Proxy plumbing gets Securities Exchange Commission scrutiny

SEC’s Clayton attacks lack of global commitment to combatting corruption

The chairman of the US Securities and Exchange Commission (SEC) has launched a blistering attack on his foreign counterparts for failing to tackle offshore corruption.

During his speech at the Economic Club of New York on Monday (9 September), Jay Clayton warned there was a continuing lack of global coordination and commitment to combat corruption around the world.

Clayton said SEC and the Department of Justice have “vigorously enforced” the Foreign Corrupt Practices Act (FCPA), bringing nearly 80 FCPA cases in the past five years involving alleged misconduct in more than 60 countries.

However, he said many other countries, including those that have similar offshore anti-corruption laws on their books, do not enforce those laws.

According to the latest figures from the OECD Anti-Bribery Convention, nearly half (21) of its 44 member countries had not yet sanctioned an individual or entity for foreign bribery as at the end of 2017. These include Argentina, Columbia, Czech Republic, Denmark, Estonia, Ireland, South Africa, Portugal, Mexico and New Zealand.

“To be clear, I believe this is important work, ” Clayton said.  “Corruption is corrosive. We see examples where corruption leads to poverty, exploitation and conflict. Yet, we must face the fact that, in many areas of the world, our work may not be having the desired effect.”

He added: “Couple the unique enforcement posture of the US with the fact that US jurisdiction generally is limited to areas where US and US-listed companies do business, and the reality that there are countries where the business opportunities are attractive but corruption is endemic, and the potential for undesirable results becomes clear.”

When a cooperative, anti-corruption strategy is being pursued by others, the benefits of playing a non-cooperative strategy are great, according to Clayton, particularly if the company is the only one who is “cheating”.

“Your company “wins” the lucrative offshore business with no competition,” Clayton said.

The chairman added that the SEC is effectively fighting global corruption on its own and sees little drive from other countries to up their game, and even believes some countries are purposefully turning a blind eye to corruption for economic gain.

“Speaking for myself, I have not seen meaningful improvement. To be clear, I do not intend to change the FCPA enforcement posture of the SEC.  We should, however, recognise that we are acting largely alone and other countries are incentivised to play, and I believe some are in fact playing strategies that take advantage of our laudable efforts,” Clayton stated.       

The FCPA-driven withdrawal of US and US-listed firms from certain jurisdictions has resulted in  global laws with no or limited enforcement, producing individually unfair and collectively suboptimal results, according to Clayton – further fuelling the need for greater co-operation between regulators.

“I assure you that this reality is at the front of my mind when I engage with my international counterparts on matters where common, cooperative enforcement strategies are essential, including the recent calls for greater securities law-based regulation of environmental and social issues,” the chairman said.

In addition to his stark warnings about global corruption, Clayton encouraged his counterparts to address Brexit and its potential effects on the financial markets.

“Here, I encourage our issuers, financial services firms and other market participants to fight off the complacency and fatigue that is endemic to situations of this type.  I encourage you to continue to prepare for, and reasonably inform your investors of, the potential impacts of Brexit.

“At the SEC, we continue to work with our domestic and non-US counterparts to identify and plan for potential Brexit-related impacts,” Clayton said.

He also revealed a number of initiatives underway at the SEC, including modernising its regulatory approach to investment funds, increasing transparency in the corporate and municipal bond markets, examining and improving the equity market structure, and increasing efficiency, transparency and accountability in the area of proxy voting.

Last Updated: 13 September 2019
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