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Daniel Wager: Corporate Governance and Strong Compliance Prerequisite for Success

Daniel Wager: Corporate Governance and Strong Compliance Prerequisite for Success

Daniel Wager, Vice President, Financial Crime and Compliance, Global Market Strategy at LexisNexis Risk Solutions, spoke to Gold about the risks and importance of corporate governance and compliance ahead of the “Corporate Governance Conference”, presented by Infocredit Group and powered by ICSA. 

 

Gold: Failing to meet guidelines for compliance can result in serious consequences for businesses. What are the main risks of non-compliance?

Daniel Wager: Non-compliance threatens a business in three main risk categories:  regulatory, financial and reputational. Compliance failures are usually detected through regulatory examinations, through internal or external audits or through enforcement actions. Typically, weaknesses found by regulators and those exposed through enforcement actions bring the greatest costs. These types of actions generate adverse media, bring large fines and penalties, cause businesses to incur significant legal expenses, and require expensive ‘look backs’ or remediation efforts. Reputational damage resulting from adverse media is hard to quantify, but may trigger a lack of investor confidence, erosion of brand, and loss of business opportunities. Matters exposed in internal and external audits are important to address promptly, as those issues that persist will often find their way to regulatory or enforcement authorities. To respond to compliance failures, companies are often required to divert funds and human resources to corrective actions, and away from revenue-generating functions. It also is worth noting that increasingly, corporations that are minimally regulated (non-banks) are becoming the emphasis of enforcement actions, focusing on bribery and corruption, facilitation of money laundering and sanctions violations.

 

Gold: How do these risks put the sustainability of a business in danger?

DW: Compliance controls and processes put in place in response to compliance failures are almost always more costly than efforts undertaken preemptively. This reality exists because reactionary measures are usually hurried and subjected to tremendous scrutiny from authorities. They are often personnel intensive and solutions are often purchased at a premium. Rapid requirements for implementation mean that businesses need to engage consultants to supplement professional staff.  Additionally, processes developed or implemented in a hurry often generate significant ‘noise’ in the form of false positives, diverting resources to matters that pose no true risk.  All of these implications drive up cost, diminish client experience and devour operating capital. A business operating with this model is not sustainable. When coupled with the aforementioned risks around brand erosion, loss of investor confidence, and loss of business opportunity, it becomes clear that businesses that wait for enforcement to develop compliance governance may be unable to survive.

 

Gold: As the Vice President of LexisNexis Risk Solutions, you focus on Financial Crime Compliance global market strategy. Given the many differences in business practices around the world, is it really possible to enforce a single global strategy?

DW: I think that while a single strategy for compliance is difficult to achieve, there are themes that unify compliance regimes and the goals of most businesses globally. Two of these are financial inclusion and financial transparency, and these are different sides of the same coin. Financial inclusion involves the concept that licit or good actors should be availed of the opportunity to participate in global financial markets. This applies to countries as well as individuals, in that entire countries and the entities residing therein can be painted with a label of suspicion due to the activities of a few illicit financiers.  Companies that seek to grow globally need to be able to use tools that help them distinguish between the bad and the good, so that the latter can transact at minimal risk to the company.  Without these tools the limited history or ‘presence’ of a new company is too often confused with the way an illicit shell company appears, and the new company suffers.  Even more complex is the need to have ways to distinguish between the ‘shell companies’ set up for legitimate reasons of privacy or wealth protection, and the smaller number created to engage in money laundering, corrupt transactions or terrorism financing.

A closely related theme across most jurisdictions is the need for financial transparency. This involves companies having the tools to understand the purpose of transactions, the risks presented by participants in transactions, and the compliance risk posed by their employees, suppliers and partners. Financial transparency permits companies to reduce the likelihood of unknowingly engaging in transactions that create risk, such as purchasing clothing from a manufacturer accused of using child labor, or a fund receiving investment monies that were stolen from elderly victims. And financial transparency enables businesses to balance carefully privacy and transparency to ensure access to markets and reduce friction for licit actors.  

 

Gold: Does good corporate governance and strict compliance guarantee business success?

DW: In today’s compliance environment, I would say that corporate governance and strong compliance are a prerequisite for success, but not guarantees of success.  Few businesses will succeed in the long term if they flout global regulations related to sanctions compliance, money laundering, and corruption.  It also is important to restate that companies that develop appropriate compliance controls on their own terms will likely be more successful than those that develop them in response to enforcement.

 

Gold: The Corporate Governance Conference, presented by Infocredit Group and powered by ICSA, takes place in Cyprus on May 5. How important do you consider it is for professionals from various sectors to attend?  What are they going to learn?

DW: This event plays an important role in bringing people together so that they can learn from each other and from experts in the field. Of particular importance is the representation from diverse sectors, as risk appropriate compliance structures vary from industry to industry, and innovation often results when diverse groups are brought together. Compliance remains a field where there is significant room for new insights and innovation.

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