – and not just with respect to financial disclosures.

Environmental:

Compliance with environmental law is an increasingly complicated task.  Pre-construction Environmental Risk Assessments (ERA) are common, as can be assessments of the cultural and community impacts in some jurisdictions.  Issues raised must be addressed to the satisfaction of regulators and even host communities, in order to proceed with confidence and at times, in peace.  Starting with a government agency’s own specific or omnibus roadmap for its own compliance,[5] is one option, and if it is somewhat dated (unlike the referenced resource at the time of posting this blog) there is no harm in asking a contact person at that agency for guidance on how to access updates or addenda, if any.  In addition, special attention should be paid to legal and regulatory requirements on engineering and efficiency; measurement, disclosure, and mitigation; and ongoing training on tools, threats, and a company-wide mandate for high ethical standards and corporate transparency when dealing with investors, employees, and regulators.

Accounting/Audit:

A study (released in 2005) on Revenue Recognition Practices in the wake of SOX,[6] found that in a survey of 162 public companies, contract management, revenue recognition, and tax provisions and related accounting were among the top 5 contributors of GRC challenges.[7]  As to the direct impact of SOX, both public (162) and private (238) companies were found to be closely aligned in the major factors impacting their revenue recognition policies, being: business model changes (approximately 25% and 30% respectively); new audit requirements (approximately 7% and 5% respectively); and SOX, itself (approximately 25% and 30% respectively).[8]  Being nevertheless well aware of the challenges they faced, the respondents at all 400 companies, both public and private, identified 10 areas where they were exploring and evaluating automation and compliance tools.  Amongst these ten, were: workflow and approval process, contract management, revenue recognition, tax, credit management, and expense reimbursement.[9]

The current fiscal landscape is no different, as fiscal challenges continue and accrue.  It is therefore critically important to first gain a better grasp on the fiscal landscape, in order to fashion a credible and comprehensive fiscal policy matrix, including revenue recognition (Framework).  The fiscal matrix comprises 9 (“nine”) main elements, termed “frapsra” (F, P3, S, R3, A); being:

(i) Framework;

(ii) Procurement (set price range, source or order, receive and verify, pay);

(iii) Projects (budget, issue requirements, evaluate options, start-manage-complete project, evaluate and commission, pay);

(iv) Personnel (establish requirement, interview and verify credentials and fit, hire and train, assign and promote, and otherwise manage);

(v) Sales (set price or range, fix essential terms, take order, ship and fulfill, invoice);

(vi) Receivables (management);

(vii) Revenue (recognition);

(iix) Receipts (apportionment); and

(ix) Audit (internal):

  1. Of Internal Controls ~ to prevent, detect, and timely correct and clarify mistakes and ambiguities before they are released and potentially impact upon the entity as either material misstatements or being materially misleading;
  2. Of Disclosure Controls ~ to give senior officers the confidence to present and defend credible MD&A and forward-looking statements, and certify statements of earnings and financial condition in accordance with law;
  3. Of the GRC Regime ~ to ensure that the 5 (“five”) questions ending this installment and this series, can be asked and answered appropriately.

The fiscal policy “Framework”, comprises 6 (“six”) main elements, being in no particular order:

(a)    Oversight and offshoring:

  1. Transfer costs,
  2. Customs duties,
  3. Country of origin rules,
  4. Tax treatment;

(b)   Business model:

  1. Description and rationale,
  2. Reporting lines and functions,
  3. Transaction example standards,
  4. Sample bottlenecks/sticking points with decision-tree tables;

(c)    Listed procedures for data capture, data control, data typing, and data verification, with backup, secure offsite replication, and recovery; including an identification of approved software tools;

(d)   Improper and prohibited practices identified;

(e)    GAAP and related accounting policies (the options to be applied, as these choices impact the rest of the Framework.  Once selected, these should only be changed on approval at the highest levels, but reviewed with (and preferably prior to) the introduction of any new product or service, or the addition of any sub-entity;

(f)    Effectiveness considerations:

  1. Segregation of duties,
  2. Contracts management with standardized forms and formats,
  3. Standardized sales and procurement forms and formats,
  4. Training and internal + external communications policies,
  5. Credit management for the entity, vendors, and customers,
  6. F-I-X-E-D (depth dimension) application, to share the Framework entity-wide, considering local or regional variations in line with overall GRC policy.

Lessons Learned:

The days of racing to the bottom (lax regulatory regimes of primary organization) and bottom-feeding (seeking out the most lax regulatory jurisdictions in which to operate), should be long gone in light of recent court Alien Tort Statute victories involving Ecuadorians[10] and Nigerians,[11] amongst others likely still to be filed, and the increasing push to recognize international environmental crimes as crimes against humanity and genocide.[12]  Other inroads are also being made in securing redress for colonial wrongs,[13] and so both memories and the retroactive reach of the law, can be extensive.

Additional lessons learned in compliance efforts should focus on industry-specific and geo-specific GRC efforts (labor relations, climate change).  In addition, scandals over the past decade should have proven beyond a doubt that only a combination of manual and automated controls can cover for gaps and human deficiencies, and that there must also be senior officer commitment with active project, process, and contracts management to ensure the proper creation, implementation, enforcement, and ongoing testing and improvement of an effective GRC and ethics program.  Special attention should also be paid to compliance with laws and regulations on Proxy Filings and voting, Stock Options, and Insider Trading disclosures.

Internal/Institutional:

As with compliance in the environmental field, touched-upon above, other industries also have their own compliance challenges, which can often be considered in light of specific guidance documents issued, for example in the United States, for the Steel industry,[14] regarding Patent and Trademark law compliance for small businesses,[15] and in the realm of trade compliance.[16]

Achieving compliance can be a significant distraction in some jurisdictions where new and sometimes highly complex laws, are issued[17] and updated[18] on a regular basis; whether in response to an emergency or other critical event, or to address an ongoing issue or series of issues.  In the case of the latter, the Dodd-Frank Wall Street Reform and Consumer Protection Act,[19] for example, ushered-in a sea change to the resource industry landscape with regard to public issuers.  Significant due diligence and disclosure requirements (claimed as onerous in some cases), are now mandatory in order to detect, prevent, and curtail the trade in conflict minerals,[20] which trade has had significant community and cultural impacts.  For instance, wherever “conflict minerals are necessary to the functionality of production of a product manufactured by such person”, annual reports must be filed containing: (i) “a description of the measures taken by the person to exercise due diligence on the source and chain of custody of such minerals”; and (ii) “a description of the products manufactured or contracted to be manufactured that are not DRC conflict free”.[21]

In terms of enforcement, recent caselaw in the United States has expanded the definition of who can constitute a whistleblower under Dodd-Frank.  We see from Kramer, that such a person can be almost anyone who discloses information about a possible violation (being a lower standard than for SOX, which requires disclosure to the SEC of information concerning a securities law violation, as backed by reasonable belief that a possible violation occurred).  We also see from Ott, that a person asserting a retaliation claim under Dodd-Frank need not necessarily/always be a person who would (or could) also have qualified for the whistleblower bounty in making a disclosure in apparent accordance with law, in the first place.[22]

As a result of these laws (SOX and Dodd-Frank), and other laws requiring in-depth and ongoing compliance, appropriate ethics and regulatory compliance training should be developed and broadly instituted across the company.  This is especially critical in entities with depth, i.e. decentralized with multiple divisions or business segments, whether domestic, continental, or more transnational.  Additionally, internal investigations should be properly structured[23] and intermediaries closely monitored to avoid any third-party or vicarious liability, or conspiracy.

Structural/Systemic:

Securities laws in the United States,[24] across Canada,[25] and the European Union,[26] for example, specify the types and extent of information that issuers must disclose, both for registration and as an ongoing requirement.  Securities laws in India[27] and Australia,[28] and such United States amending laws as the Sarbanes-Oxley Act (SOX)[29] and the Gramm-Leach Bliley Act,[30] further address transparency, detailed compliance and reporting requirements, and mandatory aspects of corporate governance and ethics.  Except as otherwise specifically stated,[31] SOX compliance is mandatory,[32] and three noteworthy compliance provisions are Sections 404, 302, and 307.

SOX Section 404:

Section 404 specifies annual disclosure by corporate issuers, re: the existence, management responsibility for, and evaluation of their own internal controls; as further “attested to and reported on” (double-checked and verified as accurate), by the issuing entity’s auditors.[33]  Retaliation against whistleblowers,[34] failure to certify financial statements as required,[35] and evidence tampering that hampers or clouds an investigation,[36] will all now constitute criminal offences under SOX, with significant penalties.

SOX Section 302:

Section 302 further mandates that principal officers of issuers certify by signing that they have: (i) reviewed the subject quarterly or financial report; (ii) found the same to be accurate (“does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading”); (iii) found same to be complete (in that the information therein does “fairly present in all material respects the financial condition and results of operations of the issuer as of, and for, the periods presented in the report”); (iv) have appropriately established and maintained and evaluated internal controls; with (v) disclosure to the issuer’s auditors and the audit committee of all “significant deficiencies” and “material weaknesses” of internal controls, as well as “any fraud whether or not material that involves management or other employees who have a significant role in the issuer’s internal controls”; as well as any corrective actions.[37]

SOX Section 307:

Finally, Section 307 provides for a heightened duty of legal counsel to report up the line when finding evidence of any “material violation of securities law or breach of fiduciary duty or similar violation by the company or any agent thereof”[38]  Counsel has an additional duty to report further up the management chain to the Audit Committee or another appropriate Committee of the Board of Directors, if the first person hearing the complaint and report “does not appropriately respond to the evidence”.[39]

Technical/Tactical:

Segregation of duties should be rigorously enforced in accordance with industry best practices, or in excess of industry best practices, where warranted.  Spot audits of social media usage policy compliance should be ingrained, as should be disciplinary procedures for infractions and industry (or above-industry) best practices in IT management policies and procedures; some of which practices I earlier identified in part 3 of this series.

Further technical and tactical compliance efforts should focus on industry-specific and geo-specific risks (earthquake, hurricane or tornado, fire and flood).  Sometimes, however, even the best-laid plans and safety precautions[40] can be overwhelmed under the onslaught of concurrent multiple perils, such as the earthquake and Tsunami in Fukushima, Japan of Monday April 11, 2011.  In any case, there should be interim testing and updates of the written, shared, and practiced compliance guidelines; especially in the rapidly developing e-Commerce and social media realms with regard to Cybersecurity and privacy rights (PIPEDA and provincial privacy laws in Canada, and state privacy laws in the United States); online spam protections in the American CAN-SPAM Act,[41] along with Canada’s equivalent in the Canada Anti-Spam Law;[42] Online copyright infringement protection for ISPs in the American Digital Millennium Copyright Act (DMCA), and Canada’s equivalent Copyright Modernization Act[43], all added areas of concern for entities involved in that space, requiring inclusion in their compliance plans.

Two Additional (reserved) Categories:

The first reserved category is Implementation (covering investigations and improvements; staff inclusion as stakeholders; and inspired giving as a corporate social responsibility).[44]  The second reserved category is Climate (covering conflicts of law; conflicts of culture – whether business or natural; and contingencies – environmental, political, technical, man-made, and popular (with “popular” including riot, insurrection, sit-in/occupation, and pre- or post-sporting event mayhem tantamount to riot or insurrection.[45]  Some of these were touched-upon in the above analysis or earlier installments.  However, being essential to the overall success of any GRC program, they should be checked and re-checked, often and at length, against the F-I-X-E-D (depth dimension).

Summary.

Essentially, a company needs to be able to ask all of its officers, employees, and directors the following 5 questions.  A perfect score includes 4 x yes answers (questions 1, 2, 4, and 5), and 1 x no answer (question 3).  If question 5 yields any or many “no” answers, then the company needs to realize and accept that there is a problem, because over time its business will evolve, the applicable regulations will change, and the market is dynamic, so a functioning and responsive GRC program, if left static and unchanging, cannot be so perfect for all cases, and over all time!

Question 1: Would you take issues and complaints to a responsible officer or director? (are there internal complaints procedures in place, and do all within the company know how to avail themselves of same?);

Question 2: Are you confident that the issues or complaints raised will be adequately and timely addressed?  (do the responsible officers and the set procedures inspire credibility, by a demonstrated commitment of senior management to both GRC and the established complaint procedures?);

Question 3: Do you fear retaliation or punishment for raising issues or complaints in accordance with the established complaint procedures?  (is there a compliance culture, and are there adequate whistleblower protections?);

Question 4: Are these reporting behaviours championed within your organization?  (is there a clear commitment by all management levels to establishing, enunciating, and upholding the entity’s values and mission, and ethical behaviours; and are internal controls established, communicated, and enforced on a uniform and consistent basis?);

Question 5: Is there anything that you can think of and suggest to improve the GRC processes at your place of work? (this includes both the overall employing entity or head office, and suggested local variations for legal jurisdiction; business or actual culture; changing times, climes, and circumstances; and deficiencies or lessons learned).

*****************************************************************************

Author:

Ekundayo George is a sociologist and a lawyer, with over a decade of legal experience including business law and counseling (business formation, outsourcing, commercial leasing, healthcare privacy, Cloud applications, and Cybersecurity); diverse litigation, as well as ADR; and regulatory practice (planning and zoning, environmental controls, landlord and tenant, and GRC – governance, risk, and compliance investigations, audits, and counseling in both Canada and the United States).  He is licensed to practice law in Ontario, Canada, as well as in New York, New Jersey, and Washington, D.C., in the United States of America (U.S.A.).  See: http://www.ogalaws.com

Backed by courses in management, organizational behaviour, and micro-organizational behaviour, Mr. George is a writer, tweeter and blogger (as time permits), and a published author in Environmental Law and Policy (National Security aspects).

Mr. George is an experienced strategic and management consultant; sourcing, managing, and delivering on high stakes, strategic projects with multiple stakeholders and multidisciplinary teams.  See: http://www.simprime-ca.com

Hyperlinks to external sites are provided to readers of this blog as a courtesy and convenience, only, and no warranty is made or responsibility assumed by either or both of George Law Offices and Strategic IMPRIME Consulting & Advisory, Inc. (“S’imprime-ça”), in whole or in part for their content, or their accuracy, or their availability.

This article does not constitute legal advice or create any lawyer-client relationship.


[1] Ekundayo George.  GRC: An Overview (Part 1).  Published on ogalaws.wordpress.com.  October 21, 2012.  Online:>https://ogalaws.wordpress.com/2012/10/21/grc-an-overview-part-1/<

[2] Ekundayo George.  GRC: Governance (Part 2).  Published on ogalaws.wordpress,com.  October 29, 2012.   Online:>https://ogalaws.wordpress.com/2012/10/29/grc-governance-part-2/<

[3] Ekundayo George.  GRC: Risk (Part 3).  Published on ogalaws.wordpress.com.  November 6, 2012.  Online: > https://ogalaws.wordpress.com/2012/11/06/grc-risk-part-3/<

[4] See infra, note 30.

[5] United States Department of Commerce.  Energy and Environmental Management Manual.  Released in September, 2012.  Online: >http://www.osec.doc.gov/oas/Documents/OSEEP/Docs%20&%20Newsltrs/Documents/EEMM_FINAL_%2826_Sept._2012%29.pdf<

[6] RevenueRecognition.com.  Sarbanes-Oxley and Revenue Recognition Practices: Financial Executive Benchmarking Survey, Revenue Recognition Edition. 2005.  Online: > http://www.complianceweek.com/s/documents/RevRecandIDC-RevenueRecognitionPractices.pdf<

[7] Id. at page 5, figure 6.

[8] Supra. note 6 at page 4, figures 3 and 4.

[9] Supra. note 6 at page 6, figure 7.

[10] See e.g. Karen Gullo and Mark Chediak.  Chevron Bid to Dismiss $18 Billion Award Rejected in Ecuador.  Bloomberg.com, January 4, 2012.  Online: >http://www.bloomberg.com/news/2012-01-04/chevron-loses-bid-to-throw-out-18-billion-award-in-ecuador-pollution-case.html<  Post-judgement actions on the award are ongoing.

[11] See e.g. the matter currently on Appeal to the United States Supreme Court of Kiobel v. Royal Dutch Shell.  Online: >http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/10-1491.htm<; on appeal from Kiobel v. Royal Dutch Pet. Co., 621 F.3d 111 (2d Cir. 2010), decided on September 17, 2010.  Online: >http://www.ca2.uscourts.gov/decisions/isysquery/3d9bbe68-742b-4422-9de6-1b3c3d48589b/7/doc/06-4800-cv_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/3d9bbe68-742b-4422-9de6-1b3c3d48589b/7/hilite/<

[12] The 2 essential questions to be answered in Kiobel, are: (i) whether corporate civil tort liability under the Alien Tort Statute (“ATS” 28 U.S.C. §1350) goes to subject matter jurisdiction, or goes to merits and has thus already been decided below; and (ii) whether a corporation can be sued as can a private party, or is immune to liability for violating the law of nations regarding genocide, extrajudicial killing, or torture as the 11th Circuit already answered in the affirmative, below.  See United States Supreme Court.  10-1491 Kiobel v. Royal Dutch Petroleum, Decision Below: 621 F.3d 111. Lower Court Case Number: 06-4800, 06-4876.  Questions Presented.  Online: >http://www.supremecourt.gov/qp/10-01491qp.pdf<

[13] See e.g. the ongoing case in the United Kingdom of Mutua and others v. The Foreign and Commonwealth Office (“Mau  Mau” case), [2012] EWHC 2678 (QB), judgement issued on October 5, 2012).  Online:> http://www.judiciary.gov.uk/Resources/JCO/Documents/Judgments/mutua-fco-judgment-05102012.pdf<

[14] United States Department of Commerce, International trade Administration, Import Administration.  Steel Import Monitoring and Analysis System.  Online: >http://ia.ita.doc.gov/steel/license/index.html<

[15] United States Department of Commerce and United States Patent and Trademark Office (USPTO).  Small Entity Compliance Guide: Request for Supplemental Examination.  Released in September, 2012.  Online: >http://www.uspto.gov/aia_implementation/supp-exam-compliance-guide.pdf<

[16] United States Department of Commerce, Bureau of Industry and Security.  Compliance Guidelines: How to Develop an Effective Export Management and Compliance Program and Manual.  Released in June, 2011.  Online: >http://www.bis.doc.gov/complianceandenforcement/emcp_guidelines.pdf<

[17] See e.g. United States Congress.  The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001.  Pub. L. 107–56, Oct. 26, 2001; also sometimes referred to as Patriot I.  Online: >http://www.gpo.gov/fdsys/pkg/PLAW-107publ56/pdf/PLAW-107publ56.pdf

[18] See United States Congress.  USA Patriot Improvement and Reauthorization Act of 2005.  Pub. L. 109–177, Mar. 9, 2006; also sometimes referred to as Patriot II.  Online: >http://www.intelligence.senate.gov/laws/pl109-177.pdf<; See also United States Congress.  PATRIOT Sunsets Extension Act of 2011.  Pub. L. 112–14, May 26, 2011; also sometimes referred to as Patriot III.  Online: >http://www.gpo.gov/fdsys/pkg/PLAW-112publ14/pdf/PLAW-112publ14.pdf<

[19] United States Congress.  The Dodd–Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, July 21, 2012.  Online: >http://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf<

[20] Id. at Section 1502.

[21] Id.

[22] See Kramer v. Trans-Lux Corp., No. 3:11cv1424, 2012 U.S. Dist. (D. Conn. Sept. 25, 2012), at page 11 of the Order.  In partially denying the defendant’s Motion for Summary Judgement (seeking dismissal of the plaintiff’s Complaint for failure to state a claim for which relief can be granted, under FRCP 12 (b)(6)), the Honorable Stefan R. Underhill, U.S.D.J., held that “Sarbanes-Oxley protects persons who disclose information they reasonably believe constitutes a violation of SEC rules or regulations (…) by the language of the whistleblower provision, the whistleblower need only have reasonably believed that it was a violation (…) [t]herefore, Kramer has alleged sufficient facts to support a Dodd-Frank Act whistleblower claim based on his internal and external communications”.  Online: >http://courtweb.pamd.uscourts.gov/courtwebsearch/ctxc/11cv1424mtdrul.pdf<

See also Ott v. Fred Alger Management, Inc., No. 11 Civ. 4418, 2012 U.S. Dist. (SDNY Sept 27, 2012), at page 9 of 20 in the Order.  In her Memorandum and Order denying the defendant’s Motion for Summary Judgement under FRCP 12(b)(6) and FRCP 23.1 (Derivative Actions by Shareholders, of which this was one such), the Honorable Loretta A, Preska, U.S.D.J., held that the “anti-retaliation protections apply whether or not you satisfy the requirements, procedures and conditions to qualify for an award.”  The American Law Institute, Continuing Legal Education.  The SEC’s Whistleblower Program: One Year Later Cosponsored by the ABA Business Law Section and the ABA Section of Public Utility, Communications and Transportation Law.  Telephone seminar/audio webcast as delivered on October 9, 2012.  Online: >http://files.ali-cle.org/files/coursebooks/pdf/TSUP04_chapter_02.pdf<

[23] Caselaw in the European Union has left In-House Counsel somewhat exposed when rendering advice or conducting In-House investigations, as there is an absence of effective privilege.  See e.g. Akzo Nobel Chemicals & Akcros Chemicals v Commission (Competition) [2007] EUECJ T-125/03 (17 September 2007).  Online: >http://www.bailii.org/eu/cases/EUECJ/2007/T12503.html<  On the part of outside Counsel, another risk that he or she may face is to be (or find oneself alleged to be) caught-up in the misconduct of a client as more than an innocent advisor.  Joseph P. Collins has so far been able to secure a retrial since his earlier criminal conviction.  See US v. Joseph P. Collins, 10-1048-cr, NYLJ 1202537905466, at *1 (2d Cir., Decided January 9, 2012).  Online: >http://www.law.com/jsp/decision.jsp?id=1202537905466<

[24] United States Congress.  The Securities Act of 1933 (Truth in Securities Act), 15 U.S.C. §77a et seq.  Online: >http://www.sec.gov/about/laws/sa33.pdf<; The Securities Act of 1934 (Securities Exchange Act), 15 U.S.C. §78a et seq.  Online: >http://www.sec.gov/about/laws/sea34.pdf<

[25] Each province creates, implements, and enforces its own securities laws, as there is no national regulator.  Indeed, this may remain the case for the foreseeable future as a “Reference” question put to the Supreme Court of Canada approximately one year ago, was returned with a decision that the federal power granted under the 1867 Constitution Act to regulate trade and commerce was insufficient to authorize creation of a national securities regulator over and above the existing provincial securities regulators.  See Reference Re Securities Act, 2011 SCC 66, [2011] 3 S.C.R. 837.  Online: >http://www.scc-csc.gc.ca/case-dossier/cms-sgd/dock-regi-eng.aspx?cas=33718<  However, the Province of Ontario passed An Act to implement Budget measures and other initiatives of the Government, S.O. 2002, S.O. 2002, ch. 22-bill 198 (effective April 7, 2003), which at its Title XXVI amended the Ontario Securities Act with: (i) updated definitions for materiality, (i) clarification of continuing disclosure provisions, (iii) encoding of privacy protections for issuers under the Freedom of Information and Protection of Privacy Act, R.S.O. 1990, Chapter F.31, (iv) raising the fine levels from $1 million to $5 million in certain cases, (v) barring fraud, market manipulation, and the making of misleading or untrue statements, and (vi) imposing liability on directors and officers or a “person who authorized, permitted or acquiesced in the non-compliance”.  Online:  >http://www.ontla.on.ca/web/bills/bills_detail.do?locale=en&BillID=1067&isCurrent=false&ParlSessionID=37%3A3<.  This laid the groundwork for Canada’s security regulators to work together and issue what became National Instrument 52-109: Certification of Disclosure In Issuer’s Annual and Interim Filings; also sometimes termed SOX Canada.  Online: >http://www.bcsc.bc.ca/uploadedFiles/securitieslaw/policy5/52-109NI_Advance_Notice.pdf<  Subsequent amendments and collateral instruments have strengthened the disclosure regime for public issuers in Canada’s various provinces.

[26] European Commission.  Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004, on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC.  Online: >http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:390:0038:0057:EN:PDF<

[27] National Stock Exchange of India Limited.  Listing Agreement, §49 at pages 77-91; also sometimes termed SOX India.  Online: >http://www.nse-india.com/getting_listed/content/listing_agreement.htm<

[28] Government of Australia.  Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004; also sometimes termed SOX Australia.  Online: >http://www.comlaw.gov.au/Details/C2004A01334/Download<

[29] United States Congress.  The Sarbanes-Oxley Act of 2002 (The Public Company Accounting Reform and Investor Protection Act), Pub. L. 107–204, July 30, 2002, 116 Stat. 745.  Online: >http://www.sec.gov/about/laws/soa2002.pdf<

[30] United States Congress.  The Gramm-Leach-Bliley Act (Financial Services Modernization Act of 1999), Pub. L. 106-102, November 12, 1999, 113 Stat. 1338.  Online: >http://www.gpo.gov/fdsys/pkg/PLAW-106publ102/pdf/PLAW-106publ102.pdf<

[31] For example, limited exemptions exist under Securities and Exchange Commission (SEC) Final Rule 33-9142: Internal Control over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers. 17 CFR Parts 210, 229 and 249.  Effective September 21, 2012.  Online: >http://www.sec.gov/rules/final/2010/33-9142.pdf<

[32] Some additional SOX carve-outs and modifiers were created by the JOBS Act, which passed with the strong support of both parties (380:41 in the House with 10 more not voting, and 73:26 in the Senate); although not without some controversy from interest groups.  See e.g. Congress of the United States.  Jumpstart Our Business Startups Act (“JOBS Act”).  Pub. L. 112-106, Apr. 5, 2012.  Online:>http://www.gpo.gov/fdsys/pkg/PLAW-112publ106/pdf/PLAW-112publ106.pdf<.  See also JOBS Act Critique: Consumer Federation of America. Public Interest Groups Oppose Anti-Investor “Capital Formation” Bills.  March 5, 2012 Open Letter to the United States Senate, Committee on Banking, Housing and Urban Affairs.  Online: >http://www.consumerfed.org/news/467<

[33] Supra note 29, SOX at Section 404 (Management assessment of internal controls)See also United States Securities and Exchange Commission (SEC) Final Rule 33-8238: Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports.  17 CFR Parts 210, 228, 229, 240, 249, 270 and 274.  Effective August 14, 2003.  Online: >http://www.sec.gov/rules/final/33-8238.htm<

[34] Supra note 29, SOX at Section 1107 (Corporate Fraud Accountability Act of 2002), within SOX Title XI.

[35] Id. at SOX Section 906 (White Collar Crime Penalty Enhancement Act of 2002), within SOX Title IX.

[36] Supra note 29, SOX at Section 802 (Corporate and Criminal Fraud Accountability Act of 2002), within SOX Title VIII.

[37] This section applies to all U.S. issuers regardless of their place of incorporation or re-incorporation.  Supra note 29, SOX at Section 302 (Corporate responsibility for financial reports)See also United States Securities and Exchange Commission.  Final Rule 33-8124: Certification of Disclosure in Companies’ Quarterly and Annual Reports.  17 CFR Parts 228, 229, 232, 240, 249, 270 and 274.  Effective August 29, 2002.  Online: >http://www.sec.gov/rules/final/33-8124.htm<

[38] United States Congress.  The Sarbanes-Oxley Act of 2002 (The Public Company Accounting Reform and Investor Protection Act), Pub. L. 107–204, July 30, 2002, at Section 307(1): Rules of Professional Responsibility for Attorneys.  Online: >http://www.sec.gov/about/laws/soa2002.pdf<

[39] Id. at Section 307(2).  Pursuant to that section, the Securities and Exchange Commission has issued Final Rule 33-8185: Implementation of Standards of Professional Conduct for Attorneys, 17 CFR Part 205, effective August 5, 2003).  See Securities and Exchange Commission (SEC).  Online: >http://www.sec.gov/rules/final/33-8185.htm<

[40] In the lead-up to Hurricane Sandy of October, 2012, that wreaked havoc on Cuba, Jamaica, Haiti, and the Bahamas in the Caribbean, and had its heaviest U.S. impact on New York and New Jersey, some businesses including AT&T in New Jersey, purchased entire fuel tanker trucks as part of their contingency planning, in order to avoid the line-ups at empty filling stations, the business interruptions caused by employees unable to get to work, and the inability to themselves operate due to lost power and gasless backup generators.  See Katie Eder.  Gas becomes hot commodity for N.J. businesses, post-Sandy.  Published on njbiz.com, November 5, 2012.  Online: >http://www.njbiz.com/article/20121105/NJBIZ01/121109942/-1/enews_dailyT1See also The Associated Press.  Hurricane Sandy Hits Bahamas After Sweeping Through Cuba and Haiti.  Published on nytimes.com, October 25, 2012.  Online: >http://www.nytimes.com/2012/10/26/world/americas/sandy-hits-bahamas-after-havoc-in-cuba-and-haiti.html<

[41] United States Congress.  Controlling the Assault of Non-Solicited Pornography And Marketing Act of 2003.  Pub. L. 108-187, Dec. 16, 2003 (CAN-SPAM Act).  Online: >http://www.gpo.gov/fdsys/pkg/PLAW-108publ187/pdf/PLAW-108publ187.pdf<

[42] Government of Canada.  An Act to promote the efficiency and adaptability of the Canadian economy by regulating certain activities that discourage reliance on electronic means of carrying out commercial activities, and to amend the Canadian Radiotelevision and Telecommunications Commission Act, the Competition Act, the Personal Information Protection and Electronic Documents Act and the Telecommunications Act.  S.C. 2010, c. 23 (also termed the “Canada Anti-Spam Law”).  Online: >http://laws-lois.justice.gc.ca/PDF/E-1.6.pdf<

[43] Bill C-11, The Copyright Modernization Act, received Royal Assent on June 29, 2012.  Notification and counter-notification provisions for ISP’s and certain other webhosts – as akin to the DMCA – can be found in sections 41.25, 41.26, and 41.27 of the Act.  Admittedly, certain public interest entities are protected against harsh penalties in Bill C-11, with the delineation of an injunction as the appropriate penalty for their non-willful copyright infringement.  However, due to the threat (and very real legal option) for infringing websites to be blocked outright in certain jurisdictions, Canadian entities hosting content that might infringe the copyright of ”someone, somewhere” (such as blogs and other social media sites) might include notification and counter-notification measures in their online usage policies and contact forms.  We have been approached, and advised, with regard to this option as a potential demonstrated due diligence compliance measure.  See Government of Canada.  Copyright Modernization Act, S.C. 2012, c. 20.  Online: >http://laws-lois.justice.gc.ca/eng/AnnualStatutes/2012_20/page-1.html<

[44] Undoubtedly, employees who see their employer taking a lead when the situation requires it, and who are encouraged to find ways to become personally involved – whether by selecting and presenting CSR opportunities, enjoying matching donations from the employer, volunteering, or otherwise, will be more likely to buy-in to the company’s values, mission, and longevity (by mutually enforcing amongst their peers, improving by individual or group and committee contributions, and themselves personally adhering, each and all, to its compliance and ethics program).  See generally Beth Fitzgerald.  N.J. business community pitches in for Sandy relief.  Published on NJBIZ.com, November 6, 2012.  Online: >http://www.njbiz.com/article/20121106/NJBIZ01/121109925/-1/enews_dailyT2<

[45] Those who have had the foresight and planning to secure appropriate insurance coverage for wind, fire, flooding, and business interruptions, are always happier than others when their paid-up policies are available for claims in times of great need after such “contingencies”.  See e.g. Joseph N. DiStefano.  Philly Deals: Sandy incites twice as many insurance claims as Irene.  Published on phillydeals.com, Tuesday, November 6, 2012.  Online: >http://www.philly.com/philly/business/20121106_PhillyDeals__Sandy_incites_twice_as_many_insurance_claims_as_Irene.html<

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