Compliance News | June 2024

Posted by

Lynne Callister

on 27 Jun 2024

This month's key compliance news includes Wells Fargo dismissals, Mondelēz competition fine, Chiquita's terrorism funding, Dior and Adidas investigations, and more.

compliance news june 2024

Our pick of key compliance stories this month

Over a dozen fired by Wells Fargo

Wells Fargo has fired more than a dozen employees for faking keyboard activity as part of a crackdown on hybrid workers' non-compliance.

The Wall Street bank made the disclosure in broker filings with the Financial Industry Regulatory Authority (FINRA). It confirmed that workers had been dismissed or resigned "after review of allegations involving simulation of keyboard activity creating impression of active work".

"Wells Fargo holds employees to the highest standards and does not tolerate unethical behaviour," said spokesperson Laurie Kight.

All those dismissed worked in its investment and wealth divisions, with at least one individual having seven years of service.

The bank did not say how the alleged issue was discovered or what techniques workers had used to trick bosses into thinking they were working. But during the pandemic, there was a boom in devices like "mouse jigglers", which simulate somebody working.

Since then, firms have rolled out increasingly sophisticated tools to monitor work activity, including eye movements, screenshots and website logs.

This month, FINRA reinstated workplace rules in the US requiring offices used by brokers to work from home to be inspected every three years, straining hybrid working arrangements.

Barclays and Citigroup told staff last month that under the new rules, they would need to go to the office five days a week, and it would be harder to keep remote workers as a result of FINRA's crackdown.

It remains to be seen whether evidence of workers gaming the system like this, combined with newly reinstated rules, will accelerate a return to the daily commute. But hey, there's always free fruit…

Managing a Hybrid Working Policy

Moelis confirms banker resigns over 'punch' video

Investment bank Moelis has confirmed that one of its employees has resigned after apparently hitting a woman in the face on 8 June. A disturbing video went viral on social media, which showed a Moelis managing director punching a woman to the ground during Brooklyn Pride.

Commentators on social media say that there's more to this than is shown, claiming variously that the Moelis employee, who's Jewish, was thrown to the ground by a pro-Palestinian crowd, that he had liquid thrown at him, which he believed to be acid, and the woman was transgender.

Key takeaways:

  • Follow the FCA's Conduct Rules - remember the rules apply whether inside or outside the workplace
  • Be clear about company expectations - including Individual Conduct Rule 1: Acting with integrity
  • Consider non-financial misconduct (including bullying, sexual harassment and discrimination) - this can affect fit and proper assessments
  • Role model the right behaviours to create the right culture - remember that new hires will often mimic what you do!
  • Remember, you can face dismissal and be barred from financial services if your behaviour falls short

Free Conduct Rules Training Aid

Under Armour pays $434m to settle class action

Under Armour has agreed to pay $434 million to settle a lawsuit that claimed the sports apparel brand misled shareholders about its revenue growth. The lawsuit by shareholders claimed Under Armour and its CEO and founder, Kevin Plank, deliberately misled them about the company's true financial health.

Under Armour paid $9m to the US Securities and Exchange Commission (SEC) in 2021. The SEC investigation said that in 2015, the company had not met its internal sales targets in North America due to unseasonally warm winter weather. Because of this, for six successive quarters, it had accelerated or "pulled forward" existing orders worth around $408m that were due to be shipped in future quarters.

However, it attributed the revenue growth to other factors and did not disclose material information about its "pull forward" tactics, enabling it to meet analysts' revenue estimates.

"When public companies describe how they achieved financial results, they must not misstate any information that is material to investors. By using pull forwards for several consecutive quarters to meet analysts' revenue targets while attributing its revenue growth to other factors, Under Armour created a misleading picture of the drivers of its financial results and concealed known uncertainties concerning its business."

- Kurt Gottschall, the SEC

Under Armour has agreed to pay the latest settlement amount, neither admitting nor denying the allegations.

About SMCR 360 Compliance Toolkit

Trafigura pays $55m for impeding whistleblowing

A subsidiary of Swiss commodities trading Trafigura will pay $55m to the US Commodity Futures Trading Commission (CFTC) for allegedly impeding whistleblower reports. This is the CFTC's first-ever penalty of this kind.

Trafigura Trading LLC, owned by Trafigura Beheer BV, required its employees to sign agreements preventing them from disclosing company information. However, the CFTC said there were no exceptions for allowing reports to regulators or law enforcement.

These agreements impeded their investigations into other violations.
The CFTC said that from 2014 to 2019, Trafigura Trading bought gasoline derivatives while in possession of material non-public information that had been obtained improperly from an unnamed Mexican firm (believed to be Pemex).

In February 2017, it also manipulated a fuel oil benchmark, benefiting its futures and swaps positions.

Without confirming or denying the findings, Trafigura said that it had strengthened its compliance program, improved its policies on market integrity, controls, and monitoring, and updated its non-disclosure agreements.

Market Abuse Regulation E-learning Course

€337.5m fine for Dairy Milk, Toblerone & Oreo maker

Mondelēz, the producer of Toblerone, Cadbury's Dairy Milk and Oreo cookies, has been fined €337.5 million by the European Commission for engaging in anti-competitive behaviour.

The competition watchdog chief Margrethe Vestager said the confectioner had restricted cross-border trade and abused its dominant position between 2006 and 2020.

Among other things, it accused Mondelēz of:

  • Withdrawing chocolate bars from sale in the Netherlands to prevent resale in Belgium, where they were sold at higher prices
  • Limiting traders' ability to resell products and ordering them to apply higher prices for exports
Refusing to supply a trader in Germany to avoid chocolate being resold at higher prices in Austria, Belgium, Bulgaria and Romania. "[Mondelēz has] been restricting the cross-border trade of chocolate, biscuits, and coffee products within the European Union. [It] illegally restricted retailers from sourcing these products from member states where prices are lower, and this allowed Mondelēz to maintain higher prices. This harmed consumers who ended up paying more for chocolates, biscuits and coffee."
- said Margrethe Vestager, Competition Watchdog Chief

According to Vestager, the price of the same product varied significantly by 10-40% depending on the country. In November 2019, the Commission carried out unannounced inspections at Mondelēz sites in Austria, Belgium, and Germany and began its investigation in 2021.

Mondelēz said the fine "relates to historical, isolated incidents, most of which ceased or were remedied well in advance of the Commission’s investigation".
“This historical matter is not representative of who we are and the strong culture of compliance for which we strive,” it added.

The fine was €37.5 million higher than what the confectioner had anticipated in its 2022 annual report.

Competition Law E-learning Course

Chiquita found guilty of funding terrorism

A US court has found Chiquita, the multinational fruit company, guilty of funding a Colombian terrorist group.

The United Self-Defence Forces of Colombia (AUC) is a terrorist group that was designated as a Foreign Terrorist Organisation (FTO) by the US Government in 2001, making it an offence to conduct financial or other transactions with the group.

The AUC committed widespread human rights abuses in Colombia, acting as a death squad for drug traffickers and engaging in intimidation, extortion, and killings.

Despite this, from 1997 to 2004, Chiquita made systematic and prolonged payments of $1.7 million to the group. In 2007, the US Department of Justice fined Chiquita $25 million for sanctions violations.

Now, Chiquita has been ordered to pay $38.3m in damages following a civil case brought by the families of relatives killed by the AUC.

The banana giant said it had no choice but to make the payments to protect its employees from violence.

Yet prosecutors accused the company of forming "an unholy alliance with the AUC," which enabled it to expand its operations in regions controlled by the AUC.

"During the trial, we presented testimony from a former member of Chiquita's security department and another witness who became an AUC commander and had committed multiple murders and kidnappings. Their testimonies revealed the true nature of the relationship between Chiquita and the AUC— a relationship of collaboration, not extortion. This sinister partnership endangered countless lives."

- said Jonathan C. Reiter

Chiquita ceased its operations in Colombia in 2004, selling its banana production and port facilities there, which accounted for 9% of its banana volume. At the time, Chiquita said its decision was made to limit its exposure to foreign currency and climate risk.

In a statement, it expressed sympathy for "those directly affected by the violence there, and our thoughts remain with them and their families". But the company plans to appeal, arguing that it "does not change our belief that there is no legal basis for these claims."

A second case will be heard in July 2024.

AML Training Course

Dior investigation for human rights abuses

A court in Milan has ordered that Manufactures Dior SRL, an Italian subsidiary of the French fashion house producing Dior-branded handbags, be placed under court administration for one year. It claimed that work was subcontracted to Chinese-owned firms that exploited and mistreated its workers.

Italian police inspected four suppliers - Pelletteria Elisabetta Yang SRL, New Leather Italy SRLS, AZ Operations SRLS, and Davide Albertario Milano SRL. They employed 32 workers, some of whom were in the country illegally or without the required documentation.

Court documents showed that Pelletteria Elisabetta Yang and Davide Albertario Milano were direct suppliers of Manufactures Dior SRL, invoicing €752,881 and €737,623, respectively.

Workers lived and worked "in hygiene and health conditions that are below the minimum required by an ethical approach" and were forced to sleep in factories to deliver "manpower available 24 hours a day".

  • Data on electricity consumption showed "seamless day-night production cycles, including during the holidays".
  • Safety devices were tampered with, enabling them to operate faster and cut costs.

    In one case, contractors charged Dior € 53 to supply the handbag (model coded PO312YKY), which was subsequently sold in stores for € 2,600.
    Christian Dior is a subsidiary of LVMH, the luxury goods multinational owned by Bernard Arnault. According to Forbes, he's the world's richest man with a net worth of €233 billion. LVMH representatives did not comment.

Prosecutors claim that far from being an isolated case, these practices are systematic, driven by a desire for higher profits.

The document said, "It's not something sporadic that concerns single production lots, but a generalised and consolidated manufacturing method."
In April, Giorgio Armani was accused of "culpably failing to check the production chain and remaining inactive despite being aware of the outsourcing of production by the supplying companies".

Workers were paid just €2-3 per hour, working 10 hours a day, sometimes seven days a week, producing leather bags that were sold for €93 to sub-contractors, resold to Armani for €250 and then sold in stores for €1,800. In a statement, Armani Group said, it had "always had control and prevention measures in place to minimise abuses in the supply chain".

Key takeaways:

  • Conduct due diligence on suppliers and third parties - before entering business relationships
  • Watch out for adverse media - previous fines or court action for non-compliance are obvious red flags
  • Set clear expectations by including clauses in all contracts and having suppliers sign up to our code of conduct - remember, the company can be held liable for the actions of third parties acting on our behalf, and the reputational risks are high
  • Never tamper with equipment - to speed up production. You may put safety at risk!
  • Get advice from Legal or Compliance - if you have any concerns or questions or if you become aware of violations.

Modern Slavery E-learning Course

Adidas investigates bribery claims in China

Adidas is investigating claims about large-scale bribery in China. According to the Financial Times, the sportswear company received an anonymous letter from whistleblowers accusing its senior staff of embezzling "millions of euros".

The letter - signed “employees of Adidas China” - accused several Chinese Adidas employees of receiving kickbacks from external service providers, including one senior manager who handled an annual marketing budget of around €250 million.

Claims were also made about employees getting kickbacks from celebrities and advertising agencies and bribes from suppliers, including "millions in cash from suppliers and physical items such as real estate". Another senior executive was accused of nepotism and bullying.

Adidas confirmed that it had received the letter on 7 June about "potential compliance violations in China" and has launched an investigation with external legal counsel.

"Adidas takes allegations of possible compliance violations very seriously and is clearly committed to complying with legal and internal regulations and ethical standards in all markets where we operate," it said to Reuters in a statement.

The Three Stripes brand regularly uses well-known Chinese celebrities - such as actor and singer Jackson Yee, rapper Gali and Dilraba - as brand ambassadors. Its sales grew 8% in 2023.

Anti-bribery E-learning Course

Harley-Davidson sues Next over t-shirt design

Motorcycle manufacturer Harley-Davidson has filed documents claiming that the UK retailer Next has infringed its trademark.

The article at the centre of the case is a kids' black t-shirt with flames and angel wings. In court documents, Harley Davidson says that Next specifically admitted that the graphics were "motorbike inspired" and accused its designers of copying its trademark so buyers would "call them to mind".

It also said the design was intended to "give rise to a likelihood of confusion on the part of the relevant average consumer, namely ordinary members of the public". It wants "all infringing materials" to be destroyed.

Brand disputes like this are not uncommon, but many are resolved without resorting to legal action.

"Given that Next has design freedom to change the logos used in its clothing range and the t-shirt being complained about by Harley-Davidson is unlikely to have resulted in significant sales, I am surprised that this claim has been issued and that the parties were not able to come to an agreement out of court,"

- said Beatriz San Martin, Arnold & Porter

Previously, Harley-Davidson has pursued other high-profile retailers, including Urban Outfitters and subsidiary Free People, for trademark infringement, opting to settle out of court.

While most of its business is motorcycles and parts, it made $64m last quarter from its apparel.

Elsewhere, Nike's bid to trademark the word 'FOOTWARE' for tech-related products has failed after opposition from its rival PUMA. The EU's General Court dismissed its application and ordered it to pay PUMA's legal costs.

PUMA said it "has been arguing for years that at least some consumers will read the term 'footware' as 'footwear' and, therefore, will only see the sign 'footware' as descriptive information regarding the intended purpose of the goods and services", which cannot be trademarked.

Nike was granted the trademark in the UK in 2021, but it was turned down in the US earlier this year.

Key takeaways:

  • Improve awareness in your team - so they know what is classed as intellectual property (including patents, designs, trademarks and copyright) and the protection that is offered
  • Protect the company's intellectual property rights - by displaying evidence of protection with © and ™
  • Agree in advance on the ownership of IP created by third-party consultants or partners - formalise this in contracts
  • Don't allow third parties to use the company IP (such as brand names or logos) without getting legal advice
  • Be vigilant - the company name and brand are the company's unique identity, so use online resources to identify any company that may infringe or adopt it
  • Respect the intellectual property of others - remember, IP theft is a serious offence, and we can be prosecuted for it

Intellectual Property Rights E-learning Course

Three UK nationals charged with $2.7m NFT fraud

The FBI has charged three UK nationals with conspiracy to commit wire fraud and money laundering after they promoted an NFT scheme known as "Evolved Apes" and pocketed the proceeds.

Mohamed-Amin Atch, Mohamed Rilaz Waleedh, and Daood Hassan are accused of encouraging investors to purchase Evolved Apes NFTs, claiming that sales would help them develop a video game. The scheme was marketed via social media influencers.

The trio claimed that funds would be added to a community wallet and donations would be made to charities "supporting endangered apes", "fighting global hunger" and "creating prosthetic limbs".

"10,000 unique" NFTs were sold, and investors were told sales would fund a video game based on the digital ape, further increasing their value. But this never materialised, and the scheme was simply a "rug pull".

Prosecutors say the trio took $2.7m from investors and transferred the funds via cryptocurrency transactions to their personal accounts. The project was pulled, and the website disappeared.

If found guilty, there is a maximum sentence of 20 years for each offence.

MLRO Responsibilities Checklist

Looking for more compliance insights?

We have created a series of comprehensive roadmaps to help you navigate the compliance landscape, supported by e-learning in our Essentials Library.

We also have 100+ free compliance training aids, including assessments, best practice guides, checklists, desk aids, eBooks, games, posters, training presentations and even e-learning modules!

Finally, the SkillcastConnect community provides a unique opportunity to network with other compliance professionals in a vendor-free environment, priority access to our free online learning portal and other exclusive benefits.

Compliance Bulletin

Compliance Bulletin

Our monthly email provides best practices, expert opinions, industry insights, news and key trends in regulatory compliance training, digital learning, EdTech and RegTech.