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Trump, Panama and Brexit: what compliance officers really think

Chris Hamblin, Editor, London, 17 November 2016

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When polled just before the US election, 80.5% of respondents to the Risk Advisory Group's latest worldwide poll of compliance folk saw Donald Trump (pictured) as the presidential candidate who posed the greatest threat to them.

Many articulated reasons for their view - some of which, according to the consultancy, are not repeatable - but common themes were his express intention to deregulate and a lack of understanding of both international trading relationships and the rule of law. Of all respondents, 78% said that his unpredictability was their main concern. The Risk Advisory Group, moreover, asked the question "what is the biggest external risk to your business in 2017?" The answer from 27% of those polled was "the US election."

Key priorities for compliance

President-elect Trump's well-known interest in cutting regulations (in 2012 he described the US Foreign Corrupt Practices Act as a 'horrible law' and said that 'it should be changed,' and has also expressed a desire to repeal the Dodd-Frank Act) might have had something to do with the fact that 'increased regulation' is only a key priority for 37.86% of compliance personnel in the survey, lying in third place among key priorities, behind company-wide compliance training (which came in second with 48%) and 'efficiency' (which came first with 51%). The Risk Advisory Group interprets the word 'efficiency' to describe good processes and ways of working. 'Increased regulation' has slipped down from the 'number one' spot that it occupied last year.

Other key priorities, in descending order of importance, include team training and development (30%); data privacy (28.57%); geopolitical events (22.86%); cybercrime (20%); whistleblowers (14.29%); white-collar crime (11.43%); and recruitment (7.14%). Other considerations were listed by about 9% of people in the survey.

When money's too tight to mention

Against a backdrop of change and uncertainty, dominated by fears of a recession, Brexit and the result of the US election, one of the problems that compliance people say that they face is a shortage of resources. 73% of respondents to the survey think that their budgets will either be cut or stay the same in 2017. 48% say that it would take an internal investigation to cause an increase. 15% think that an investigation within a competitor organisation would do so and 9% think that another global scandal would do so. 28% do not think that any of these things would lead to more funding.

There is clearly a strong emphasis on doing more with the same or less in the next 12 months, which could explain why compliance officers say that they want to concentrate on making processes more efficient and on training people throughout their companies.

Brexit

Last year, respondents to the survey cited the British referendum about the EU as the biggest geopolitical threat to their business. This year, they are confronted with the outcome of the Brexit vote and are wondering what it is likely to mean for them. 34% of compliance people to whom the Risk Advisory Group spoke see Brexit as a major risk to their business – second only to the threat of a recession. 55% say that it causes uncertainty ("I don't know what it will mean for my department at this stage") and 37% expect it to bring about a change in regulations, while 32% anticipate new regulations. Worryingly, 13% of respondents are concerned that Brexit may cause them to "lose talent." As one respondent put it, "it's not clear who can stay."

Only 4.69% or so say that "Brexit will mean that our HQ may have to move out of the UK." Only 3.91% say that "it will affect our ability to access the compliance skills we need."

External risks

When asked to list the top three 'external risks' that their businesses faced, 52.86% of the compliance officers opted for the threat of a recession; 34.29% opted for Brexit; 29.29% opted for oil prices; 28.57% opted for a fresh corruption scandal on a par with the Panama Papers; 27.86% opted for the much-publicised slowdown in China's economic growth; 27.14% opted for the outcome, then unknown, of the US election; 22.86% opted for a deepening of the Russia/Ukraine crisis, something that might become less of a threat in view of Donald Trump's conciliatory tone towards Russia; 15.71% opted for terrorism/ISIS; and 7.14% opted for the migrant crisis.

Under a Panamanian moon

Since the Panama Papers were leaked in the spring, the UK has led the world in introducing a number of 'transparency' measures. In April, HM Government unveiled proposals to force foreign companies to disclose their ultimate owners when they bought property in the UK. The following month, David Cameron, the prime minister of the day, hosted the first international anti-corruption summit. Attendees pledged to “end the misuse of anonymous companies to hide the proceeds of corruption” and to “drive out those lawyers, real-estate agents and accountants who facilitate or are complicit in corruption,” with HM Government confirming that, from 30 June onwards, companies’ annual returns to Companies House must contain beneficial ownership details by making entries in the register of "People with Significant Control." Since then, it has emerged, companies have been entering the names of other companies on that register even though they are not supposed to do so. The Government has not done anything about this so far.

At the beginning of October, Ireland’s minister of finance, citing the Panama Papers, condemned tax evasion and promised to criminalise individuals who failed to disclose offshore accounts from 2017. By the same token, some of Britain’s offshore territories consented recently to exchange information about beneficial ownership from their registers with each other.

People in the survey responded to the question: "to what extent has the Panama Papers scandal affected how your business views risk?" Only 5.71% answered that it had done so to a great extent, but just over half said that it had to some extent. The remaining 43.57% said that it had had no effect at all. This added up to a total of 56% of compliance people saying that the Panama Papers had affected the ways in which their business viewed risk.

The Risk Advisory Group asked compliance people whether they had changed the way in which they approached 'due diligence' as a result of the Panama Papers. 44.29% had not. 27.14% said that they had not but may do in future. 21.43% said "yes, we are now much more thorough in how we assess new clients and third parties" and a remaining 7.14% gave the enigmatic answer: "yes, but in other ways."

Who responded to the survey?

The Risk Advisory Group contacted 157 people based all over the world for its 'compliance horizon' survey, with males predominating slightly over females. More than 85% had compliance as part of their jobs.

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