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Regulatory Non-Compliance Doesn’t Pay, But It Does Pay Out

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Regulatory Non-Compliance Doesn’t Pay, But It Does Pay Out

In the last couple of weeks, I’ve been reading about two substantial fines levied against big global business for their bribery and data privacy wrongdoings. This should get the alarm bells ringing loudly in boardrooms around the world. IBM is about to pay out $10 million to settle an international bribery claim in a suit brought forth by the SEC against IBM under the FCPA (Foreign Corrupt Practices Act). The suit alleged that 100 IBM staffers bribed government officials in South Korea and China for more than a decade from 1998 to 2009 to secure business. The SEC claimed that bribes, including overseas trips, entertainment and laptops computers, were paid to officials through local business partners and travel agents. No surprise, regulators said “deficient internal controls” allowed employees to dress up bribes as “legitimate business expenses.” While IBM has settled the suit, the company’s not saying anything publicly. It’s interesting to note, too, that IBM’s stock rose 0.9% to $157.25/share after they settled. (Sources:People Management Magazine (UK) and DigitalTrends)

Also, the French CNIL has fined Google over data privacy issues concerning the inappropriate gathering and storing of potentially sensitive personal information. The privacy watchdog levied 100,000 EU, or about $140,000 US, against the technology giant. This is the largest fine CNIL has ever served. France asserts that Google’s StreetView product inappropriately uses potentially sensitive personal data gathering across Wi-Fi networks. More than 30 countries have complained and at least two other European countries are considering fining Google for the same thing. The personal data, everything from e-mails, web browsing histories and online banking details, was gathered from 2007 to 2010 through Google’s roaming camera-mounted cars and bicycles. This marks the first instance in which Google has been fined for such practices, although they have come under fire in the past for the use of its fleet of roaming cameras and wireless network capabilities. Google has apologized and says it will delete the data. (Sources: and Marketplace (Canada))

The monetary amounts are miniscule when you think about the overall revenue stream produced by these two companies, but the impact is far greater. The SEC means business, and with the new Dodd-Frank provisions due for prime-time in the very near future, they aren’t done yet. With the penalty against Google, the CNIL is gaining more bite to its bark. Stock prices fluctuate, at least temporarily, but ask yourself this question: in the end, who really pays the non-compliance penalty?

About the Author

Cindy Knezevich, VP, Marketing Operations. Cindy is responsible for creating and executing The Network’s marketing strategy, including demand generation, public relations, social media, web marketing and analyst relations. Connect with Cindy on LinkedIn

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