2020. What a year it has been. A rollercoaster of events from the initial outbreak of COVID-19 and stay-at-home orders to disrupted supply chains and prolonged debates over government stimuli. In between these highs and lows, business has carried on, in many cases not as usual. Working from home, Zoom calls, and cloud-based tools — once the exception — have become the norm.
As we approach 2021, our team took stock of the impact the pandemic has had on compliance, as well as the key events of the year that are likely to influence 2021 compliance trends. Read our take on what could be in store next year.
2020: Our Compliance Review
Despite current circumstances, global regulators had a record-breaking year of enforcement activity, with penalties totaling $6.4 billion. October saw Goldman Sachs leap straight to the top of the FCPA leaderboard with a $3.3 billion settlement for its FCPA violations relating to the Malaysian sovereign wealth fund 1Malaysia Development Berhad. Following closely behind was the case of Airbus, which settled global bribery charges with French, UK, and US authorities to the tune of $2.3 billion in France alone.
But there are many more notable cases this year that are worthy of a mention. The Wirecard fraud scandal shook Germany, emphasizing the lack of oversight and poor internal and external compliance. Despite appointing an external auditor, it is clear that relying solely on auditor reviews and approvals is not enough. The case of Wells Fargo is also noteworthy, with a $3 billion fine issued in February for criminal/civil liability associated with a fake accounts scandal and an overall lack of compliance oversight.
The year has also seen increased emphasis on the importance of corporate culture. Those companies with strong corporate cultures are expected to perform better than those without. Scandals such as those involving the Boeing 737 Max and McDonalds showed the reputational impact of top-level ethics and compliance lapses. The case of CrossFit is another case in point, with the tone-deaf response from its CEO to the social unrest following the death of George Floyd. This in turn led to an unveiling of systemic compliance and human resources issues at CrossFit and a “fire sale” at this once high-flying entity.
Beyond this year’s scandals, navigating the new normal has meant embracing new ways of working. For many of us, face-to-face communication for work has been replaced by video calls and other distanced interactions. The necessity to onboard banking clients or third parties remotely creates opportunities for misfires and compliance stumbles. Companies and institutions with well enshrined and understood processes and with top level buy in have navigated the new reality well. But those with weaker compliance culture and infrastructure have struggled to retain compliance at pre-pandemic effectiveness.
Compliance Trends to Watch for in 2021
As we close the door on 2020, here are six compliance trends we expect may impact your business in 2021.
1. ESG will be a driving force in 2021
Environmental, social and governance issues will drive the compliance agenda next year with a focus on diversity, the environment, labor, and modern slavery. There is a growing acceptance that companies with good governance usually outperform. But the focus is now moving onto how to quantify good governance and how it can be measured in terms of the bottom line. This will be incredibly important to compliance teams, as it will have a direct impact on how compliance is viewed and how it will be increasingly seen as part of the “business” — adding to the bottom line, rather than being a cost to the business.
2. Internal compliance, audits, and fraud investigations are likely to increase at a significant scale
Fraud will continue to thrive in 2021, as unsecured remote work environments increase concerns around accounting fraud, cyber attacks, insider trading, and data leaks. The compliance challenges of remote working coupled with the potential for misuse of global stimulus funds, and increased interaction between the public and private sectors is likely to increase instances of business crime significantly.
3. Ramifications of updated DoJ Criminal Division Guidance
The updated DoJ Criminal Division guidance from June 2020 is likely to force businesses to re-scrutinize their third parties and take a hard look at whether their risk assessments generally, and their internal processes, could withstand outside scrutiny. Firms that don’t have defensible standards of care when it comes to assessing risk on multiple fronts could be in for a rude awakening if regulators start sniffing around.
4. More legislation is on the horizon
When it comes to regulation, compliance teams must brace themselves for a swathe of regulatory change including:
- The EU Action Plan on Sustainable Finance and other similar movements towards ESG compliance.
- Forthcoming rules around mandatory corporate accountability due diligence in the US and EU.
- KYC requirements in France on crypto transactions.
- AML reform in the US, bringing about changes to the collection of beneficial ownership information.
5. The impact of the new US administration
One of the biggest developments in 2021 is the arrival of a new Biden administration. With the transition, the overall atmosphere around regulation is likely to shift. Minimally, we’ll be seeing new leadership at key enforcement agencies and it’s not unreasonable to expect tougher FCPA enforcement and bigger penalties. Though we probably won’t see substantive changes to the FCPA statute or the approach to sanctions, we may see a push toward greater clarity on ESG metrics.
6. The continued shift from China
It’s likely that 2021 will see continued tensions between China and the US, even under the new US administration. Although it’s not known if the new administration will increase or reduce sanctions activity, smooth sailing is unlikely. The pandemic has accelerated the process of localization and near-shoring as businesses look to move their supply chains from China, and we expect this to continue throughout next year. South East Asia continues to feature high on business agendas as an alternative for Chinese manufacturing, as do Brazil and Mexico.
Whatever lies ahead of us in 2021, whichever way it twists or turns, we look forward to partnering with you to overcome your risk challenges. Get in touch to discuss how we can help.