Causal link for SEC to go after Canadian companies is “minute”

Regulators around the world are cracking down on corrupt practices, putting companies at increased risk of “crippling” prosecution and, in some situations, the causal link between a company and the claim need only be minute for a foreign regulator to flex its muscle.
Jay Cassidy, senior vice president at Marsh Canada, made the observation as a panel member at the Risk and Insurance Management Society (RIMS) Canada’s Annual Conference in Ottawa.
Cassidy noted the United States adopted the Foreign and Corrupt Practices Act in 1977, and the act remained virtually dormant over the decades. But as a result of the Bernie Madoff financial pyramid scandal, as well as the global economic downturn, authorities are putting more emphasis and energy into going after companies with illegal practices and their individual directors, he said.
For Canadian companies, the causal link that needs to be established in order for the U.S.’s Securities Exchange Commission (SEC) to enforce the act is “minute,” Cassidy continued.
“From a Canadian perspective, we need to keep our eyes on this,” he said. “There doesn’t need to be a close proximity geographically: a Canadian owned and operated company that doesn’t even have its feet in the U.S. is at risk.
“If funds flow through a U.S. bank, or if your servers are hosted in the U.S., the SEC can exert its enforcement.”
And it’s not just the penalties and fees that will wreak havoc on a Canadian company.
“If there are $63 million in penalties, you’ve probably spent double that to investigate and defend the claim,” Cassidy said.
As a result, risk managers are encouraged to re-visit their Directors and Officers liability program, study their internal controls to prevent illegal activities and consider buying separate coverage to cover the costs of the investigation and defending of the claim, so as not to drain the limits of the D&O policy before a penalty is even levied.