13-minute listen

Andrew Balthazor discusses the SEC’s growing focus on the problem of ‘AI washing’ and the threat it poses to investors. Andrew is an attorney in Holland & Knight’s Miami office practicing in the firm’s Litigation and Dispute Resolution Section. His practice focuses on solving problems born of digital-era innovations and other high-stakes complex commercial litigation. Here is a link to a recent blog Andrew and his colleagues published on ‘AI Washing’ as well as a link to his bio.

What Is AI Washing?

AI washing refers to companies that exaggerate or lie about the capabilities or extent to which they artificially utilize artificial intelligence to inflate investor interest in their business. AI washing comes from “greenwashing,” which refers to falsely portraying your company as environmentally friendly. 

SEC Investigation 

Recently, the SEC brought its first AI-washing enforcement actions against investment advisers for making false or misleading statements regarding their use of AI. As AI becomes defined and the SEC issues more explicit rules regarding AI-washing, it’s likely that more enforcement actions will be taken against less obviously fraudulent schemes, accompanied by steeper penalties. 

Take Action Against AI Washing 

AI investing, like crypto, is a growing and exciting field, bearing considerable risk. Investors and corporate acquirers should not get swept away by the fear of missing out and diving head-first into an endeavor, potentially overlooking AI-washing risks. AI-washing risk should be front and center when initiating background diligence on potential portfolio companies or M&A opportunities. Mitigating AI-washing exposure warrants deeper-dive diligence, including discreet interviews, that can cut through the buzzwords and help you fully understand a company’s capabilities. Investment banks taking an AI company public should also initiate similar levels of diligence to ensure that all information regarding the company’s AI capabilities is presented accurately to the public

Vcheck provides thorough pre-investment due diligence designed to help mitigate reputational, legal, and regulatory risks for investors and corporate M&A teams. Contact Vcheck to learn how we can help your team.  

26-minute listen

Tiffany Fobes Campion is a senior attorney in the Chicago office of Latham & Watkins, where she focuses on takeover defense and shareholder activism matters. She is a vital member of the firm’s Activism Practice and a central resource for clients and Latham lawyers dealing with activist investors. Tiffany came on RiskWatch to discuss recent trends in the takeover defense and shareholder activism space. She discusses the evolving landscape of shareholder activism, particularly in light of the SEC’s universal proxy rule (UPC) implemented in 2022.

The discussion provides an excellent overview of recent trends. Below are some key takeaways and summarized excerpts from our talk related to how companies can proactively utilize a due diligence firm like Vcheck to prepare for an activist campaign.

What is Shareholder Activism?

Shareholder activism is when an individual or group of shareholders in a publicly traded company use their ownership stake (regardless of size) to pressure management into making changes. Investors acquire shares in public companies and push for changes that drive short-term economic gains, often believing the stock is undervalued. Strategies include proposing new board members, selling non-core assets, streamlining operations, or changing leadership.

Impact of the Universal Proxy Rule (UPC):

Effective since 2023, the UPC requires companies and activists to list all board nominees on their respective proxy cards. This allows shareholders to mix and match candidates from both slates, creating their preferred board composition.

Proxy Fights Are Personal

Proxy fights are the most aggressive tactic shareholder activists can use. In a Proxy Fight, activists propose their candidates for the company’s board of directors and try to persuade other shareholders to vote for them. A successful campaign can give activists effective control over the company.

Now more than ever, proxy fights are personal because they look at what an individual director can bring to the board and how they are better or differentiated from another individual director. As proxy fights grow more personal, they also settle earlier, and one reason may be that directors do not want their qualifications or past performance under the spotlight.

Activist Investors Seek Out Disqualifying Themes

Activists utilize several resources to prepare for an activist campaign. This can include gathering the company’s financials, sitting on earnings calls, reading press releases, speaking with other investors about the company’s strategic vision, interviewing current and former employees to uncover risk issues on management, and reading online company reviews.

The Importance of Vetting Board Candidates

While board members typically fill out a Directors’ & Officers (D&O) Questionnaire on an annual basis where they are required to make certain disclosures, companies can go a step further by incorporating upfront and refreshed diligence on board members and candidates to identify things that may not be self-disclosed and can be exploited by activist investors. Proactive director diligence can:

Here at Vcheck, we provide thorough and accurate executive board member screenings.

Contact our team to learn more about how Vcheck can help prepare your company for an activist campaign.

 

15-minute listen

Amy Caiazza, a Partner at Wilson Sonsini, came on the Vcheck podcast to discuss a new proposal by FinCEN that would significantly expand AML / CFT obligations for Registered Investment Advisers, Venture Capital Advisers, and Private Fund Advisers. This could substantially add to advisers’ obligations when screening potential investors. Here is a link to the recent alert that the firm published on the proposed rule and a link to Amy Caiazza’s contact information. Amy leads the firm’s fintech and financial services group, which is recognized as a leading U.S. fintech practice by Chambers FinTech.

A Recap of FinCEN’s Proposal

FinCEN proposes significant changes impacting investment advisers concerning AML and KYC screening requirements. Historically, investment advisers have not been considered financial institutions and, as such, have not been subject to the exact requirements placed on financial institutions by the Bank Secrecy Act for conducting AML and KYC screenings to prevent money laundering. FinCEN’s proposal would include both Registered Investment Advisers (RIAs) and Exempt Reporting Advisers (ERAs) within the same AML regime applied to financial institutions, requiring them to conduct their own AML screenings, institute the relevant policies and procedures, and notify FinCEN when they encounter suspicious activity. If passed, this proposal could significantly burden RIAs and ERAs and have other unintended consequences, such as closing off the market to investors who do not have the resources to implement these changes.

While the risk posed by bad actors looking to exploit RIAs or ERAs appears to be low, and despite the fact that FinCEN has been unsuccessful at pushing through similar initiatives in the past, there does seem to be real momentum behind this proposal.

How Real is the Risk of Bad Actors Exploiting RIAs or ERAs?

The risk is relatively low for several reasons.

  1. Usually, when an asset manager manages money, another party, such as an investment bank or broker, is involved in the money flow. Those third-party institutions are already governed by the Bank Secrecy Act, making an additional screening redundant.
  2. The assets managed by private equity or venture capital firms (Exempt Reporting Advisers) are highly illiquid. Limited Partners invest in these funds and do not see a return on their investment for 5 – 7 years or more, so it is an inefficient way to launder money.

A Hypothetical Scenario

FinCEN is concerned that a bad actor, such as a Chinese investor tied to the government, would invest in a fund managed by a private equity or venture capital firm and potentially learn about sensitive technologies coming to market, which would somehow advantage the Chinese government. However, this is also different from how ERAs operate. LPs are not involved in a GP portfolio company’s day-to-day operations. They are usually not granted access to behind-the-scenes information that is not publicly available. Another issue with FinCEN’s proposal is that this scenario is more of a national security concern governed by CFIUS and unrelated to AML.

How Prepared Are ERAs to Conduct Enhanced Due Diligence on LPs?

Most ERAs are doing a basic level of Know Your Customer (KYC) checks, which is required under the OFAC regime. Still, most do not have the procedures in place, like a large asset manager, to conduct enhanced due diligence on Limited Partners or implement the measures that would be required should FinCEN’s proposal come to fruition. Additionally, implementing these programs will be burdensome for ERAs, particularly if they need to conduct deeper-dive diligence on an investor. Some things that ERAs can do to prepare themselves for future requirements could include:

Contact us to learn more about how our team at Vcheck can protect your investments.

19-minute listen

Daniel Wendt, a member at Miller & Chevalier, came on RiskWatch to discuss the new Foreign Extortion Prevention Act (FEPA), which President Biden signed into law in December 2023. FEPA was designed to prevent extortion by foreign officials and criminalizes the act of foreign officials demanding bribes, addressing a potential gap in the Foreign Corrupt Practices Act (FCPA). Below is a summary of our discussion.

Background to FEPA 

FEPA resulted from years of concern that a gap existed within the Foreign Corrupt Practices Act (FCPA) that limited the ability to go after foreign corrupt officials. Historically, FCPA focused on the ‘supply side’ of bribery (the people who pay the bribes) v. the ‘demand side’ (the people demanding the bribe) that FEPA aims to address. The gap within FCPA was intentional when it came into law out of fears that a provision to pursue foreign officials and those within their sphere of influence would overly complicate the Department of Justice’s ability to enforce FCPA actions. In the 1970s, when FCPA was passed, the government thought that the ‘demand side’ of bribery was something other countries were best suited to handle. However, since the FCPA’s enactment, it has become clear that many countries do not enforce and do not want to enforce the ‘demand-side.’ With the introduction of FEPA, foreign officials and those in their circle are no longer off-limits.

A Broader Definition of ‘Foreign Official’ 

While there is a lot of overlap between the FEPA and the FCPA, some essential distinctions include how the FEPA has a broader definition of who constitutes a foreign official under the prosecution statute. In addition to applying to foreign officials who would historically be prosecuted under the FCPA, FEPA also considers foreign officials to be individuals who would fall under those individuals’ circle of influence. The reasoning is that in many instances of corruption, the foreign official will attempt to shield themselves by going through an intermediary such as a close relative, immediate family members, or a close associate acting as a surrogate to facilitate bribery. This broader definition of who can be prosecuted under FEPA means that these surrogates are now subject to prosecution in the US if they travel to a country that extradites to the US.

Enhanced Due Diligence for FEPA 

While introducing new aspects, FEPA does not significantly alter the risk mitigation strategies that companies have been employing to address the FCPA. This includes the enhanced due diligence they conduct on high-risk third parties. However, FEPA does shed light on potential risks that companies may face if their due diligence uncovers surrogates or family members potentially acting on behalf of government officials. This awareness can help companies strengthen their risk mitigation efforts and ensure compliance with FEPA.

Here is a link to a recent alert Miller & Chevalier published on FEPA, as well as to Daniel Wendt’s bio and contact information.

 

 

21-minute listen

Evan Abrams is an Associate at Steptoe & Johnson and advises clients on issues related to anti-money laundering and anti-corruption, among others. He came on the show to discuss FinCEN’s recent proposed rule targeting digital asset mixers. The proposed rule is part of an effort by the Department of Treasury to crackdown on cryptocurrency anonymity services such as digital asset mixers also known as convertible virtual currency (CVC) mixers, which can be used as a money laundering tool by rogue states, terrorist organizations, and criminals although there are legitimate uses of CVC mixers. The issuance of the proposed rule comes on the heels of the October 7 Hamas attack as the group has been accused of using digital asset mixers. You can get in touch with Evan at this link and a link to the related piece he co-authored on the Steptoe website is here.

Key Highlights:

05:04 – A breakdown of how illicit actors could exploit digital asset mixers.
Illicit actors, such as ransomware hackers, need a way to convert the digital assets they receive to government-issued currencies. This becomes a difficult task if one can attribute their digital assets as being the proceeds of ransomware. To avoid this, upon receiving the digital assets in their wallets, illicit actors can obfuscate the origin of the assets using a digital asset mixer that collects, pools, and then randomly shuffles cryptocurrencies deposited by many other users before redistributing the funds. This obfuscates the origins and the owners of the digital assets.

06:16 – The objectives of FinCEN’s proposed rule.
The proposed rule is seeking to impose record-keeping and recording obligations on US financial institutions for transactions that have a touchpoint with digital asset mixers. FinCEN sees CVC (convertible virtual currency) mixing transactions as a class of transactions of primary money laundering concern and as such seeks to mitigate the risk they pose by imposing those additional record keeping and recording requirements on US financial institutions.

11:28 – The difficulty posed by the rule’s broad definition of CVC mixers.
The proposed rule is considered to be overinclusive in that it defines CVC mixing so broadly that it could include most decentralized platforms, decentralized exchanges, decentralized lending protocols and other types of activities that could be occurring for legitimate purposes and may not be considered by most people to be a CVC mixer or a platform being used by bad actors.

17:01 – The Oct 7 Hamas attack’s impact on the proposed rule.
The proposed rule was issued on October 19 and followed the Hamas attack in Israel on October 7. The rule is believed to have been in the works for some time, but because Hamas is believed to have used digital asset mixers in the past to launder money, the attack is believed to have added some urgency to the issuance of the proposed rule based on some FinCEN statements.

19:03 – The compliance burden of the proposed rule.
The proposed rule is going to be a challenge for companies to implement for several reasons whether it comes down to collecting the right information to then compiling the information that was collected to then submitting the reporting requirements. As a result of the potential compliance burden, some companies may decide to simply not accept deposits or withdrawals from their platform that go to CVC mixers. This point becomes even more of an issue because the rule defines CVC mixing so broadly that it would include a lot of decentralized exchanges.

 

20-minute listen

David Rybicki and Neil Smith of the law firm K&L Gates came on the Vcheck podcast to discuss the new Department of Justice Safe Harbor Policy for voluntary self-disclosure made in connection with M&A that Deputy Attorney General Lisa Monaco announced on October 4, 2023. The latest M&A Safe Harbor Policy encourages companies to voluntarily self-disclose criminal misconduct they uncover during their pre-acquisition due diligence or post-acquisition during the integration phase.  Under the new policy, the Department of Justice (DOJ) will not prosecute companies that voluntarily disclose criminal misconduct within the Safe Harbor period and undertake remediation on the DOJ’s terms.  While the new policy has ‘carrots’ designed to incentivize companies to come forward, it also presents challenges, such as only affording six months for companies to self-disclose misconduct and one year from the date of closing to remediate the misconduct fully. Additionally, the policy does not apply to misconduct that must be disclosed by law, such as national security issues. The incentives offered, and the challenges presented by the new policy have several implications for companies seeking to be eligible for its benefits. They may change how acquiring companies approach pre- and post-deal due diligence. Below are summaries of the key takeaways from the podcast. You can find links to David and Neil’s contact information here (David) and here (Neil, as well as the US Policy and Regulatory Alert on the Safe Harbor Policy that the firm published on their website. 

Key Highlights:

01:36 – How the new policy differs from what came before.

Companies must disclose all relevant and non-privileged information about misconduct to receive any benefit from the incentives offered as part of the policy. The new policy is considered more stringent than what was applied during the Trump administration regarding how it restricts the circumstances under which companies can obtain cooperation credit, essentially ruling out partial credit. The announcement of the new policy also appears to strongly emphasize the issue of recidivism and a holistic view of a company’s entire track record. As noted in K&L Gates’ alert, misconduct at the target company disclosed under the policy will not factor into the DOJ’s recidivism analysis for the acquiring company. However, this does not apply to misconduct that is already public or must be disclosed.

03:56 – The trend towards incentivizing self-disclosure goes hand-in-hand with the growing difficulty of uncovering misconduct.

Domestic and international fraud has become more challenging to uncover and investigate. The new Safe Harbor Policy and its considerable incentives for self-disclosure reflect today’s reality that the government is leaning on acquiring companies to assist them in uncovering misconduct.

11:58 & 14:24 – Conducting comprehensive and risk-based due diligence.

While the new policy incentivizes companies to come forward and self-disclose misconduct, companies will not get a free pass.  There is an expectation that acquiring companies conduct comprehensive but risk-based due diligence to try and mitigate some issues before a deal is completed. Risk-based due diligence should focus on high-risk jurisdictions and industries and potential sanctions issues. However, in many instances, misconduct can only be uncovered in the post-acquisition phase, and companies need to move fast to remediate it to qualify for the new policy’s incentives. To quickly identify misconduct post-deal, companies must have robust compliance policies and post-deal due diligence processes in place. 

15:46 – Companies may start conducting deeper dive diligence as a result of the policy.

While some forms of misconduct cannot be identified until the integration phase, companies can still avoid potential issues by conducting comprehensive pre-deal due diligence. A likely result of the policy and the timing and resourcing issues that it entails may be that companies start approaching pre-deal due diligence through a deeper-dive lens and take a more robust pre-acquisition posture than they have in the past. 

Contact us at Vcheck to learn more about how we can vet third-parties and business partners around the world to support your enhanced due diligence process. 

 

17-minute listen

Ann Sultan and Alexandra Beaulieu of the law firm Miller & Chevalier came on the show to discuss recent enforcement developments and trends concerning the Foreign Corrupt Practices Act. In our discussion, we cover a number of important issues such as why the extractives sector continues to pose challenges for FCPA compliance, what red flags to look for when vetting a business partner overseas, and the need to go beyond a surface level screening of third-parties / business partners before entering into a relationship. You can find a link to a recent review of FCPA enforcement trends and developments published by the firm here

Key Highlights:

06:17 – A starting point for companies building a third-party risk program.

A good starting point is conducting a risk assessment and ensuring that the right compliance and legal stakeholders understand the company’s key areas of risk. From there, companies can start mapping their key risk areas to where they have existing controls and where there are areas of improvement in order to mitigate the highest-level risk.

06:56 – Why the extractives sector remains high-risk.

The extractives industry inherently is at a higher-risk for bribery and corruption for several reasons. First, the extractives sector is highly-regulated and often includes state-ownership of resources, which means that companies have more potential touchpoints with foreign government officials at multiple levels. Second, the extractives industry deals with the extraction of a country’s natural resources, necessitating the need to obtain licenses and permits. Obtaining these licenses and permits requires going through various government processes and is a potential touchpoint for bribery to occur in order to secure those items.  Thirdly, projects in the extractives industry are worth large amounts of money and tend to involve a bidding process. When the value of a project is so high, people’s judgement can become clouded as they see the cost of engaging in corruption as minor compared to the upside of winning a contract. Lastly, extractives projects overseas can be very complex and can result in companies needing business partners to assist with certain aspects of their operations. Each business partner / third-party that the company works with presents a potential liability for bribery and corruption risk.

09:05 – Key risk indicators when vetting third-parties and the need for enhanced due diligence

At a high level, you want to ensure that the third-party is equipped and has the expertise to help you and are not just being retained because of their connections or unique access to a senior government official or government decision maker. Secondly, you want to ensure that the third-party has a solid reputation and past performance in their industry as well as a willingness to sign up to the company’s anti-bribery and corruption and codes of conduct clauses. Lastly, you should vet the background of the third-party for any key risk indicators, even if they are not related to bribery and corruption because it could pose a significant reputational risk to the company or be an indicator of an unfruitful business relationship.

15:32 – Nearshoring and the need to remain vigilant on third-party risk

Even as companies nearshore their operations and supply chains, there is still the potential to run afoul of the FCPA. Anytime a company is operating in a foreign jurisdiction, the general FCPA concerns remain the same. Additionally, as companies move their operations to another country, they should educate themselves on the particular government touchpoints and corruption risks posed by the new jurisdiction as these present potential missteps.

Fill out the contact form to connect with our team of experts at Vcheck to learn more about how we can vet third-parties and business partners around the world to support your enhanced due diligence process. 

9-minute listen

In this episode of the podcast, Mike Blankenship came back on the show to discuss the IPO underwriting process, the role of due diligence and the state of the IPO market. Mike is a Managing Partner at the Houston office of Winston & Strawn and focuses his practice on corporate finance and securities law, including securities offerings, public company advisory, special purpose company offerings, among others.  We covered a number of areas in our discussion, ranging from the state of the IPO market to the role of due diligence in the underwriting process. Below are three key takeaways from our discussion:

3:29 – The importance of investing in the diligence process in a choppy market

In a shaky market, all parties involved in the underwriting process should be spending more time in the diligence process. Conducting proper due diligence prior to taking a company public is a key step for all parties to ensure that all information in the registration statement is accurate and thereby reduce your liability.

5:34 – Why you should cast a broad net to catch risk factors and ensure accurate reporting

Under Section 11 of the Securities Act of 1933, the underwriters have a strict liability. Under the Due Diligence Defense under Section 11, all parties such as the issuer, the underwriters, and accountants could be exposed to liability if there are misstatements or omissions that have not been backed by proper diligence in the registration statement or the final prospectus. This includes uncovering potential risks beyond those traditionally disclosed in the Risk Factors section such as if a director makes false education or employment claims, all of which should be uncovered through proper due diligence.

5:56- The reputational impact of not conducting proper IPO due diligence

Underwriters that do not conduct proper due diligence prior to an IPO could face significant reputational damage if the registration statement or final prospectus has misstatements or omissions. If you’re known for not taking the due diligence process seriously then investors / buy-side clients will not want to buy securities from you because the necessary level of trust has been eroded.

Fill out the contact form to connect with our team of experts at Vcheck to learn more about how we can vet directors and executive officers to help expose potential risks as part of the IPO due diligence process.

18-minute listen

In this episode of the podcast, Vcheck Global spoke with Carrie LeRoy and Charles Walker who are partners at the law firm Gibson Dunn. We spoke about the pitfalls that exist for technology acquisitions and how these can be mitigated through holistic due diligence. We covered a number of areas that encompass the due diligence process when evaluating a tech acquisition and how effective due diligence will quickly identify and assess potential issues, allowing the acquirer to take the necessary actions to mitigate them and move forward with confidence. The risk issues we covered included intellectual property ownership, cybersecurity, and bribery and corruption risk from third parties, among others. In the sections below, we summarize some key takeaways from our discussion.

01:00 – The dangers in taking the legal due diligence process lightly

By not investing in a holistic pre-acquisition due diligence process that takes tech-specific issues into consideration, acquirers run the risk of wasting critical time and resources on other aspects of the deal only for it to fall through at the last hour. To have a successful acquisition, acquirers should have a diligence process in place to quickly identify what the potential issues are so that they have time to mitigate them rather than spending time on immaterial items.

03:30 – Intellectual property ownership issues that can arise if a founder is also a professor at a university

One issue that has been surfacing more frequently in tech acquisitions is founders who are also professors at universities. It is critical to confirm that the company completely owns the intellectual property rights to the work that has been done at those companies and that the university does not have any claim to the IP. A potential risk could be if a university has a policy that gives the university certain rights to that intellectual property.

04:26 – The importance of background checks in identifying risks that are the tip of the iceberg

Reputational due diligence plays an important role in identifying risk patterns and general company practices that relate to its reputation.  This could include identifying past intellectual property litigation or claims made in media as well as industry commentary on how the company and its founders conduct business.

06:46 – How background checks can help uncover past issues in a founder’s track record that could be indicative of future risks

In many instances, acquirers are buying companies from founders who have extensive track records and multiple past ventures. Identifying past risk issues such as business disputes and intellectual property litigation at those companies is key in understanding risk patterns that could be indicative of future risks if their current company were to be purchased.

11:37 – Why it is a mistake to think that tech is not a high-risk industry when it comes to corruption and bribery risk

Technology companies of all sizes can have global customers. Oftentimes, emerging tech companies will engage third-parties overseas to help them sell and market their products globally. If the acquirer has not conducted comprehensive due diligence into how those third-parties operate, they could be exposing themselves to violating anti-bribery and corruption laws. Before making any acquisition, acquirers should understand the company’s third-party risk compliance policies, potential exposure, and past issues.

14:30 – The importance of companies being upfront and transparent about any past risk events and remediation efforts ahead of a transaction

Deals can oftentimes be saved when a company is forthright about past incidents and the remediation steps that were taken. Conversely, deals can be killed or paused if the acquirer discovers a major issue that was not disclosed by the company because it creates an atmosphere of distrust and calls into question the general integrity of the company.

16:30 – How valuation is tied to a company’s ability to demonstrate that it is committed to compliance

Companies looking to be acquired should understand that valuation can be tied to their ability to demonstrate a commitment to compliance. These companies should have compliance policies and procedures in place to demonstrate their readiness as well as be able to show how past issues were identified and remediated.

Fill out the contact form to connect with our team of experts at Vcheck to learn more about how we can help vet entities and individuals around the world for reputational, national security and other compliance risks.

18-minute listen

In this episode of the podcast, Vcheck Global spoke with Laura Black and Christian Davis of the law firm Akin Gump about the Biden Administration’s plans to regulate outbound investment to protect US national security and economic competitiveness interests that would screen and monitor outbound investment from the United States to ‘countries of concern’. 

Per the requirements of the 2023 Consolidated Appropriations Act and in light of the continued deterioration of US-China relations, the Departments of Treasury and Commerce submitted reports to Congress earlier in the year that described plans to regulate outbound investment to protect US national security and economic competitiveness. Future outbound investment regulation is expected to prohibit certain investments to ‘countries of concern’ such as China and be focused on key advanced technologies that could be used in a potential military conflict or are considered vital to the future economic competitiveness and supply chain of the United States. Regulated technologies would likely include semiconductors, quantum computing and artificial intelligence. It is also expected that outbound investment regulation would include the collection of information on investments through a notification process. 

The executive branch and Congress have been debating for well over a year whether to regulate or restrict certain kinds of outbound investment to China and other ‘countries of concern’. While the government has reviewed in-bound foreign investment for national security risk for nearly 30 years through the Committee on Foreign Investment in the United States (CFIUS), the growing national security concern about US capital supporting China and other countries’ technological advancement has made it increasingly likely that the US will implement an outbound investment screening regime, although the administration is not expected to create a CFIUS equivalent for outbound investment that would feature a thorough investment review process. 

Going forward, the government will likely have an expectation of compliance for private market investors who can start to incorporate national security-related checks into their pre-investment diligence process. Investors can proactively prepare for the coming regulation by ensuring they understand the technologies and ‘countries of concern’ that would be swept up in the regulation and whether foreign investments under consideration are within the scope of the restrictions or could be in the future. 

Key Highlights: 

Fill out the contact form to connect with our team of experts at Vcheck to learn more about how we can help vet entities and individuals around the world for reputational, national security and other compliance risks.

18-minute listen

In this episode of the podcast, Vcheck Global spoke with Morgan Lewis Partner Kenneth Nunnenkamp about what the Corporate Transparency Act (CTA) is and its implications for deal making and financial institutions going forward.

For years, the Financial Action Task Force (FATF) has noted that countries including the United States need to have better transparency into shell companies that can be used for money laundering purposes. The CTA, enacted by the US Department of Treasury’s Financial Crimes Enforcement Network (FinCen) in January 2021, is the US response to this risk and a starting point to create a better corporate transparency framework to help improve anti-money laundering (AML) compliance.  To support the CTA’s goal of assisting the US government in combatting the use of shell companies for money laundering, the law formally establishes the requirements and mechanisms by which domestic and foreign limited liability companies will report who their beneficial owners are. The beneficial ownership reporting regulations will go into effect on January 1, 2024.

As part of the new framework, certain entities will be required to report their beneficial owners into a private database maintained by FinCen and directly accessible to certain authorized parties such as federal law enforcement, among others. However, while the CTA is a good first step in improving US corporate transparency, the fact that the database will remain private and not directly accessible to others without submitting requests, including financial institutions, may present obstacles to those institutions’ AML and compliance programs. Additionally, questions remain as to how FinCen will decide to enforce the CTA and conduct their own enhanced due diligence given that there are millions of entities registered in the US and FinCen has its own resource limitations.

Lastly, the CTA’s definition of who constitutes a beneficial owner is broad, which may create an unnecessary burden on financial institutions and private market investors to conduct enhanced due diligence on people that would normally not be considered high-risk. While the CTA requires the disclosure of beneficial owners, its initial rollout runs the risk of being a database full of noise. Bad actors will continue to utilize straw men to conceal the true owner and purpose of a shell entity and by keeping the database private, investigators and journalists will be unable to do their magic and uncover those who intend to exploit the US corporate system. Key highlights from the interview:

You can connect with our team of experts at Vcheck to learn more about how we support financial institutions and private market investors with enhanced due diligence vetting entities and individuals prior to a transaction.

Clare Connellan, Partner in White & Case’s London office and Head of the firm’s Business & Human Rights Interest Group, joins the RiskWatch podcast to share strategies for ensuring compliance with Modern Slavery and Supply Chain regulations, including the Uyghur Forced Labor Prevention Act and the German Supply Chain Act. This conversation covers:

Founder of Kaya Advisors and former Tilray EU Alliance Manager, Steven Arthur George, joins the RiskWatch podcast to discuss risk and opportunity in the corporate cannabis space, including recreational legalization in Germany and the evolution of third party relationships. This conversation covers:

Randy Bullard, partner in Morrison Foerster’s Corporate Department and Latin America Desk co-chair, joins the RiskWatch podcast to discuss ESG (environmental, social, and governance) investing in Latin America. This conversation covers:

Nancy Jacobson, Counsel, Global Compliance and Ethics at United Airlines, joins Vcheck Global’s Seth Harlan to talk third party risk management (TPRM) and the airline industry. Episode highlights include Nancy’s non-traditional career path, how United recognizes and remediates risk, and compliance challenges facing the airline industry.

This conversation covers:

As businesses and investors worldwide rush to ensure compliance with aggressive sanctions targeting Russian companies and regime-connected individuals, identifying ties to the expansive business empires of Russian oligarchs is a top priority.

Tom Stocks, senior investigator with the Organized Crime and Reporting Project (OCCRP) joined RiskWatch to discuss the challenges of tracking oligarch assets including industries and locales warranting scrutiny and the ways oligarchs hide their assets.

This conversation covers:

Mike Blankenship, managing partner of Winston & Strawn’s Houston office, returns to Vcheck Global’s podcast RiskWatch to discuss de-SPAC due diligence priorities, M&A sectors and regions to watch, and risks facing biotech and digital health investors. You can listen to our first conversation with Mike Blankenship on the RiskWatch podcast.

This conversation covers:

Hot on the heels of Transparency International’s recently released 2021 Corruption Perceptions Index, Vcheck Global’s Seth Harlan speaks with James Cohen, Executive Director of Transparency International Canada and Shanti Salas, VP, North America, for OpenCorporates for the latest episode of the RiskWatch podcast. The trio discuss myriad topics including global corruption concerns, transparency obstacles posed by shell companies, and supply chain data shortcomings. 

This conversation covers:

With the Securities Regulation Institute’s 49th Annual Conference underway, Vcheck Global’s Seth Harlan speaks with Elaine Greenberg, Shareholder at Greenberg Traurig LLP and former senior officer in the the United States Securities and Exchange Commission’s (SEC) Enforcement Division. Highlights from this RiskWatch podcast episode include anticipated changes in the types of sanctions and relief sought by the SEC in its enforcement actions, the Enforcement Division’s prioritization of Environmental, Social, and Corporate Governance (ESG), and the SEC’s cybersecurity enforcement actions.

Elaine has more than 30 years of securities law experience, with 25 of those years spent at the SEC. Now, with Greenberg Traurig LLP, Elaine’s work focuses on DOJ, FINRA, SEC, State Attorneys General and other related regulatory matters (examinations, enforcement, and litigation), corporate and white-collar defense investigations, and public finance.

With the Securities Regulation Institute’s 49th Annual Conference underway, Vcheck Global’s Seth Harlan speaks with Mellissa Duru, Special Counsel at Covington & Burling LLP and former Sr. Special Counsel at the United States Securities and Exchange Commission (SEC). Highlights from this RiskWatch podcast episode include Environmental, Social, and Corporate Governance (ESG) benchmarking standards and disclosures forecasting, tips for starting an ESG program, and the impact of ESG issues on cryptocurrency investment.

Mellissa Duru spent 15 years with the U.S. SEC where she worked as Counsel to SEC Commissioner Kara Stein and served in various policy advisory and transactional roles within the SEC’s divisions of Examinations and Corporation Finance. Immediately preceding her role with Covington, she worked as a cybersecurity legal policy advisor at the SCE with a focus on the financial sector.

01:02 – 03:46 Predictions regarding ESG benchmarking standards

03:52 – 06:50 ESG topics of interest to investors

06:55 – 08:50 Tips for starting an ESG program

08:56 – 10:54 The SEC’s increased presence in the global ESG conversation

11:04 – 13:52 The impact of of ESG issues on cryptocurrency investment

 

 

To kick off CRE Finance Council’s January Conference 2022, Vcheck Global’s Seth Harlan speaks with Jack Cohen, President and Chief Innovation Officer of Stronghill Capital, a subsidiary of ArrowMark Partners, and past Chairman of the Commercial Real Estate Finance Council for this episode of RiskWatch. Highlights from this RiskWatch podcast episode include property types to watch this year and Jack’s thoughts on reputational risk and risk tolerance in the lending space.

Jack has 40-plus years’ experience in commercial real estate, beginning his career with Cohen Financial as a loan originator before taking the reins as CEO and holding that leadership position for 25 years. He has been honored with various awards in his career, including the CREFC Founder’s Award for his lifelong contributions to commercial real estate securitization. During this week’s CREFC Conference, Jack is leading the event’s Young Professionals Roundtable and moderating discussion “Lending Time Warp: The Future of CRE Finance”.

0:44 – 2:53 Property types to watch

2:55 – 4:18 Reputational risk issues when vetting borrowers and opportunities

4:19 – 5:11 Considerations when reviewing due diligence findings

5:12 – 7:45 Risk tolerance in the lending industry 

7:48 – 11:18 Emerging commercial real estate technology to watch

11:23 – 12:15 How to stay up to date with Jack

Vcheck Global had the opportunity to speak with Simona Weinglass, an investigative journalist for The Times of Israel, earlier this year about her 2016 investigation into Israel’s binary options industry, The Wolves of Tel Aviv, which was awarded an honorable mention in the Trace Prize for Investigative Reporting competition. Notably, Simona’s work resulted in the binary options industry being banned by the Knesset.

Our conversation touched on topics of interest to both consumers and providers of investigative due diligence, including the global nature of internet-based fraud, obstacles impeding public awareness of fraudulent industries, and how COVID-19 led to a rise in online financial scams. 

This conversation covers:

The 38th International Conference on the Foreign Corrupt Practices Act (FCPA) is underway, and to highlight the event Vcheck Global’s RiskWatch podcast co-host Seth Harlan interviewed some of the featured speakers at this year’s conference.

He asked them about critical risk and compliance issues, including affects from the pandemic, the growing prominence of Environmental, Social, and Corporate Governance (ESG) compliance in the U.S., and the prevailing attitude toward the FCPA and other globally relevant Anti-Bribery and Anti-Corruption (ABAC) statutes.

In the ninth episode of RiskWatch, Chelsea Binns and Bruce Sackman discuss their book, The Art of Investigation. Conversational highlights include the benefits of infusing investigations with creativity and cultural awareness, as well as technology’s impact on the investigative process.

Chelsea Binns is a Certified Fraud Examiner, licensed Private Investigator, and the author of Fraud Hotlines: Design, Performance & Assessment. Binns is also an Assistant Professor and the Director of the Center for Safety and Private Security within the John Jay College of Criminal Justice’s Department of Security, Fire and Emergency Management.

Bruce Sackman spent 32 years in the U.S. Department of Veteran Affairs, serving as Special Agent in Charge in the Office of Inspector General’s Criminal Investigations Division until May 2005. He has been involved in hundreds of investigations spanning allegations of fraud, corruption, and thefts, to patient assaults, suspicious hospital deaths, and pharmaceutical drug diversions.

In the eighth episode of RiskWatch, Vcheck Global VP and General Manager of Vcheck Intelligence Rahul Ravi speaks with Roger Jones, Director, Corporate Partnerships for the Cleveland Browns. The Cleveland natives tackle topics including partnership vetting, player endorsements, and community collaboration.

This conversation covers:

Vcheck Global’s podcast RiskWatch is back with brand-new episodes! In the seventh episode of RiskWatch, Vcheck Global Senior Associate Seth Harlan speaks with Shanti Salas, VP, North America, for OpenCorporates and Rahul Ravi, VP and General Manager of Vcheck Intelligence, for Vcheck Global. Both Shanti and Rahul have been practitioners in the reputational due diligence space where their work covered issues including KYC, AML, and third-party risk management across supply chains.

Open Corporates is the largest open database of companies in the world. Its transparent company data is used by leading providers of investigative due diligence, including Vcheck Global, to expose corruption and criminality.  

This conversation covers:

 

In this episode of Vcheck Global’s podcast, RiskWatch, our host speaks with the author of “Making a Killing: South Sudanese Military Leaders’ Wealth, Explained,” a report published by The Sentry earlier this year. The report uncovers how top military and opposition leaders in South Sudan engaged in what appears to be corrupt business activities and money laundering.

When an investigative report such as this is released, it can highlight how these activities continue to weaken the country’s institutions, undermine the rule of law, and may lead to renewed violence. It can also cause reputational damage for institutional investors and partners who are linked to companies and other individuals engaging in corrupt activities. The podcast discusses these issues and other risks, and the way forward for South Sudan.

The Sentry is a collective of policy and government experts, journalists, financial and legal investigators, and human rights lawyers, focused on following dirty money connected to war criminals and war profiteers.

Download the report highlighted in this episode of RiskWatch here: https://cdn.thesentry.org/wp-content/uploads/2020/07/MakingAKilling_TheSentry_May2020.pdf

On this episode of Vcheck Global’s podcast RiskWatch, we speak with Global Financial Integrity’s Director of Illicit Trade Channing Mavrellis based in Washington, DC. We discuss her co-authored work— 2018’s Illicit Financial Flows and the Illegal Trade in Great Apes— and cover a number of topics connected to global corruption, illicit supply chains, and the impacts on both wildlife and the world. Download the paper here.

In the third episode of Vcheck Global’s podcast RiskWatch, we speak with Jessica Noll, who published a research study in February 2019 examining the history of anti-corruption efforts and institutions in Egypt titled, “Fighting Corruption or Protecting the Regime?”.

In our talk, Noll explains how corruption takes hold of societies and the true motivations of some regimes’ efforts promoting anti-corruption campaigns and creating anti-corruption bodies.

Noll a doctoral degree candidate at Helmut Schmidt University in Hamburg, Germany, and participated in a visiting research fellowship at Washington, D.C.-based think tank Project on Middle East Democracy from October 2017 to May 2018.

In this episode of Vcheck Global’s podcast RiskWatch, human intelligence expert Alex Sorin speaks with Shawn Hauser, partner and chair of the Hemp and Cannabinoids Practice Group at national marijuana law firm Vicente Sederberg in Denver, Colorado. Hauser helps marijuana (cannabis) and hemp businesses navigate intellectual property, investment, regulatory compliance, and state and federal law. This conversation covers a number of interesting angles on the topic of cannabis compliance, including how legal frameworks have changed, how cannabis and hemp companies can navigate regulatory compliance, and some of the core requirements for conducting due diligence.

Topics of discussion:

 

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Retired U.S. Ambassador at Large Luis C.deBaca joined RiskWatch for a discussion about modern slavery in corporate supply chains and what is being done to both combat and prevent it. Ambassador C.deBaca served five years in the Obama Administration to monitor and combat human trafficking before serving as the director of the U.S. Office for Sex Offender Monitoring, Apprehending, Registering, and Tracking. He retired from government service in 2017, however C.deBaca continues the battle for exploitation-free supply chains through his senior fellowship at Yale University’s Gilder Lehrman Center for the Study of Slavery, Resistance and Abolition.

C.deBaca has an extensive background both managing millions in grant funds for combating sexual abuse and slavery, and in negotiating for labor, law enforcement, and human rights advances across the U.S. In this episode of the podcast, Alex Sorin asks C.deBaca how companies can do their part to eliminate and prevent exploitation from their financial flows.