David Jacobson's External Insights

Is your business caught by the Anti-Money Laundering laws?

The proposed Anti-Money Laundering/Counter-Terrorism Financing  (AML/CTF) package will affect many businesses not currently regulated by the Financial Transaction Reports Act but most do not yet realise its scope.

Clause 6 of the Bill lists items covering financial services and gambling
services. If your business does any one of these you will be a "reporting entity".

It is not limited to financial institutions. It will cover all super funds (including SMSF's), financial planners, lawyers, accountants, real estate agents, gem dealers, insurers, money changers and many others not yet identified.

For example if you make a loan, guarantee a loan , issue a security or issue a letter of credit in the course of business, you are covered and will have to comply.

Public comment is sought by 13 April 2006. I recommend you look at the list in clause 6 and if you are not sure, put in a submission.

REGISTER NOW FOR MY WEB SEMINAR ON 9 MAY

The way we do things around here

I strongly believe that a sign of a sustainable business is the ability of every employee to know "how things are done" in that business.

How things are done does not just mean processes relevant to that employee's work but also the implicit values and ethics that support the business and aligning them. For example, whether every employee is encouraged to think about what they do and whether it can be systematised and improved for the benefit of customers, how customers are treated from their first encounter right through the provision of a service and the amount of time and money invested in researching new products and services are all indications of a customer-focussed culture. Employees must understand how your business provides value to customers.

Management consultant David Maister argues that businesses  succeed not because of leaders (because most people don't want to be lead) but "because they were able to get even highly talented, extraordinarily mobile people to rally around a fervently held, common way of doing things – a world view, a philosophy, a set of principles, values or standards."

Great leaders... get people to focus on the key elements of strategy – the standards on which the firm is going to compete. With a clear ideology to rally around, talented people get the choice of saying – ‘I can believe in that. I think I’ll stick around to be a part of that and be a member of a society of like-minded people operating together in accordance with common values.’ That commitment, in company after company, has led to service line and market sector choices no-one anticipated, because they were not the guts of the strategy, but rather the outcome of the strategy – the firm’s own way of doing things.

Do your employees know the ways  things are done in your business and is that communicated to every new employee?

Cole Inquiry: isn't there a summary of AWB facts and where are the missing emails?

Commissioner Cole expressed frustration on 24 March (transcript) that after 3 months of hearings and after its own internal investigations ("Project Rose") AWB had not produced a summary of facts it agrees with. (The point being: when did the Board become aware of the payments to Alia and when did it become aware that Alia was owned by the Iraqi government?)

Much of the afternoon (page 59 ff) was taken up with legal argument surrounding what AWB company secretary Dr Fuller could say and his evidence regarding the location of missing documents (such as folders and 30,000 emails considered by Project Rose in 2004) and the provenance of a draft media statement prepared in late 2005.

The draft media statement is the subject of a non-publication order pending AWB's submissions as to whether it is legally privileged. Fuller says it was drafted by a crisis management expert.

Other documents relating to Project Rose remain confidential while the Commissioner determines whether it was a stakeholder management exercise or set up for the purpose of obtaining legal advice.

A reading of the transcript shows AWB had poor document management at the least. Fuller is not clear what documents were tabled at Board meetings and whether other documents were drafts or final and where they and relevant emails are kept.

AWB Index

2006 Global Risks Maps

Aon/Albert G. Ruben has produced an amazing map (free registration required) to help producers and directors identify and manage the risks associated with filming in foreign countries. (via an ip blawg)

Whether you are involved in entertainment or not, it is a great risk management tool containing information about risks in different countries in the following categories:

• political risk;
• crime and corruption;
• terrorism;
• kidnap and ransom;
• disease;
• medical care.

Aon also has a Political and Economic Risks Global Map.

UPDATE: As a matter of interest, here's information about film locations in Australia and a map mashup of film locations (via Wired).

UPDATE 30 March: The World Economic Forum Global Risks Report 2006 is worth reading. It identifies the top 25 global risks as follows:

Economic
• Oil prices/energy supply
• Asset prices/Indebtedness
• US Current Account deficit and US dollar
• Coming fiscal crises
• China
• Critical infrastructures
Societal
• Regulation
• Corporate governance
• Intellectual Property rights
• Organized crime
• Global pandemics
• Slow and chronic diseases (industrialized world)
• Epidemic disease (developing world)
• Liability regimes
Environmental
• Tropical cyclones
• Earthquakes
• Climate change
• Loss of ecosystem services
Technological
• Convergence of technologies
• Nanotechnology
• Electromagnetic fields
• Pervasive computing
Geopolitical
• Terrorism
• European dislocation
• Current and future hotspots

There are also interactive risk visuals and other resources here.

New Australian Guidelines for Electronic Commerce

Further to my post on website compliance, The Australian Guidelines for Electronic Commerce, were released by the Parliamentary Secretary to the Treasurer on 17 March 2006. More

Email management and document destruction

Another US Appeal Court has decided that the mere deletion of emails is not in itself evidence of intention to obstruct the course of justice.

The New York Times reports that a three-judge panel of the United States Court of Appeals for the Second Circuit in Manhattan unanimously found that the judge's instructions to the jurors had failed to adequately require that they establish that Mr. Quattrone intended to thwart a government investigation. They decided to overturn the conviction of Frank Quattrone and ordered a retrial.

The decision follows a previous similar decision in respect of Arthur Andersen.

Document retention guidelines

How does your business website rate for compliance?

I recently presented a web seminar on risk management for financial services websites.

As the principles are equally valid for any other business website I thought I'd set them out here and invite comments.

I came up with 3 principles and 17 guidelines for developing a business website. Whilst some overlap they are a starting point. But they are not an audit checklist for specific legal requirements:

Principles

1. A business website must be compliant, it can’t just look good
2. It must look good (and be easy to use)
3. Incorporate risk management and compliance into development

Guidelines

1.   Implement consumer protection and accessibility through good design
2. Avoid customer confusion by using well written content
3. Ensure there is adequate disclosure of key legal information
4. Provide security information to customers
5. Protect customer privacy and confidentiality
6. Know your customers
7. Be clear about third party relationships
8. Tell your story:use your website to report to your users about governance, social and     environmental matters as well as financial matters
9. Use your website to communicate with your customers
10. Provide users with interactive tools and functions
11. Provide information for investors
12. Implement member service systems
13. Integrate legal requirements into the website
14. Develop an IT governance policy: know your strategic goal
15. Be innovative
16. Communicate with employees
17. Involve your compliance officer in planning

UPDATE 21 March:  Jakob Nielsen's latest article is relevant to Principles 1 and 2:

"the biggest design flaws destroying business value typically involve:

• Communicating clearly so that users understand you. Users allocate minimal time to initial website visits, so you must quickly convince them that the site's worthwhile.
• Providing information users want. Users must be able to easily determine whether your services meet their needs and why they should do business with you.
• Offering simple, consistent page design, clear navigation, and an information architecture that puts things where users expect to find them."

Rights of first refusal

One of things that was drummed into me in law school was the difference between rights of first refusal (or pre-emptive rights) and options. (Rights of first refusal are subject to an offer being made by someone else; an option gives you the right, but not the obligation, to make  (or put) the offer). But I wasn't taught game theory.

In practice, the value of these rights (especially options) most often became apparent in the case of an incumbent lessee who missed giving notice of his exercise of his option to extend the lease of the premises in which his business was based.

If you are offered a right of first refusal, should you accept?

It depends: if the right holder has to exercise his right at a high price before a third party has a chance, but retains the right for any lower price then the right operates to the advantage of the owner not the lessee.

In When Rights of First Refusal Are a Bad Deal the authors point out that where in a property lease the right is structured as " a Before and After Right of First Refusal", the timing of the deal works in favor of the landlord.

The right holder is offered an initial deal by the asset owner—the landlord offers to sell the property to the renter for $100,000, probably a relatively high price. If the tenant rejects the deal, the landlord is free to offer the property to a third party. But if the owner and a third party agree on a price below the $100,000 originally offered to the tenant, the tenant has the option to acquire the property for that lower price. The landlord can now present an ultimatum to the third party saying that if the third party offers a price below $100,000 the renter has a right to match the offer. The right not only strengthens the bargaining position of the owner with the third party, but it also allows the initial offer to the tenant to be set high.

If however the right of first refusal gives the right holder a last-mover advantage, "it allows the right holder to move in and take good deals if they become available to third parties. And if, as is often the case, the right holder is the incumbent user of the asset, the fact that he has such a last mover advantage may discourage third parties from investing in trying to purchase the asset."

How does your organisation "smell"?

In this 5 minute video from 50 Lessons, Professor Lynda Gratton from London Business School suggests that we review organisations by their "smell" as we walk around and not just by a financial analysis.

Do you get a feel for an organisation's culture just by observing people in action? What sort of role model is the CEO?

What conversations are employees having? Is everyone (including the CEO) madly rushing around with a headset and mobile phone or are they talking in groups in offices?

Cole Inquiry terms of reference amended (3)

The Federal Government has amended the Cole inquiry's terms of reference to confirm that it can investigate AWB's internal inquiry into its wheat sales to Iraq.

AWB counsel had argued on 8 March that investigating the company's response to the UN's Volcker report is outside Commissioner Cole's powers.

The amended terms of reference allow the Commissioner to consider the actions of companies and people in connection with any inquiry or investigation and their responses to any complaint or allegation.

Over the last week the Inquiry has heard evidence from Foreign Affairs staff about their role in obtaining UN approval for AWB's wheat contracts. There has been no suggestion so far that they were mislead by AWB, just that they acted as a "post box" and didn't check them.

AWB Index