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This Week in FCPA

Episode 295 – the Baseball is Back edition


MLB and the players manage to work out their differences as Tom Brady unretires. Jay and  Tom to look at some of the week’s top compliance and ethics stories in the Baseball is Back edition.

Stories

  1. Is ESG in crisis? Lawrence Heim in practicalESG.

2.     Compliance-The Single. Matt Kelly in Radical Compliance.
3.     Corporate investigations and waiver of privilege. Debevoise lawyers in Compliance and Enforcement.
4.     Fear based compliance. Mike Volkov in Corruption Crime and Compliance.
5.     A view on corruption from the front lines. Tom and Matt interview Tim Khasinov-Batirov on Compliance into the Weeds. Matt blogs in Radical Compliance.
6.     Holistic 3rd party management. Mike Volkov, Susanna Cagle and Carol Williams in Risk and Compliance Matters.
7.     What kind of person resists a bribe? Gary Drevitch in Psychology Today.
8.     Ethisphere announces 2022 WME.  Ethisphere Press Release. Erica Salmon Byrne on the FCPA Compliance Report.
9.     Are cyber whistleblowers different. Kenji Price, Scott Ferber and Mark Schreiber in CCI.
10.  If you are going to IPO, better ESG first. Bob Conlin in Forbes.com.

Podcasts and More

11.  In March on The Compliance Life, I visit with Audrey Harris, Managing Director at AMI, formerly CCO at BHP. In Part 1, she discusses her academic background and early professional career. In Episode 2, Audrey moves to the CCO chair at BHP. In Episode 3, she moves back to private practice.
12.  Tom and Megan Dougherty are back with 2 more episodes of the MCU series. Guardians of the Galaxy Part 1 and Part 2.
13.  Taxman: On the Intersection of Tax and Compliance. A 5-part series with Tracy Howell. Part 1-why compliance needs to talk to tax. Part 2-transfer pricing. Part 3-why tax needs a seat at the table. Part 4-tax and supply chain. Part 5-tax and ESG.
14.  Tom visits with Hill Country Joanne Easley on The Hill Country Podcast.

Categories
Daily Compliance News

March 18, 2022 the IRS in the Oligarch Hunt Edition


In today’s edition of Daily Compliance News:

  • IRS in on oligarch asset hunt. (NYT)
  • Blockchain for baseball investors.  (Bloomberg)
  • Federal judge cautions hiring those who protest. (Reuters)
  • Corruption impacts almost half of Indian citizens. (Business Standard)
Categories
Blog

Tax and Compliance: Tax and ESG

What is the intersection of tax and compliance? Why does a Chief Compliance Officer (CCO) or compliance professional need to sit down with the corporate head of tax? How does a corporate tax function fit into a best practices compliance program? It turns out there is quite a bit a compliance professional can learn from a tax professional. Moreover, there are many aspects of tax which should be considered by a CCO and compliance professional from an overall risk management perspective. Unfortunately, these questions are rarely explored in the compliance community.
To explore these issues (and remedy this lack of awareness) I recently sat down with noted tax professional Tracy Howell to explore these and other questions. We tackled these issues and others in a five-part podcast series for Innovation in Compliance. Today, in this concluding blog post, we consider the role of tax and Environmental, Social and Corporate Governance (ESG).
We began from where Howell sees ESG from a tax perspective. ESG is the acronym for and covers environmental, social, and governance sections of an entity. For the ‘E’, environmental, an organization is supposed to be monitoring and contributing to its social requirements of its environmental footprint. It can include such areas as wastewater management, energy efficiency, carbon footprint of an organization. In the ‘S’ or social component, it includes the human rights, where an organization is operating, its Human Resource (HR) function, the wellbeing of its workforce, fair wages and much more. In  the ‘G’ or governance, it includes the executive compensation, which Howell noted is “a high-profile item”, political contributions of an entity, board independence and composition, the demographics of its executives, whistleblower schemes, among many others.
Importantly, Howell believes there are “external forces pulling tax into the S and the G of the ESG component.” From the social component, how does tax fit in? The phrase “being thrown around these days is for companies to pay a fair share.” Yet in addition to that being an arbitrary term for multinationals, Howell believes it is “really misunderstood because there are different countries or jurisdictions which have different tax rates. Some are higher, some are lower.” This means that as companies employ a tax strategy “to operate in a most tax-efficient manner, their activities are going to gravitate to lower tax regimes. Social taxes becoming more common in social piece of ESG, and you’ve got forces trying to push the concept of fair share rather than just compliance with the tax laws of those different jurisdictions.”
There is also a tax component in the governance prong. It is becoming more common for companies to have to talk about their compliance tax audits. Howell emphasized this “does not mean a company has a perception of not being compliant in governance simply because a company’s following the laws of the different jurisdictions.” Additionally, Howell has seen  litigation in the European Union (EU) between the “countries where there is some intellectual property licensing and one jurisdiction that’s at a lower rate, and governments are giving maybe some tax concessions to draw business incentives.” Subsequently those are being challenged, so that too falls under the ‘G’ for governance.
Howell believes the continued pressures on ESG transparency are growing. This could well lead to standardized reporting and score carding of entities on their tax transparency. US publicly traded companies currently have substantial reporting requirements in material areas of their operations and income taxes, which is “one of the large footnotes as required in SEC reporting.” Indeed, some international organizations such as the Organization for Economic Cooperation and Development (OECD), the International Financial Reporting Standards Foundation (IFSR), the World Economic Forum, and the Sustainability Accounting Standards Board (SASB), “are all drafting up their own and pushing out their own transparency scorecard that would include some things like effective tax rates.”
Another key issue Howell sees in the conjunction of tax and ESG is in the arena of effective tax rates (ETR) reporting by jurisdiction. In ETR “if you are in a high-tax country such as the US and then your organization has operations in Ireland, which has a lower income tax rate; if you just put those on paper and compare the two effective tax rates without an explanation or thorough understanding, you’re going to get an inaccurate conclusion. But these organizations are pushing for globalization and transparency, and it’s going to be a component for ESG score carding.” All of this will mean more importance for tax in an overall corporate ESG program.
We concluded with what Howell sees as the most important reason for tax to be a part of a company’s ESG discussion. That reason is the market. Howell stated the “biggest pressure that’s coming on top of multinational organizations around ESG is coming from the institutional investors. Large institutional investors play a heavy role in impacting a multinational’s activities. Every CFO really has to listen to the institutional investors that he has or his entity have relationships with. Moreover, institutional investors are probably the biggest 500-pound gorilla in the room that are making investment decisions with their millions of dollars, and they are incorporating an ESG scorecard with tax transparency. It is a big part of where they are making their investment decisions. So, the biggest players in the room that are asking for tax transparency are institutional investors, the pension funds and investor class. Those investment dollars are driving the CFOs and organizations to get ahead of SEC reporting and requirements and include an ESG scorecard component, of which tax is going to be a large component.”
What started off as a discussion of regulatory and legal requirements around tax has become market driven. This echoes my observation that it was not government regulation which drove ESG but the market. As antithetical as the former administration was to ESG, the market spoke about what it wanted for its investment dollars. This speaks to the overall and what will be the long-lasting power of ESG.
Check out the full podcast series Taxman: On the Intersection of Tax and Compliance on the Compliance Podcast Network. Check out Tracy Howell on LinkedIn.

Categories
Compliance Kitchen

EU Residency Protection for Refugees


EU introduces residency protection measures to displaced population of Ukraine.

Categories
Innovation in Compliance

Taxman: Tax and Supply Chain


 
As the Taxman five-part series nears the end, Tom Fox and Tracy Howell tackle an important topic that has become more prominent over the years: tax and supply chain. 
 

 
How Tax Can Help Supply Chain
Supply chain in a traditional sense focuses on the acquisition of goods, in particular the quality, cost, and delivery. There can be a substantial tax component in each of those steps to help companies attain goods at the lowest possible cost. Consequently, if supply chain does not have a relationship with tax, it can result in additional surprise costs being attached to goods. Data beyond the cost of goods, material, and service can be used to model and predict the additional tax burden so that better procurement decisions can be made. 

Mitigating the Risk of Mission Creep 
Establishing a connection between tax and supply chain in an organization is good, but the relationship needs to be kept fresh for a positive impact. In a company, people may be focused on so many different things that they forget to interact. Creative people tend to expand their roles and look for goods and services in different locations, which can be the cause of a mission creep. Hence, having constant close interaction between supply chain and tax allows for changes in functionality to be documented and implemented into the organizational framework.
 
Elements of a Tax-Efficient Supply Chain
Tom and Tracy discuss the elements of a tax-efficient supply chain. This includes:

  • Examination of the entire scope of what’s being manufactured and sold to allow the creation of tax opportunities to bring value based on special purpose entities. 
  • Coordination of transactions in a supply chain with transfer pricing. 
  • Compliance with tax laws and regulations. 
  • Documentation of the process. 

 
Resources
Tracy Howell | Email | LinkedIn 
 

Categories
FCPA Compliance Report

Erica Salmon Byrne on 2022 World’s Most Ethical Companies


In this episode of the FCPA Compliance Report, I am joined by Erica Salmon Byrne, President of Ethisphere. We discuss the announcement of Ethisphere’s 2022 World Most Ethical Companies awards. This year’s most stunning announcement is a 5-year Ethics Premium of 24.6%. Other highlights in include:

  • A deep dive into the Ethics Premium, including the reasons for the dramatic growth of the past 5 years.
  • 2022 had the highest number of new companies on the list. Who were some of these first-time honorees? The non-US centric number of honorees.
  • The Ethics Quotient-how is it calculated?
  • Why is the Ethics Quotient such a powerful tool for the compliance professional?
  • How to get your company involved in the World’s Most Ethical Companies process.

 
Resources
Ethisphere
2022 World’s Most Ethical Announcement

Categories
Life with GDPR

The Case of the Rogue Employee

Jonathan Armstrong and Tom Fox return for another episode of Life with GDPR. In the 2020 Morrisons case the UK Supreme Court ruled that an employer can be legally responsible for data breaches caused by their employees, although in the particular situation in that case the court ruled that Morrisons (the employer) was not liable for the actions of their rogue employee. In this episode, Tom and Jonathan look at the more recent case of Isma Ali v. Luton Borough Council where the High Court ruled that in committing the data security breach actions the rogue employee undertook, she had solely pursued her own interests and so the employer was not liable for her conduct. Some of the issues we consider include:

1.     What were the underlying facts of the case?

2.     What was the court’s ruling?

3.     Key Takeaways for the data privacy, data protection practitioner, including:

·      Take a close look at security measures and ensuring that access rights are policed. Data loss prevention and monitoring systems should also be in place to check for large data files leaving the organization – depending on the circumstances, a rogue employee might be after a lot of data;

·      Put in place appropriate policies and procedures to make sure that data protection principles like data security and data minimization are properly understood;

·      Perform a Data Protection Impact Assessment for new processes;

·      Make sure that employees in trusted roles are reliable and that their access rights are reviewed.

·      Put in place and rehearse a data breach notification procedure, including detection and response capabilities;

·      Training staff on all of the above; and,

·      Check existing insurance or taking out new insurance to cover the range of potential risks from “innocent” errors to the actions of a rogue employee.

Resources

Check out the Cordery Compliance, client alert on this topic, click here. For more information on Cordery Compliance, go their website here. Also check out the GDPR Navigator, one of the top resources for GDPR Compliance by clicking here.

Categories
Daily Compliance News

March 17, 2022 the World’s Most Ethical Companies Edition


In today’s edition of Daily Compliance News:

  • Ethisphere announces 2022 World’s Most Ethical Companies. (Ethisphere Press Release)
  • Interpol has new center to fight financial crimes.  (OCCRP)
  • SEC Commissioner Lee to step down. (Reuters)
  • Big 4 under regulatory scrutiny. (WSJ)
Categories
Blog

Tax and Compliance: Tax and Supply Chain

What is the intersection of tax and compliance? Why does a Chief Compliance Officer (CCO) or compliance professional need to sit down with the corporate head of tax? How does a corporate tax function fit into a best practices compliance program? It turns out there is quite a bit a compliance professional can learn from a tax professional. Moreover, there are many aspects of tax which should be considered by a CCO and compliance professional from an overall risk management perspective. Unfortunately, these questions are rarely explored in the compliance community.
To explore these issues (and remedy this lack of awareness) I recently sat down with noted tax professional Tracy Howell to explore these and other questions. We tackled these issues and others in a five-part podcast series for Innovation in Compliance. Today, we consider the role of tax in the Supply Chain. We also expand that to compliance, because compliance also has a huge role in this area.

Obviously, this topic has become more prominent over the last couple of years during the pandemic. Over the past couple of weeks, with the Russia invasion of Ukraine, it has become even more hyper-critical. One of the things we saw in the pandemic was that many companies with long established Supply Chains, perhaps not single source suppliers, but close to single source suppliers, found themselves scrambling when huge swaths. With the Russian invasion of Ukraine, we have had the largest amount of economic sanctions delivered by any administration in the modern era. Companies are struggling with not only responding to the sanctions but responding to the business dislocation from Russia and Belarus to Ukraine and into eastern Europe.
Clearly Supply Chain is critical for an organization, especially an organization that manufactures and has any substantial delivery of materials and services. There is also the question of where the highest risk in your Supply Chain might be. Is it in the critical component(s) in the acquisition of goods? Is it in the delivery of services? Or is it simply in the manufacturing process itself? Moreover, if you think of Supply Chains as only having a traditional focus on the acquisition of goods, comprising both the quality of the goods and the cost of the goods, and concluding with the delivery of the goods for consumption or later sale; you are missing a key component. That key component is tax and as Howell stated, “there can be a substantial tax component in each one of those steps of acquisition costs. If you are buying goods in foreign jurisdictions that can be transaction taxes, such as GST or VAT.”
Howell provided the following example. “If a company’s buying raw materials in a third country, in the shipping terms, we’d normally say title transfers in international waters, that’s a good thing for the buyer. Because that means if I’m buying something and I take title in international waters, it should not trigger any transaction taxes. However, if you are not paying attention to where you acquire goods from and then you take title within the country of origin’s territory, guess what? That could trigger up to a VAT liability of 15 to 20%. This means that if your Supply Chain is not interacting or does not have a relationship with tax, and the taxes can add a 15% to 20% component to the cost of goods in a transaction, which dramatically impacts the company’s cost of goods sold (COGS).”
However, if there is a good relationship between tax and Supply Chain, there can also be additional benefits tax brought to the fore and such benefits are more critical in 2022 and beyond because they can help a company plan for disruptions in the supply chain. For instance, if Supply Chain looks for alternative suppliers, or a different geo-region for component parts, tax can step in and do an analysis that would at least give them an estimate of what the tax costs are going to be.
Howell said that tax can provide “Supply Chain with the data that is beyond the cost of good, or the cost of material, or the cost of service. A tax professional can do so by modeling out the liability that a multinational could incur, including up to five different possible sources for goods and materials. From there you can extend your model out to see what the additional tax burden would be in each one of those scenarios. From there you can check to see if there are any tax incentives that either exist or that your organization can go negotiate.”
But the risk management that tax can bring to Supply Chain does not end there; particularly once tax and Supply Chain have established a relationship and it is understood how tax can assist Supply Chain in the procurement of goods and services. Through a documented process, it creates and entire framework for the organization to use going forward because at any given time Supply Chain will be looking for goods and services in different locations. Howell said, “you can have a mission creep. It is important for tax to have that relationship with Supply Chain so as their functionality changes and your organization is acquiring new goods in different locations, you can document the changes, and update your framework as needed when new tax issues can come to play.”

Join us tomorrow for our concluding post when we consider the role of tax in a corporate ESG program. Check out the full podcast series Taxman: On the Intersection of Tax and Compliance on the Compliance Podcast Network. Check out Tracy Howell on LinkedIn.

Categories
Jamming with Jason

The Difference 1% Makes with Luke Layman


Most motivational speakers use words like “make a massive change,” “set a big harry, audacious goal,” “work until your eyeballs bleed.” You get the point, and you are left feeling that unless you scale Mt Everest, you are a failure. That’s why so many people never start or stop quickly.
But what if that is a broken strategy that sets you up to fail? The real trick is making the little 1% changes that make all the difference when working from the identity of the person who already has what you want? It seems much simpler, and it works.
You go from “trying to lose weight” to being an athlete. When you set your intention on being an athlete or someone healthy, the path you need to take becomes clear when you decide. You don’t have to know all the steps to get started, and even a poor decision is better than no decision.
My guest today is Luke Layman. He is a former fighter pilot, entrepreneur, and host of the Shift Work podcast. As CEO and investor in a family of 7 & 8 figure businesses, he understands what it takes to grow and scale businesses. Luke believes entrepreneurship is the only path to true wealth and freedom. He is passionate about living a life of intentional alignment, making 1% changes, and leaving behind a trail of better humans.
Tune into this #jammingwithjason #podcast episode at: https://www.jasonmefford.com/jammingwithjason261/