Foreign Corruption

Corruption Crack-Down

Governments around the globe step up efforts to wipe out corruption.
By: | October 15, 2013 • 7 min read
Demonstrators marched in Brazil against a variety of issues that coalesced into protests against rampant political corruption. The country has since made it possible for companies, not just individuals, to be found guilty of bribing public officials.

Around the world, social pressure against public corruption is resulting in huge demonstrations, investigations and legislation. And that is rebounding on multinationals that face their own pressure to keep business above board while trying to expand in countries where bribery is often necessary to get permits and permission.

A survey of CFOs and board members by Ernst & Young found that 95 percent of the respondents were “very” or “fairly” concerned about the potential liability resulting from fraud and corruption in Latin America — the area that offers the most concern.

Not far below were the Middle East and Africa, at 87 percent, and Central and Eastern Europe, at 84 percent.

While laws are almost universally clear — don’t do it — the risks are increasingly complex, as anti-corruption laws and their enforcement evolve both in the United States and overseas.

In the United States, investigators appear to be scouring industries that traditionally have not attracted notice, according to attorneys and experts in the field.

Retailers have been in the spotlight, for instance, ever since news surfaced in April 2012 of a probe into Wal-Mart. The retail giant is alleged to have paid bribes in Mexico to speed growth there.

Enforcement is intensifying in other countries as well, pushed along by public protests as well as by an anti-bribery convention overseen by the Paris-based Organisation for Economic Co-operation and Development. Forty countries, including Argentina, Russia and South Africa, have signed the OECD convention since it was drafted in 1997.

Today, more than 300 investigations are underway in 24 countries, according to Patrick Moulette, head of the OECD’s anti-corruption division. “It has not doubled from last year or the year before, but it’s 10 or 20 more every year, so maybe this is a positive sign,” said Moulette, who hopes greater attention will spur countries to crack down harder.


Other nations, notably China, are dusting off their own anti-bribery laws, exposing U.S. companies to potentially costly legal action on new fronts.

“It’s very hard to find a country anywhere where bribery is legal,” said Brian Loughman, Americas leader for Fraud Investigation and Dispute Services with Ernst & Young. “The challenge is always, what’s the enforcement like.”

To top it off, foreign prosecutors today are more likely to share information with their U.S. counterparts. “The world is smaller for prosecutors, too,” Loughman said.

For decades, U.S. companies only had to worry about the Foreign Corrupt Practices Act of 1977, or FCPA, which bans bribery of public officials in other countries. American executives often complain they are disadvantaged by the statute, as it does not apply to businesses based outside the United States.

Enforcement eventually prompted stronger controls and tougher policies, but investigators remain aggressive, according to Michael Himmel, an attorney and chair of the litigation and white-collar criminal defense departments at the law firm of Lowenstein Sandler.

“More and more cases are being investigated, and prosecutors are tending to take harder lines,” said Himmel. Over the last five years, he said, investigators have asked companies to open up more of their operations to review. “That’s obviously going to be a greater expense,” he said.

Equal Opportunity Scrutiny

Investigators also seem to be eyeing new sectors, expanding beyond defense, energy and mining to include pharmaceuticals and retail.

It’s a costly occurrence for the probed companies. The ongoing probe into Wal-Mart so far has cost the company more than $150 million, according to company filings with the U.S. Securities and Exchange Commission.

The SEC and the Department of Justice, which enforce the FCPA, do not explicitly target industries, said Timothy P. Peterson, a partner in the Washington, D.C., office of Murphy & McGonigle. But as investigators dig into one company’s operations, they may follow a trail to others in the same sector.

“The real danger for retailers is that when there are very large investigations, the government is going to start to get familiar with how that business works,” Peterson said. “They may, as they get more familiar with the business, decide they want to find more companies that operate in a similar way.”

It’s not just government investigators. Corporate rivals are another source of FCPA-related allegations, said Brett W. Johnson, a partner in the Phoenix office of law firm Snell & Wilmer. Companies may arouse suspicion if they are moving goods or opening stores more quickly than competitors, especially in countries where corruption is considered rife.

“The default is, ‘He’s paying somebody off,’ ” Johnson said.

For retailers, corruption risks extend throughout the supply chain, and they are compounded by the pressure to stock shelves in time to meet buyers’ needs. Bathing suits don’t sell well in November, at least in the northern hemisphere.

“Keeping the supply chain flowing is critical to a retailer, especially one that has any kind of seasonality,” said Randy Stephens, vice president of the Ethical Leadership Group of NAVEX Global Inc., a compliance technology firm based in Portland, Ore.

Foreign customs officials often recognize the time pressure — and the power it can give them to demand bribes, Stephens said.

“If you give them the sense that you’re going to participate in that scheme, at any level, you only open yourself up to more trouble, because you look like somebody who’s going to play that game,” Stephens said.

In addition to training employees and establishing clear policies, retailers need to examine internal incentives, Stephens said. If executives overseas are rewarded solely for growing revenue, opening more stores or hitting other bottom-line goals, they may overstep ethical boundaries.

Compensation should be tied, in part, to actions that avoid fines, penalties or stains on a company’s global reputation, Stephens said.

“You’ve got to be willing to let people make decisions that could negatively impact your supply chain, yet comply with the law.”

Another risk arises from the use of third-party agents, a requirement for doing business in some nations. When those agents pay bribes to expedite deals, the U.S. business is on the hook for any FCPA violations.

As a result, companies seeking overseas growth must know their foreign business partners and regularly audit their operations, as well as know the country’s laws and norms.

“You’ve got to be willing to let people make decisions that could negatively impact your supply chain, yet comply with the law.” —Randy Stephens, vice president, Ethical Leadership Group of NAVEX Global Inc.

What’s legal in one country may not be legal in another. And companies can no longer focus on the FCPA alone, attorneys said.

A Tangled Web of Compliance

The United Kingdom adopted a tough anti-bribery statute in 2011. And Brazil enacted a stringent new law this year, following public protests that coalesced around government corruption. In addition to increased penalties, the law allows companies to be found guilty of bribing public officials. Previously, only individuals could be found guilty of that crime.


“Very few companies today can comply, or attempt to comply, with just one home jurisdiction,” said Michel Léonard, chief economist and senior vice president of Emerging Markets for Alliant. “It’s a bit like antitrust laws. These days, mergers need to be approved in the U.S. and Europe as well.”

Experts said U.S. companies should partner with local attorneys who can can train employees, navigate the nuances of a country’s laws, and react quickly to problems.

“You’re not going to have the same processes; you’re not going to have the same protections,” said Joe Martini, co-chair of the White-Collar Defense, Investigations and Corporate Compliance Practice Group at the law firm of Wiggin and Dana.

Given the potential costs of an investigation, specialized insurance coverage is the next step in corporate compliance, said Machua Millett, a senior vice president with Marsh USA Inc. The brokerage firm introduced a specialized product in 2011.

In the past, Millett said, companies sought coverage for FCPA-related expenses under D&O policies. But underwriters and carriers hesitated, due to the size of the potential exposure.

Cooperation with the government does not necessarily lessen the expense. Although Ralph Lauren Corp. voluntarily disclosed bribes made by a subsidiary in Argentina, it still faced a penalty of $882,000.

Companies should focus first on compliance, with insurance as a backstop, Millett said. “At the end of the day, you might be able to show that you acted well.”

Joel Berg is a freelance writer and adjunct writing teacher based in York, Pa. He has covered business and regulatory issues. He can be reached at [email protected]
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Innovation Risk

A Not-So-Microscopic Risk

Nanotechnology could well be the underwriting challenge of the next hundred years.
By: | October 15, 2013 • 5 min read
Products created through nanotechnology have greater strength and lighter weight, but the risks are still unclear.

Why don’t lifeguards wear white stuff on their noses anymore?

We’re more aware of the dangers of sun exposure than ever before. You’d think folks exposed to the sun would want the best protection possible. And you’d be right. The thing is, a thick layer of white zinc oxide is no longer the best thing going … because of nanotechnology.

Nanotechnology is the understanding and control of matter at dimensions between approximately 1 nanometer and 100 nanometers, according to the U.S. National Nanotechnology Initiative. One nanometer is one-billionth of a meter. For comparison purposes, if a marble were a nanometer in diameter, then one meter would be the diameter of the Earth.

At the nanoscale level — down to 1/100,000th the width of a human hair — materials exhibit different properties than what is detectable in the everyday “macroscopic” world.

For example, nanomaterials can have greater strength, lighter weight and greater chemical reactivity than their larger-scale counterparts. Scientists have learned how to rearrange atoms of carbon, silver, titanium, silicon, gold and zinc to leverage these nanoscale superpowers — not just in the laboratory, but efficiently enough, and at low enough cost, to enable commercial manufacturing.


That’s why new fabrics are more stain-resistant, why tennis rackets and bicycle frames are lighter and stronger than ever before, why food containers can help keep food fresher even longer. It’s why lifeguards no longer wear those unfashionable white sunblock smears.

Nanoscale technology is already more than a decade old, and — to put it mildly — its potential is tremendous. But nanotech products are lightly regulated, and their long-term effects are not well understood.

Fast-Growing Technology

Products using nanotech may one day zap tumors or enable more effective treatments for cardiovascular illness or Parkinson’s disease. They could improve the performance, resiliency and longevity of our transportation infrastructure while reducing cost. They could transform our energy future by making batteries last longer, and enable solar panels to produce many times more energy. Nanotechnology could make it easier for us to bring clean drinking water to millions in need around the world.

No wonder nanotech is growing fast — so quickly, in fact, that reliable data is hard to find and may be out of date by the time it is published.

There are more than 5,400 nanotech firms globally. The consumer products inventory at lists more than 1,300 products using nanotechnology, produced in 30 different countries, that are commercially available.

Every state in the United States has at least one nanotech manufacturer, with California leading the pack. Nanotechnology is already in our food, medicines, clothes, cosmetics, sunscreens, pesticides, electronics, homes, sports equipment, cars, airplanes, water, air and land. Nanotechnology is everywhere.

But, little has been spent studying short- or long-term effects, and early tests indicate potential risks such as cellular or genetic damage. Some nanoproducts pass through the skin and are distributed throughout the body, with unknown effects. Nanomaterials may be able to breach landfill barriers as well.

The U.S. Food and Drug Administration has released draft food and cosmetic guidance, but there are few labeling requirements, and many manufacturers have failed to test the safety of their products.

In April 2013, the National Institute for Occupational Safety and Health (NIOSH) recommended that occupational exposures to carbon nanotubes and carbon nanofibers be controlled to reduce a potential risk of certain work-related lung effects. According to NIOSH, recent results from experimental animal studies with rodents indicate that exposure to carbon nanotubes and carbon nanofibers may pose a respiratory hazard if inhaled.

Several studies have linked carbon nanotubes to mesothelioma. That has echoes of an emerging risk from decades gone by: asbestos.

An Underwriting Challenge

Insurers are already at risk. Standard policies don’t specifically exclude nanotech, and it’s not clear whether courts in all jurisdictions would apply a policy’s pollution exclusion. Few insurance applications ask about nanomaterials. Nanotechnology could well be the underwriting challenge of the next hundred years.

Even though data is in short supply, actuaries have been tackling the challenge presented by nanotechnology.

Drawing on the lessons learned from the notorious exposures of asbestos and pollution, property/casualty actuaries are helping insurers prepare to handle new emerging risks like nanotechnology by assisting with the development of new policy language and encouraging underwriting discipline.


Actuaries can also help integrate pricing, planning and reserve setting to manage the underwriting cycle.

Actuarial work is, fundamentally, the analysis of relevant information to develop estimates of future financial implications. Just because nanotech-related insurance data has yet to emerge, that doesn’t mean there is a complete lack of relevant information.

As with the emerging risk of climate change, analysis begins with scientific findings — and by applying the expertise of the subject matter experts in the insurance world. Actuaries involved with coverage of nanotech processes and products use work such as that presented in Nanotechnology Safety, edited by Ramazan Asmathulu, a Wichita State University associate professor who focuses on nanomaterials.

Then, most importantly, actuaries apply a sound analytical structure to address the problem. Framing the issues in a logical manner involves the use of techniques such as lifecycle analysis and expert elicitation to supplement available data and develop preliminary estimates.

Also important is the regulatory environment. As asbestos litigation evolved, it was perhaps unexpected developments such as the 1965 Restatement of Torts that proved the most troublesome.

An analysis of current regulations, in the United States and abroad, can provide context for initial product design and rate estimates. But it will be important, in this quickly changing landscape, to remain alert for changes in the legislatures and the courts.

Insurers are wise to be alert to new sources of risk — but not all apparently emerging issues do, in fact, emerge. Our reaction time as an industry, however, has improved. New opportunities are quickly tackled while at the same time managing, and pricing for, the inherent risks.

The insurance industry can be an important enabler of new industries and technologies such as the ones nanoprocesses have already brought to market, and the many more applications yet to be discovered. Like the lifeguard watching over the pool, insurers seek to make money without getting burned. That’s why it’s important to think ahead, assess the risks and put the right protections in place.

Alice Underwood is an executive vice president for Willis Re Inc. in New York, and leads Willis Re's North American Analytics practice. She is a fellow of the 5,800-member Casualty Actuarial Society and currently serves as CAS vice president for Research and Development. She can be reached at [email protected]
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Sponsored Content by CorVel

Telehealth: The Wait is Over

Telehealth delivers access to the work comp industry.
By: | November 2, 2015 • 5 min read


From Early Intervention To Immediate Intervention

Reducing medical lag times and initiating early intervention are some of the cornerstones to a successful claims management program. A key element in refining those metrics is improving access to appropriate care.

Telehealth is the use of electronic communications to facilitate interaction between a patient and a physician. With today’s technology and mass presence of mobile devices, injured workers can be connected to providers instantaneously via virtual visits. Early intervention offers time and cost saving benefits, and emerging technology presents the capability for immediate intervention.

Telehealth creates an opportunity to reduce overall claim duration by putting an injured worker in touch with a doctor including a prescription or referral to physical therapy when needed. On demand, secure and cost efficient, telehealth offers significant benefits to both payors and patients.

The Doctor Will See You Now

Major healthcare players like Aetna and Blue Cross Blue Shield are adding telehealth as part of their program standards. This comes as no surprise as multiple studies have found a correlation between improved outcomes and patients taking responsibility for their treatment with communications outside of the doctor’s office. CorVel has launched the new technology within the workers’ compensation industry as part of their service offering.

“Telehealth is an exciting enhancement for the Workers’ Compensation industry and our program. By piloting this new technology with CorVel, we hope to impact our program by streamlining communication and facilitating injured worker care more efficiently,” said one of CorVel’s clients.

SponsoredContent_Corvel“We expect to add convenience for the injured worker while significantly reducing lag times from the injury to initiating treatment. The goal is to continue to merge the ecosystems of providers, injured workers and payors.”

— David Lupinsky, Vice President, Medical Review Services, CorVel Corporation

As with all new solutions, there are some questions about telehealth. Regarding privacy concerns, telehealth is held to the same standards of HIPAA and all similar rules and regulations regarding health information technology and patients’ personal information. Telehealth offers secure, one on one interactions between the doctor and the injured worker, maintaining patient confidentiality.

The integrity of the patient-physician relationship often fuels debates against technology in healthcare. Conversely, telehealth may facilitate the undivided attention patients seek. In office physicians’ actual facetime with patients is continually decreasing, citing an average of eight minutes per patient, according to a 2013 New York Times article. Telehealth may offer an alternative.

Virtual visits last about 10 to 15 minutes, offering more one on one time with physicians than a standard visit. Patients also can physically participate in the physician examination. When consulting with a telehealth physician, the patient can enter their vital signs like heart rate, blood pressure, and temperature and follow physical cues from the doctor to help determine the diagnosis. This gives patients an active role in their treatment.

Additionally, a 2010 BioMed Central Health Services Research Report is helping to dispel any questions regarding telehealth quality of care, stating “91% of health outcomes were as good or better via telehealth.”

Care: On Demand

By leveraging technology, claims professionals can enhance an already proactive claims model. Mobile phones and tablets provide access anywhere an injured worker may be and break previous barriers set by after hours injuries, incidents occurring in rural areas, or being out of a familiar place (i.e. employees in the transportation industry).

With telehealth, CorVel eliminates travel and wait times. The injured worker meets virtually with an in-network physician via his or her computer, smart phone or tablet device.

As most injuries reported in workers’ compensation are musculoskeletal injuries – soft tissue injuries that may not need escalation – the industry can benefit from telehealth since many times the initial physician visit ends with either a pharmacy or physical therapy script.

In CorVel’s model, because all communication is conducted electronically, the physician receives the patient’s information transmitted from the triage nurse via email and/or electronic data feeds. This saves time and eliminates the patient having to sit in a crowded waiting room trying to fill out a form with information they may not know.

Through electronic correspondence, the physician will also be alerted that the injured worker is a workers’ compensation patient with the goal of returning to work, helping to dictate treatment just as it would for an in office doctor.

In the scope of workers’ compensation, active participation in telehealth examinations, accompanied by convenience, is beneficial for payors. As the physician understands return to work goals, they can ensure follow up care like physical therapy is channeled within the network and can also help determine modified duty and other means to assist the patient to return to work quickly.


Convenience Costs Less

Today, convenience can often be synonymous with costly. While it may be believed that an on demand, physician’s visit would cost more than seeing your regular physician; perceptions can be deceiving. One of the goals of telehealth is to provide quality care with convenience and a fair cost.

Telehealth virtual visits cost on average 30% less than brick and mortar doctor’s office visits, according to California state fee schedule. In addition, “health plans and employers see telehealth as a significant cost savings since as many as 10% of virtual visits replace emergency room visits which cost hundreds, if not thousands, of dollars for relatively minor complaints” according to a study by American Well.

“Telehealth is an exciting enhancement for the Workers’ Compensation industry and our program. By piloting this new technology with CorVel, we hope to impact our program by streamlining communication and facilitating injured worker care more efficiently,” said one of CorVel’s clients.

Benefits For All

Substantial evidence supports that better outcomes are produced the sooner an injured worker seeks care. Layered into CorVel’s proactive claims and medical management model, telehealth can upgrade early intervention to immediate intervention and is crucial for program success.

“We expect to add convenience for the injured worker while significantly reducing lag times from the injury to initiating treatment,” said David Lupinsky, Vice President, Medical Review Services.

“The goal is to continue to merge the ecosystems of providers, injured workers and payors.”

With a people first philosophy and an emphasis on immediacy, CorVel’s telehealth services reduce lag time and connect patients to convenient, quality care. It’s a win-win.

This article was produced by CorVel Corporation and not the Risk & Insurance® editorial team.

CorVel is a national provider of risk management solutions for employers, third party administrators, insurance companies and government agencies seeking to control costs and promote positive outcomes.
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