This month sees the Financial Markets Authority return to the High Court in Auckland to prosecute its case against Hamish Sansom for alleged insider trading. The trial, which is expected to run for two weeks, will hear allegations that Sansom colluded with former colleague Peter Honey to use confidential information when selling EROAD shares in 2015, days prior to the same information being made public, and EROAD shares dropping in value. Honey’s guilty plea in 2017, his sentence of 6 months’ home detention, and the aborted trial of Sansom in March of this year (as a result of a hung jury) provide the backdrop to the latest chapter in this particular tale, now playing out before the Hon. Justice Fitzgerald and a jury of 12.
Whilst the legal and business community watches the Sansom rehearing with interest, it is important to note that this is just the tip of the iceberg when it comes to the Government’s, and the regulator’s, renewed interest in corporate misconduct, both here and across the globe. Attitudes toward alleged corporate misconduct have continued to shift over the last decade, and never before in New Zealand’s corporate history has there been a stronger appetite for increased scrutiny and enforcement of corporate misconduct. For those in business, it is timely to look at what this means, and what CEO’s and Boards should be doing in response.
A new era of corporate compliance
New Zealand businesses will, by now, be familiar with the new health and safety regime which came into effect in 2016. The new regime was a response to the perception that New Zealand businesses were not adequately addressing health and safety risk, and this included around the Board Table as much as on the ground. The increased regulation and regulator involvement that this regime brought has had a profound effect on the way business is conducted in New Zealand.
It is clear though, that this is only one of many areas where increased Government and regulator activity is occurring in relation to corporate misconduct and corporate compliance. We have outlined other areas that are important for corporates to be aware of.
Whilst the market events of the 1990’s and early 2000’s led to an increasing intolerance of poor market behaviour (particularly with finance companies), the substantial reforms and increased compliance of the last five years has set the platform for a new wave of regulatory involvement in the sector as new crises and events unfold. The National-Government’s reforms were comprehensive and far reaching, and reform in the sector isn’t over yet. The Financial Services Legislation Amendment Bill, and the high-profile inquiries overseas into finance sector culture, remuneration and performance, is having an impact here, with the Reserve Bank and the FMA both increasingly active.
Anti-bribery and Corruption
New Zealand’s anti-bribery and corruption laws were strengthened in 2015 through the introduction of substantial penalties and a corporate offence. Now that the new laws are in place, we can expect increased enforcement to follow. The new legislative provision (under the Crimes Act 1961) make corporations liable for corrupt acts of employees or agents, where it has failed to take reasonable steps to prevent it. This brings NZ law more closely into line with international norms, including the US and UK (whose own laws, with their extra-territorial reach, could increasingly affect New Zealand businesses).
Since 2008 insider trading has attracted criminal sanctions, but only last year did we see the first criminal sentence handed down for insider conduct in the EROAD case (FMA v Honey). This demonstrates that legislative change is now being accompanied by an increased appetite for enforcement.
Anti-Money Laundering and Countering Financing of Terrorism
Similar to insider-trading, AML laws were significantly overhauled in 2009. With more organisations now under the new regime (lawyers were added this year for example) the time for education is over, and enforcement action is stepping up. Organisations providing financial related services are required to put preventative measures in place to help prevent money laundering and financing of terrorism. A failure to be on top of this obligation is going to lead to significant reputational legal and financial risk.
New Zealand’s privacy regime is set for a major overhaul in light of overseas data protection trends, in particular the introduction of the GDPR in Europe. The Privacy Bill, which repeals and replaces our existing Privacy Act, is currently at the select committee stage. One key aim of the Bill is to give the regulator more enforcement powers and increase sanctions for non-compliance.
Criminalisation of cartel conduct is, after many years, on the horizon, as the Commerce (Criminalisation of Cartels) Amendment Bill was introduced in February this year and is now awaiting its second reading in Parliament. Again, this step has been inevitable for some time, and it provides a timely reminder to business to ensure that anti-competitive behaviour is eliminated.
Consistent with global trends, New Zealand is increasingly focused on corporate misconduct and corporate compliance. There is no reason to think that trend is going to change. New Zealand’s adoption of criminal insider trading, cartel and market manipulation laws, have all followed the passage of the same in the UK, USA and Australia. Similarly, recent changes to our anti-bribery and corruption laws follow global trends of increased corporate responsibility in the area, led by the UK.
Given this, it is now open to New Zealand business leaders to be proactive in the way corporate misconduct risk is managed. It is an opportunity to get ahead of the trends which we are seeing and which are still to come.
Failure to manage your corporate misconduct risks does not only give rise to legal risk. It can have significant and long-lasting reputational and financial effects as well.
If you haven’t already started thinking about your corporate risks, and how you are managing, you should do. Leadership in this space can put your business ahead of the curve in this space, illustrating a genuine culture of compliance and ethical corporate behaviour, and distancing yourself from any issues that arise, should that occur.
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