A Focus On Risk Factors
Issuers are required to disclose “risk factors” associated with its business.
One portion of a so-called “10-K” filing (an annual report) is Item 1A “Risk Factors” which – in the words of the SEC – “includes information about the most significant risks that apply to the company or to its securities. Companies generally list the risk factors in order of their importance. In practice, this section focuses on the risks themselves, not how the company addresses those risks. Some risks may be true for the entire economy, some may apply only to the company’s industry sector or geographic region, and some may be unique to the company.”
The Item1A “Risk Factors” of many issuers often taken up 25-30 pages of a 10-K and include a wide range of risk factors ranging from general economic conditions, manufacturing and supply chain issues, intellectual property and many other issues.
Another Day, Another DOJ Speech
Another day, another speech by a Department of Justice official.
This time it was Principal Associate Deputy Attorney General Marshall Miller with this speech at the New York City Bar Association Compliance Institute.
Miller stated that the purpose of his speech was to “take stock of the Department’s programmatic overhaul of corporate criminal enforcement in recent years, to discuss how that overhaul is designed to empower compliance programs and professionals, and to take a look around the corner to what’s ahead.”
Miller began:
A Spectrum Of Third Party Compliance
Like many FCPA enforcement actions, the recent RTX (Raytheon) matter largely focused on a problematic third party used to facilitate the alleged bribery schemes.
The DOJ and SEC resolution documents make for an interesting read and tell a story across a wide spectrum of third party compliance from due diligence, to oversight and supervision, to payment.
The story demonstrates that when it comes to third parties, several things can be “true” (based on DOJ/SEC allegations findings) all at the same time.
It can be “true” that culpable employees knowingly circumvented existing third party compliance policies and procedures in place and it can also be “true” that others within the company were seemingly indifferent to the activities of a third party.
Another Day, Another DOJ Speech
It is September which means enforcement agency officials hit the “conference circuit” to give scripted speeches.
Last week it was DOJ Principal Deputy Assistant Attorney General Nicole Argentieri delivering a speech to a corporate compliance audience in New York (see here for the prior post), yesterday it was Argentieri delivering a speech to a corporate compliance event in Texas.
Argentieri began:
The FCPA Doesn’t Answer Many Of The Questions Compliance Professionals Have
Naturally, and understandably, those tasked with Foreign Corrupt Practices Act compliance within a business organization want clear answers to many questions.
However, the FCPA rarely provides clear answers and this is particularly true with the internal controls provisions.
The provisions are not rule-based, but principle-based in the sense that the key statutory language is that issuers shall “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances” that certain financial objectives are met. The FCPA then defines “reasonable assurances” to mean “such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.”