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North American Edition
20th November 2023
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THE HOT STORY
Wells Fargo struggles with regulatory obligation to monitor financial crime
Wells Fargo is facing challenges in meeting its regulatory obligation to monitor financial crime, as regulators push the bank to improve its systems for catching criminals. The bank is also dealing with a lawsuit alleging that it allowed a $490m Ponzi scheme to operate. The regulators are focused on the bank's consumer-watching systems, while the lawsuit highlights the consequences of monitoring systems failure. Wells Fargo disputes the allegations in the lawsuit and is cooperating with law-enforcement officials. The bank has been privately rebuked multiple times by regulators for inadequate oversight of criminal activity. Wells Fargo is working to rebuild its risk and control apparatus to prevent and detect problems. The bank has previously faced penalties for non-compliance with anti-money laundering rules. The lawsuit claims that Wells Fargo fell short of its responsibilities in the Ponzi scheme case. The parties are currently in settlement talks, with the receiver expecting a potential settlement of over $100m. Similar issues have been costly for other large banks.
ECONOMIST IMPACT REPORT
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Results from this report indicate that security and risk leaders are prioritizing building strong digital defenses and embracing evolving technologies—including AI—to strengthen their business resilience. The data also showed that leaders are prioritizing people as a core part of organizational strategy, safeguarding digital assets and protecting supply chains, production capacity and distribution networks.

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RISK MANAGEMENT
China introduces measures to enhance risk management of trust companies
China's National Financial Regulatory Administration has issued interim measures to enhance the risk management of trust companies. The measures aim to comprehensively evaluate the operations and systematic impact of trust companies, with a focus on promoting healthy operations. The new measures include rating trust firms based on corporate governance, capital requirements, risk management, behavior management, and business transformation. The regulator will also strengthen supervision of trust firms with systematic influence. Trust firms with higher ratings will receive closer regulatory attention, particularly those involved in irregularities such as selling trust products to unqualified investors and guaranteeing returns. These measures come as concerns grow over the exposure of China's shadow banking sector to property developers and the wider economy. The sector, which is roughly the size of Britain's economy, has faced multiple crises in recent times. The introduction of these measures aims to mitigate risks and ensure the stability of China's financial system.
Businesses 'must take risks to progress'
A survey by PwC of over 3,900 companies worldwide found that three-fifths view generative artificial intelligence as a good opportunity, but 37% believe they are highly or extremely exposed to cyber risks. Additionally, a quarter of respondents felt their organizations were very exposed to geopolitical conflict. Sam Samaratunga, global and U.K. head of risk services for PwC U.K., said: “In a world that is persistently in a state of flux, it is clear that organizations need to transform, with new and emerging technologies playing a critical role in that transformation. So it is no surprise that cyber and digital risks are top-of-mind in 2023, with those leaders responsible for managing risk ranking cyber higher than inflation. However, the survey highlights that if organizations don't take risks, they will not progress.”
STRATEGY
General Motors' Cruise CEO resigns amid safety review
Kyle Vogt, the CEO of General Motors' robot-taxi unit Cruise, has resigned from the company a day after apologizing to staff as the company undergoes a safety review of its U.S. fleet. Vogt's decision follows weeks of turmoil at the unit, which had to pull all its vehicles from testing in the United States to conduct a safety review after an October 2 accident. Cruise's woes are also a setback for an industry dependent on public trust and the cooperation of regulators, Reuters observes. The Cruise board met on November 13 and the next day named GM general counsel Craig Glidden as Cruise's chief administrative officer. Former Tesla President Jon McNeill, a GM director since 2022, was named vice chairman of the Cruise board alongside Barra, who is the chair. Barra has told investors Cruise could generate $50bn in revenue by 2030.
OpenAI co-founder Sam Altman joins Microsoft
Following his surprise ouster, OpenAI co-founder and former CEO Sam Altman has joined Microsoft as the head of artificial intelligence research. Altman's move comes less than a year after OpenAI launched the viral chatbot ChatGPT and secured Microsoft as an investor. The shakeup is not the first for OpenAI, which has seen previous departures and the founding of competitor Anthropic. Altman's firing was due to a breakdown in communication, according to an internal memo. Microsoft CEO Satya Nadella confirmed the hiring of Altman and colleagues to lead a new advanced AI research team. OpenAI has appointed former Twitch boss Emmett Shear as interim CEO.
REGULATORY
Former Meta executive accuses Instagram of misleading public on app safety
Instagram-owner Meta is facing criticism from former executive Arturo Béjar, who claims that the company is misleading the public about the safety of its app for teenagers. Béjar, who testified before U.S. Senators, stated that Instagram is not appropriate for children as young as 13 and accused the company of ignoring his warnings. He highlighted the case of Molly Russell, a British teenager who died in 2017, as an example of the harm caused by the app. Béjar's research found that a significant number of teenagers on Instagram had experienced unwanted sexual advances and distressing self-injury posts. He also criticized the reporting tools and design of the app, which he believes discourage teenagers from reporting uncomfortable experiences. Béjar's claims come as Meta faces legal challenges over allegations of addicting children to its sites and anti-competitive behavior. The company denies the accusations and emphasizes its efforts to keep young people safe online.
CFPB proposes regulating Big Tech in banking
The US Consumer Financial Protection Bureau (CFPB) has proposed regulating payments and smartphone wallets provided by Big Tech companies like Apple and Google. The move aims to subject these tech leaders to the same consumer safeguards as traditional banks. The CFPB's rule would require Big Tech to comply with privacy protections, executives' conduct, and unfair and deceptive practices. The proposal would affect 17 companies, including Apple, Google, PayPal, and Square's CashApp. The CFPB argues that subjecting large tech companies to similar oversight as banks will increase competition. The banking industry has been lobbying for stricter regulations on tech giants, citing concerns about consumer privacy. Legal experts believe the CFPB has the authority to regulate Big Tech's payment businesses. The proposal is open for public feedback until early 2024.
LEGAL
IRS whistleblower program 'needs reforms to thrive'
Legislation aimed at improving the IRS Whistleblower Program would reduce processing delays, end double taxation for attorney fees, and remove budget sequestration, argues Stephen Kohn, founding partner of law firm Kohn, Kohn & Colapinto. The program has recovered over $6.6bn from tax cheats and non-compliant corporations, paying $1.1bn to whistleblowers. However, collections have dropped, and delays for award claims have reached nearly 11 years. The IRS Whistleblower Program Improvement Act of 2023 proposes technical reforms, including imposing interest on delayed awards, ending budget sequestration, eliminating double taxation of attorney fees, and implementing de novo review in award case appeals. Mr. Kohn argues that these reforms are crucial to restore trust and incentivize whistleblowers, particularly as comparable programs, such as the SEC Whistleblower Program, have seen record years of late. He concludes that to effectively enforce tax laws and close the tax gap, Congress must pass the IRS Whistleblower Improvement Act.
Bankrupt Rite Aid sues U.S. Justice Dept to stop opioid lawsuit
Bankrupt pharmacy chain Rite Aid has sued the U.S. Department of Justice (DOJ) as it moves to block a lawsuit alleging that it ignored red flags and illegally filled hundreds of thousands of prescriptions for addictive opioid medication. The DOJ, which sued Rite Aid earlier this year, agreed only to a "brief pause" of its lawsuit after the company went bankrupt last month, a position that threatens to undermine restructuring efforts, Rite Aid said in a complaint filed in New Jersey bankruptcy court. Rite Aid called on U.S. Bankruptcy Judge Michael Kaplan to rule that the lawsuit cannot proceed while Rite Aid is bankrupt, which would put the government on equal footing with other opioid plaintiffs whose lawsuits were automatically stopped by Rite Aid's bankruptcy filing. The DOJ has argued that U.S. bankruptcy law does not prevent it from exercising its "police powers" through its lawsuit. Rite Aid would not concede on that point, and said Kaplan, who is overseeing the company's Chapter 11 proceedings, should rule on that dispute rather than the judge overseeing the DOJ's lawsuit in Cleveland federal court.
REPUTATION
Study: corporate green claims don't match political action
As net zero pledges proliferate, a study by London-based nonprofit InfluenceMap reveals that 58% of companies analyzed advocate on climate policy in a way that contradicts their stated net zero goals. The study, which looked at nearly 300 companies, highlights the prevalence of what InfluenceMap calls "net zero greenwash." The study aligns with a United Nations report that identified lobbying as a key obstacle to reducing CO2 emissions. Catherine McKenna, UN expert group chair, said that companies not only undermine their climate commitments through lobbying but also make their net zero claims less credible. The study identifies Glencore, ExxonMobil, and Chevron as companies at the greatest risk of misleading net zero claims due to their engagement on climate policy.
CYBERSECURITY
Israeli detective sentenced to prison for global hacking campaigns
A U.S. court has sentenced Aviram Azari, an Israeli private detective, to six years and nine months in prison for organizing global hacking campaigns. Azari, a former policeman, pleaded guilty to wire fraud, conspiracy to commit hacking, and aggravated identity theft. Prosecutors stated that Azari's firm earned nearly $5m over five years for managing hacking campaigns that targeted thousands of victims, including climate change activists and critics of German company Wirecard. The US Attorney's office in Manhattan described Azari as having "exhibited zero regard for the harm inflicted on his victims." Azari was hired by Wirecard to target individuals and financial firms that had criticized the company. He also used hackers to steal emails from climate activists campaigning against Exxon Mobil Corp. Azari's defense lawyer requested a sentence of no more than five years, citing his client's acceptance of responsibility and a "debilitating medical condition" contracted while in jail. The sentencing follows an investigation by Reuters that exposed how Azari and other private investigators used hackers to assist wealthy clients in court battles.
WORKFORCE
27-year-old cannabis worker dies from asthma attack
A 27-year-old woman working in the cannabis industry died from an asthma attack, marking the first reported occupational asthma death in the U.S. cannabis industry. The woman experienced worsening work-related respiratory symptoms before the fatal attack. The incident highlights the growing concern of allergic diseases, such as asthma, in the rapidly expanding cannabis industry. A federal report emphasizes the need for prevention measures, including workplace exposures, medical surveillance, and treatment according to asthma guidelines. The report also mentions the importance of evaluating workers with new-onset or worsening asthma in cannabis facilities. The findings come as the legalization of recreational marijuana continues to spread, leading to the growth of the cannabis industry. Respiratory hazards, such as microbial and plant allergens, as well as chemicals like pesticides, pose risks in the industry. The report was published by the U.S. Centers for Disease Control and Prevention and is based on a federal Occupational Safety and Health Administration inspection.
Citigroup expected to announce layoffs and management changes
Citigroup is expected to announce layoffs and senior management changes as part of its biggest reorganization in decades. The job cuts could affect thousands of staff, and executives are likely to announce the changes by email. Some staff may have the opportunity to apply for other roles at the bank. Last month, Citigroup revealed plans to reduce management layers and functional roles. Compliance and risk management staff, as well as technology staff working on overlapping functions, are at risk of being laid off. Citigroup declined to comment on the matter.
FRAUD
Fraud at Americanas was $1bn more than previously suspected
Long-delayed financial reports released Thursday indicate that last year’s accounting scandal around Americanas was deeper than the Brazilian retailer previously reported. The company revealed that the size of the fraud was 25.2 billion reais ($5.2bn) as of the end of 2022, or about 5 billion reais more than it previously estimated. The accounting issues have their origin in supply chain financing and false advertising contracts. Bloomberg says the revised figures add a layer of complexity to what it describes as one of Brazil’s largest corporate meltdowns. “Americanas is the biggest interested party in clarifying what really happened,” the company’s management said in a statement. “The numbers of financial statements now reflect the most realistic and transparent figure of the company’s assets and liabilities.” Americanas reported a loss of 12.9 billion reais ($2.7bn) in 2022 and 6.2 billion reais in 2021, according to the filing. The company said it won’t redo annual figures before 2021 and will re-publish quarterly reports for 2022 along with its 2023 release by year-end.
U.S makes biggest-ever seizure of fake luxury items
Long-delayed financial reports released Thursday indicate that last year’s accounting scandal around Americanas was deeper than the Brazilian retailer previously reported. The company revealed that the size of the fraud was 25.2 billion reais ($5.2bn) as of the end of 2022, or about 5 billion reais more than it previously estimated. The accounting issues have their origin in supply chain financing and false advertising contracts. Bloomberg says the revised figures add a layer of complexity to what it describes as one of Brazil’s largest corporate meltdowns. “Americanas is the biggest interested party in clarifying what really happened,” the company’s management said in a statement. “The numbers of financial statements now reflect the most realistic and transparent figure of the company’s assets and liabilities.” Americanas reported a loss of 12.9 billion reais ($2.7bn) in 2022 and 6.2 billion reais in 2021, according to the filing. The company said it won’t redo annual figures before 2021 and will re-publish quarterly reports for 2022 along with its 2023 release by year-end.
OTHER
Pennsylvania school district settles lawsuit with The Satanic Temple
An eastern Pennsylvania school district has settled a lawsuit with The Satanic Temple, agreeing to pay $200,000 in attorney's fees and provide the group's After School Satan Club the same access to school facilities as other organizations. The district had initially approved the club's use of the building but rescinded it following criticism. The settlement resolves the discrimination allegations made by the club. The Satanic Temple aims to provide an alternative to religious after-school clubs, focusing on science, critical thinking, creative arts, and community service. The group does not seek to convert children to Satanism but views Satan as a metaphorical figure. The club may not reopen soon, depending on the status of a Christian club that was also operating in the district. June Everett, director of The Satanic Temple's After School Satan Club program, expressed satisfaction with the resolution of the dispute.


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