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News digest 19/09/16: BIS Committee launches corporate governance review

19 September 2016 by Henry Ker

BIS Committee launches corporate governance review - read more

The latest governance stories in the news

BIS Committee launches corporate governance review

The BIS Committee has launched a new inquiry into corporate governance. It comes in the wake of Theresa May’s pledge to overhaul corporate governance and the recent governance failings highlighted by the Select Committee’s investigations into BHS and Sports Direct.

The inquiry will focus on directors’ duties, executive remuneration and board composition. Iain Wright MP, Chair of the BIS Committee, said: ‘Irresponsible business behaviour and poor corporate governance ill serves workers, but it also tarnishes the reputation of business and undermines public trust in enterprise. We need to look again at the laws that govern business and how they are enforced. Good corporate governance shouldn't be a hindrance to business; it can contribute to companies' long-term prosperity and performance as well as showing to the world that a business is transparent, accountable and responsible.’

 

Government to extend ‘failure to prevent’ offences

The government is intending to introduce new plans to make it a criminal offence to ‘fail to prevent’ economic crimes, such as false accounting, money laundering and fraud. The aim is to ensure senior management takes responsibility for financial wrongdoing and would be similar in scope to the new criminal offence of corporate failure to prevent the criminal facilitation of tax evasion, included in draft legislation.

The move was announced by Attorney General Jeremy Wright, who said ‘The threat of conviction is greater under “failure to prevent” and as a result, companies might be more likely to not just enter into deferred prosecution agreements (DPAs) but also, crucially, to take the actions necessary to discourage such offending within the organisation in the first place.’

However, ICSA Policy Adviser, Chris Hodge, urged the government to be realistic about the proposed powers, saying ‘In large, complex businesses the opportunities for individuals to misbehave are almost limitless; the resources available to even the most diligent directors and managers, on the other hand, are strictly finite. It is not remotely realistic to expect them to know everything that happens within the company, no matter how good their control systems and management information may be. The law should not presume or pretend they can.’

You can read Chris’ full blog ‘Directors do not have all-seeing eyes’ on the ICSA website.

 

Wells Fargo fined $185 million

The US bank, Wells Fargo & Co, will have to pay $185 million in fines for illegally opening around two million deposit and credit card accounts without the customers’ knowledge in order to boost sales targets and compensation incentives. The US Consumer Financial Protection Bureau announced the settlement, ‘the largest penalty the CFPB has ever imposed’, and accused the bank of ‘widespread illegal practice’.

Wells Fargo will also have to pay another $5 million to customers and hire an independent consultant for a review.

 

Australia warns against trying to avoid ‘Google Tax’

The Australian Taxation Office (ATO) issued a warning to multinational companies and accountancy firms against using ‘artificial and contrived’ tax schemes to avoid or reduce the new ‘Multinational Anti-Avoidance Law liability’ (MAAL) (Australia’s equivalent to the UK’s ‘Google Tax’).

We are concerned this particular scheme is another creative attempt to undermine the policy intent of [MAAL],’ Mark Konza, ATO deputy commissioner, said.

MAAL took effect in January and applies to multinational organisations that avoid tax in Australia by booking their profits offshore despite operating within the country.

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