If You Want to Contain Corruption, Promote Intrinsic Motivation!

by Johann Graf Lambsdorff, Kevin Grubiak, and Katharina Werner

Photos of the authors

From left to right: Johann Graf Lambsdorff, Kevin Grubiak, and Katharina Werner (photos courtesy of the authors)

There has been a long debate in areas such as development aid, procurement and compliance as to whether corruption or intrinsic motivation plays a greater role in determining the performance of corporate employees and public officials. One side, let us call it the deterrence-view, posits that containing corruption is a prerequisite for ensuring growth and development. Where corruption thrives, all efforts are futile. Aid money will seep into dark channels. Money intended for purchases will flow into overpriced deals. Employees sent to areas prone to dishonesty will be infected by a virus of fraud. Avoiding risks of corruption must then be the starting point for improvement. For example, the United Nations Convention Against Corruption (United Nations 2014: iii) states: “Corruption is a key element in economic underperformance and a major obstacle to poverty alleviation and development.” Many practitioners tend to adhere to this view, which emphasizes deterrence and a zero-tolerance strategy against corruption.

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PCCE Adds Three New Members to Its Board of Advisors

The NYU School of Law Program on Corporate Compliance and Enforcement (PCCE) is delighted to announce that Cheryl James, Preston Pugh, and Michele Siano have joined PCCE’s Board of Advisors.

Photos of new board members

Left to right: Cheryl James, Preston Pugh, and Michele Siano (Photos courtesy of board members)

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Managing U.S. Enforcement and Civil Risks Relating to ESG Issues: Greenwashing

by   

Left to right: Victor L. Hou, Abena Mainoo, Caroline Soussloff, Clara Cibrario Assereto and Robert Garden 
(Photos courtesy of Cleary Gottlieb Steen & Hamilton LLP)

Companies face new pressures relating to the potential environmental impact of their products and services.  In recent years, ESG has become a focal point about how companies conduct their business and there has been an increase in pledges to reduce greenhouse gas emissions, marketing of environmentally friendly products and reporting on environmental, social and corporate governance/ESG metrics.  As with any other statements that companies make, it is important that such statements are substantiated and accurate.

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The New Era of Export Enforcement

by Matthew S. Axelrod

Photos of the author

Photo courtesy of the author

In 2008, when Siemens AG and three subsidiaries pleaded guilty to Foreign Corrupt Practices Act (FCPA) violations and agreed to pay $450 million in combined criminal fines, the resolution put the world on notice.[1]  Violating the FCPA – including through corrupt payments, falsified records, and weak internal controls – would result in significant penalties.  Paying bribes to foreign officials now carried enterprise risk.  While that seems obvious today – after a number of subsequent multi-billion-dollar FCPA settlements – it wasn’t always the case.  Through the work of a small but dedicated group of prosecutors at the U.S. Department of Justice, the FCPA developed from an esoteric and underappreciated area of the law into one of the top risk and compliance areas for large companies.  Export enforcement is now travelling a similar path.

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Navigating Generative AI in M&A Transactions

by Frank J. AzzopardiMatthew J. BacalDavid R. Bauer, Pritesh P. ShahSamantha Lefland, Christopher C. Woller, and Joshua Shirley 

Photos of the authors

Top left to right: Frank J. Azzopardi, Matthew J. Bacal, David R. Bauer, and Pritesh P. Shah. 
Bottom left to right: Samantha Lefland, Christopher C. Woller, and Joshua Shirley.
(Photos courtesy of Davis Polk & Wardwell LLP)

The recent rise of consumer and market interest in generative artificial intelligence (GAI) tools has spurred growing interest in GAI assets from strategic acquirers and private equity investors. This article provides a brief introduction to GAI tools and their current uses, as well as an overview of the due diligence, transactional and other commercial considerations for investors and acquirers engaging in related investment and M&A activity.

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Significant Improvements for International Transfers of Personal Data – Adequacy Decision for the New EU-U.S. Data Privacy Framework Adopted by the European Commission

by Dr. Martin Braun, Kirk J. Nahra, Frédéric Louis, Benjamin A. Powell, Anne Vallery, Itsiq Benizri, Valentino HalimAli A. Jessani, and Shannon Togawa Mercer

Photos of the authors

Top left to right: Dr. Martin Braun, Kirk J. Nahra, Frédéric Louis, Benjamin A. Powell, and Anne Vallery.
Bottom left to right: Itsiq Benizri, Valentino Halim, Ali A. Jessani, and Shannon Togawa Mercer.
(Photos courtesy of Wilmer Cutler Pickering Hale and Dorr LLP)

On July 10, 2023, the European Commission adopted its long-awaited adequacy decision for the EU-U.S. Data Privacy Framework (“Adequacy Decision”). This ends a three-year journey to set up a successor to the EU-U.S. Privacy Shield mechanism, which the Court of Justice of the European Union (“CJEU”) deemed invalid on July 16, 2020. U.S. President Joe Biden welcomed the Adequacy Decision, stating that it “will provide greater data privacy protections and economic opportunities.”

The Adequacy Decision concludes that the U.S. provides for an adequate level of protection under the EU’s General Data Protection Regulation (“GDPR”) when personal data of individuals in the European Economic Area (“EEA”) is transferred to U.S. companies certified under the new EU-U.S. Data Privacy Framework.

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Gatekeepers in the Dock

by Anthony O’Reilly

Photos of the authors

Photo courtesy of the author

Two recent complaints of serious misconduct against Chief Compliance Officers reminded me of a debate at one organization about whether Compliance Officers should suffer harsher consequences than others when they violate the compliance policies themselves.

To be clear, the complaints are serious.  Steven Teixeira, then CCO at a global payments processing company, is alleged to have stolen material, nonpublic information that he accessed through his then-girlfriend’s work laptop, subsequently trading on the information and tipping others.[1] The second complaint by the debtors in possession of FTX Trading LTD alleges that David Friedberg, the former CCO at FTX was “indeed considered one of the key decisionmakers within the FTX group” and that Friedberg took actions including drafting, backdating and presenting to outside auditors allegedly fraudulent records to obscure the nature of funds transfers within the group.  It further alleges that he bought the silence of whistleblowers and their attorneys. The complaint concludes that his roles as a gatekeeper meant he had a duty to “ensure appropriate internal controls, risk management and compliance” and yet knowingly failed to implement – and even obstructed the implementation – “of virtually any of the systems and internal controls that would be necessary”[2].

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Do the DOJ’s Sticks and Carrots Actually Work?

by Veronica Root Martinez

Photos of the author

Photo courtesy of the author

Arguably one of the most important developments within the compliance industry of the past several years is a greater reliance on data and measurement.  Both scholars and leaders within the compliance industry have argued that firms should spend time and effort empirically assessing whether the systems within their compliance programs are actually working.  For example, Professors Brandon Garrett and Gregory Mitchell have argued for more “evidence-based compliance” efforts.[1]  Additionally, Professors Benjamin van Rooij and Melissa Rorie have articulated the trade-offs “involved in using different quantitative and qualitative approaches to measure corporate compliance and its predictors.”[2]  And industry leader Hui Chen has argued that companies “should avoid treating their compliance programs like a checklist and focus on ethics, metrics and measurable results.”[3]

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NYDFS Proposes Updated Second Amendment to Its Cybersecurity Regulation

by Lisa Sotto and Michael La Marca 

Photos of the authors

Lisa Sotto and Michael La Marca (Photos courtesy of Hunton Andrews Kurth)

On June 28, 2023, the New York Department of Financial Services (“NYDFS”) published  an updated proposed Second Amendment (“Amendment”) to its Cybersecurity Regulation, 23 NYCRR Part 500. On November 9, 2022, NYDFS published a first draft of the proposed Amendment and received comments from stakeholders over a 60-day period. The updated proposed Amendment will be subject to an additional 45-day comment period.

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A Singular(ity) Challenge: Compliance and Enforcement in Financial Markets in the Age of Artificial Intelligence

by Douglas K. Yatter and Hanyu (Iris) Xie 

Photos of the authors

Douglas K. Yatter and Iris Xie (Photos courtesy of Latham & Watkins LLP)

With the sudden arrival in the public consciousness of generative artificial intelligence (AI) tools like ChatGPT, it has become commonplace to observe that the rapid advancement and adoption of AI has the potential to reorder large portions of human economic, social, and artistic activity.  The ability of AI technologies to analyze, learn from, and utilize vast amounts of data with less and less human intervention or control may create opportunities and challenges in equal measure.  In the financial services industry and financial markets, where use of code has long been essential for data analysis and automation, AI is an evolutionary next step that may test the limits of our existing framework for compliance and enforcement.

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