Kim Desrosiers is a Managing Director within the Environmental Solutions practice of FTI Consulting - an independent global business advisory firm, dedicated to finding solutions to complex problems for clients. Kim started in client services in the environmental space twenty-five years ago, moving from federal enforcement into the private sector. Here, Kim speaks to Finance Monthly about environmental forensics, clients’ expectations and the benefits of meditation for everyone.
Tell us a little about environmental forensics and the surrounding areas by which you fill your role in management and planning consulting?
Simply stated, environmental forensics is the application of environmental science and history to potential claims or actual legal cases. All forms of forensics use pattern recognition as a foundation. In modern forensics, fingerprinting is a good example of this approach and its application. Throughout the 1800s, various individuals recognised friction ridge skin patterns, both as it related to an individual, as the pattern was static over time and did not change with age, and within the human population, in that each was unique within the set. In fact, after billions of automated comparisons, no two have been found to be identical. It was found that fingerprints could be sampled and compared to a control, and over time, that process was proven to be a reliable means of identification.
Environmental forensics takes pattern recognition, and applies it in something like a data matrix within an historical construct, with boundaries applied to meet a desired objective. For example, in the case of analysing what party may be responsible for which part of an environmental cleanup, we look at the information available, what is recorded in geological repositories that have been sampled, and compare that to what is known about the historical activities that may have caused a release into the environment. Next, we place that data into a temporal matrix to identify the party or parties responsible for a release. The boundary is the physical boundary of the real property, and the desired objective can be to assign a dollar amount for the cleanup of that property, or a share of responsibility for that dollar amount, if multiple parties are involved.
How we help clients is by working with them through that process of identifying reliable patterns that reveal who is responsible, and that the responsibility is tied to meeting a certain threshold of reliability to a standard, often as defined by state or federal law. Once we identify a pattern, we can then design an approach for establishing and communicating the reliability of that pattern to others. That is probably the greatest asset of a consultant – the ability to effectively and succinctly communicate the rigger of the analysis to an audience who is unfamiliar with the jargon of the specialty field from which the data was derived. If you can convince a diverse group that the methodology was sound, your consulting is of high value.
Who do your clients commonly consist of, in which industries do they tend to work and with what problems do they come to you?
Typically, the matters we are uniquely equipped to handle from an environmental forensics standpoint involve the sites with the greatest costs, often referred to as ‘mega-sites’. Most often, our clients are operating within a self-selected group of parties, each with the experience to know that they have some measure of liability under Superfund law or equivalent state statute, and are interested in both cleaning up the environment, and avoiding litigation. Our client groups are made up of tens or hundreds of individual parties, and led by a common or coordinating legal counsel. At times, we will work for an individual client, but client groups tend to have the most complex issues relative to all similar matters, and that is where our practice really can help.
Clients come to us to help resolve environmental disputes that arise from either a lack of information or too much information. The lack of information might be driven because they found out they have liability from their counsel, but they don’t know why. We assist with the uncovering of the ‘why’ by knowing precisely where to look. On the problem of ‘too much information’, we can minimise risk and cost by opining on what is relevant or not. Given the ever increasing access to information, there is confusion because too much data obscures what really matters. We help by eliminating the noise and focusing on the signal.
What would you say are the three main pillars by which you serve your clients in this sphere?
This is an interesting and thought-provoking question. What arises for me around a pillar is its stability, and from an engineering standpoint, three is both efficient and effective. So, going with that concept of three pillars, an ‘E’ comes to mind, with equity, empathy, and excellence providing the structure. Equity has a quality of balance and measure, so that in working for large groups of parties, we are able to treat all clients fairly. Empathy is an undervalued but highly effective means for connecting with each individual client view, respecting each and their interests and concerns while simultaneously serving the group as a whole. Lastly, I would say holding the intention of excellence drives precision and discernment in every task and dollar spent.
Can you recall a particular client and dispute where your expertise proved to be crucial in achieving the desired outcome?
Environmental forensics is as much about knowing what to look for as it is knowing what it means when you don’t find it. In one matter, we were retained to develop a method to describe how each party was responsible for the costs of cleaning up a rail yard. Across the rail network, several parties had purchased one type of chemical, polychlorinated biphenyls or ‘PCBs’, as an insulating fluid for the rail cars operating across the rail system. When you look at the chemical signature of PCBs, the signal contains information about the specific ‘brand’ of the product type left in the environment. This is a classic case of chemical fingerprinting. The compelling thing about this case was that we could match the original formulation from the chemical fingerprint to historical purchase and service records for each of the rail cars on the network. We could then determine how much of one type of PCB was used by each party, and when the releases occurred. What we found was that nearly all of the costs for the enforcement action were the responsibility of one party, who was not our client. We knew our model was authoritative because it was corroborated by other independent lines of evidence. We also knew that we brought tremendous value to the client because others had previously looked at the same collection of information but failed to see the pattern. What we saw was not just that one PCB fingerprint was there, but that another one wasn’t. We won a client for life with that one.
What’s your golden nugget of advice for our readers?
Whenever I am asked that question, I always respond by encouraging others to take up a meditation practice. Above everything else, to me, working with my own mind, learning how it works, has been a constant source of discovery and enrichment. There is a confidence that develops in knowing your own mind that cascades throughout your entire life, including your professional world. I’ll credit becoming an ice climber in my late forties to meditation. And I’ll credit my clients with helping cultivate a life worth living off the ice, in this complex and opportunity-rich world of business.
Contact details:
Email: kim.desrosiers@fticonsulting.com
Phone: 610-254-4027
In July 2014 FBME Bank Ltd's Cyprus branch (FBME) was resolved by the Central Bank of Cyprus (CBC). This is a very interesting case for several reasons, as it touches on the nature of legal powers conferred on financial regulators in the area of Anti-Money Laundering and Combatting the Financing of Terrorism (AML/CFT), on the use and misuse of these and other powers, on the openness of proceedings and on the rights of response and redress of their targets. Robert Lyddon, international banking expert, explains for Finance Monthly.
There is also a perspective around the application of legislation unevenly across large and small banks, with small banks suffering resolution and even closure, and large banks escaping with impressive-sounding fines that do little to inhibit their ability to carry on business as usual.
CBC's intervention came immediately after FBME had been served with a Notice of Finding on 17th July 2014 citing FBME as an institution of "primary money laundering concern" by FinCen, the Financial Crimes Enforcement Network of the US Department of the Treasury.
Under its own governing laws, FinCen only needed to have "reasonable grounds" for its concerns, and the evidence of there being such grounds was confirmed by a judge sitting "in camera". This is not the same as having those allegations proven in an open court of law, with recourse to courts of higher instance. A lower level of proof was required in order for a sanction to be imposed which had a devastating effect on the target bank and its depositors.
FinCen proposed the imposition of its "fifth special measure": this precludes US banks from running a US$ account for the target bank or handling its US$ payments via intermediate correspondents, thus de-banking the target bank in the USA and cutting it off from the international banking system. This is tantamount to putting the target bank out-of-business.
Similarly the designation of certain categories of financial institution - Money/Value Transfer Networks - as "high risk" by the Financial Action Taskforce (FATF) has resulted in these institutions being de-banked and unable to operate. The evidence upon which FATF came to this conclusion is opaque, and there is no public forum for their designation to be challenged, FATF itself being the ultimate source of AML-related legislation.
In the case of FinCen’s notice on FBME, FBME had 60 days in which to file a response but the subject’s prudential supervisor – CBC – denied them this by resolving the branch and immediately offering it for sale to another local bank.
Allegations of AML infringements would have needed to be put through a legal process in Cyprus involving the Cypriot financial crime intelligence unit (MOKAS) as well as the AML supervisor (CBC itself), and would at most have resulted in sanctions such as fines, after due process had been gone through. It is unusual that CBC as a central bank be both the "competent authority" for matters relating to AML Directives and the "prudential authority" for bank capital and liquidity adequacy: in the UK these powers are separated.
Instead CBC cut off any due process by using, against FBME, the Law on the Resolution of Credit and Other Institutions of 2013, which was passed to resolve Cyprus' two largest banks - Bank of Cyprus and Laiki Bank - within the context of the €10 billion bailout of Cyprus by the so-called "Troika" of the European Commission, European Central Bank and International Monetary Fund.
CBC misused these powers as FBME was not a case of a bank failure. The preconditions for resolution are cumulative and are that an institution must have a shortfall of capital and of liquidity, and be systemically important i.e. its failure must do harm to the country it is in. FBME did not meet these tests: it had adequate capital and liquidity, and it was small and did not have a significant number of Cypriot depositors.
FBME was, however, an irritant to the Cyprus authorities: it was involved in challenging - commercially and in the courts - the high interchange fees applied by indigenous banks to card transactions, thereby disrupting the income stream of the major local banks.
The interconnection of FBME's case to the 2013 bailout is important because - as a quid pro quo - the Cyprus authorities agreed to remedy concerns about Cyprus' AML regime. These concerns were documented in a report dated 24th April 2013 by MoneyVal, the inspection and evaluation arm of the FATF. MoneyVal interviewed a large part of the Cypriot banking sector: 13 out of 41 banks, holding 71% of deposits and 76% of loans in the system, and including the 7 largest banks.
The 2013 MoneyVal report pointed to substantially the same issues as it had noted in the 2011 report on its Fourth Assessment Visit to Cyprus: that report's findings included that "the main risks emanate from the international business activities at the layering stage, money laundering activities usually taking place through banking or real estate transactions". These were sector-wide issues, not confined to any one bank - let alone just one small foreign bank. FinCen raised its own concerns about the AML regime in Cyprus direct to CBC in 2011.
Cyprus received the Troika's €10 billion but there is no evidence of the cessation of the state of affairs described by MoneyVal in 2011 and again in 2013, commonly termed the "Cyprus business model": Cyprus features in several schemes disclosed in the "Panama Papers", the "Paradise Papers", and the "Russian Laundromat" that post-date the bailout.
Instead FBME has been removed from the marketplace, ostensibly as a scapegoat for the allegations levelled against the Cyprus banking sector as a whole. FBME conveniently fitted the bill, and could be attacked in an area where the evidence against it need not stand up in court, and indeed where there was no open court in which FBME could defend itself.
Was the punishment inflicted as an example to the remainder of the Cyprus banks to warn them to remedy their AML deficiencies? Or was it a signal to the Troika and the US authorities, to lead them to believe that Cyprus was delivering on its side of the bailout bargain and cleaning up its act on AML?
Whether CBC had the legal power to resolve FBME, or conveniently mixed its usage of powers - applying its powers as prudential authority to an AML case where it happened also to be the competent authority - is a matter of ongoing dispute.
Of equal concern is whether financial institutions can be resolved or otherwise put out of business through the application of powers conferred on financial regulators for AML/CFT matters where the burden of proof is lower and where a subject institution's rights of appeal are inadequate. Once FinCen has issued a notice against an institution or once FATF has classified an institution into a "high risk" category, the institution is de facto out-of-business, and these authority bodies are not subject to detailed and open scrutiny as to whether their determinations are proportionate, objective and non-discriminatory.
The annual cost of fraud in the UK is £190 billion, equal to around £10,000 per family, according to a new research study.
The Annual Fraud Indicator 2017 reveals the staggering prevalence of fraud, which is now the UK’s most common criminal offence.
Put into context, the scale of the problem is such that the cost of fraud to the UK is greater than the Gross Domestic product of 148 out of 191 countries.
The study, compiled by Crowe Clark Whitehill, Experian and the Centre for Counter Fraud Studies at the University of Portsmouth shows that private sector fraud costs the UK economy £140 billion, while fraud in the public sector is estimated to cost the country £40.4 billion in 2017.
Fraudulent activity aimed at individuals amounts to £6.8 billion, while charities suffer to the tune of £2.3 billion.
These numbers are far from insignificant. With the latest National Audit Office and National Crime Agency statistics confirming that fraud has surged to the top of the list of commonly committed crimes, now is the time to identify and measure its cost so that businesses, government bodies, charities and individuals can understand the value of their investment in countering fraud.
The private sector is the worst hit, largely due to the volume of expenditure conducted by private enterprises. While public sector fraud is the easiest to measure and detect due to the reliability of tax and benefits data.
A significant proportion of the costs of fraud in the report are attributed to procurement fraud. Procurement accounts for a large portion of organisational expenditure and fraud can creep in at various stages of the procurement process. The rise in the incidence of fraud in registered charities is largely attributable to an increased expenditure on procurement, for example.
New trends have emerged that impact demography and type of fraud victim. Technology continues to open up new avenues for fraudulent activity. Online Banking fraud has grown by 226% and Telephone Banking Fraud by 178% in the past year, with many millennials increasingly being drawn into the fraudsters’ net.
Technology and legislative controls are also impacting behavioural patterns amongst fraudsters. Reformative measures such as the Payment Services Directive 2 (PSD2) will bring tighter regulatory controls and deter attacks, while new counter fraud tools are causing fraudsters to innovate and target platforms not governed by strong customer authentication.
Jim Gee, Head of Forensics and Counter Fraud at Crowe Clark Whitehill, comments: “The cost of fraud is clear – not just the proportion which is detected, nor a guestimate but accurate information about the total cost to UK plc, just like any other business cost. And that cost is £190 billion.
“Private companies are made less stable and financially healthy; as citizens we don’t get the quality of public services that we pay our taxes to receive; and even charities don’t get to spend the full value of the donations which people make. What other problem of this size doesn’t have a proper national response?”
Nick Mothershaw, Director of Fraud and Identity Solutions at Experian: “Awareness of the dangers fraud poses is growing, but the total of £190 billion is startlingly high. Plastic card and online banking fraud continues to increase, so new regulations which make it harder for fraudsters to use someone’s cards online are a necessary step. Fraudsters are shamelessly opportunistic and are now turning their attention to the pensions release, lured by the promise of high value returns when their scams are successful.”
Professor Mark Button, Director of the University of Portsmouth’s Centre for Counter Fraud Studies, adds: “The 2017 Annual Fraud Indicator highlights again the colossal cost of fraud to the UK economy. At £190 billion it would represent more than the UK government spends on health and defence combined, or on all welfare payments, bar pensions.”
(Source: Crowe Clark Whitehill)
Last week marked one month until the deadline for compliance with Second Payment Services Directive (PSD2). Coming into effect on 13th January 2018, the legislation will enable consumers across Europe to instruct their banks to share their financial data securely with third parties, making it easier to transfer funds, compare products and manage their accounts.
Currently, the levels of individuals looking to switch accounts is relatively low. Figures by the banking authority CMA highlight that 57% of people have held their personal current account for more than 10 years, while 37% have not switched in more than 20 years[1].
However, opening up the front-end of payments initiation and information services has the potential to dramatically shift the competitive landscape. According to research by Accenture, banks are at risk of losing up to 43 percent of retail payment revenues by 2020[2], as the market place opens up to smaller, more sophisticated digital banks that break the industry’s traditional boundaries.
Pini Yakuel, CEO of customer relationship experts Optimove, comments: “The disruption coming with the Open Banking initiative will have a marked impact on customer engagement. Customers will be able to compare the value that each financial services company offers them quickly and easily. Banks will have a real fight on their hands to retain a generation of smartphone-empowered, brand-agnostic consumers.”
“As the financial services industry grapples with the implications of PDS2, one aspect that remains unaddressed is the need for better communications between banks and their customers. Traditional banks will have to respond to this new, more consumer-focused market, and develop successful marketing strategies to make sure they do not lose customers.
“Understanding behaviours, preferences and needs more clearly is key to developing the kind of emotionally intelligent communication with customers that makes them feel comfortable with their bank, helping them to make good financial decisions. Those banks who can offer something back at each stage of their relationship with each customer will set themselves apart under the intense scrutiny of Open Banking.”
“To keep ahead of their competitors, they will need to tailor services to support customers more effectively, offering real value that appeals to each customer personally. Artificial Intelligence which reveals what value looks like to each customer, will provide banks with a clearer understanding of their customer’s preference and affinities. Enabling them to cater to their needs accordingly and provide true value to each of their customers.”
(Source: Optimove)
Marlene de Sousa Teixeira is Founding Partner of Teixeira & Guimarães, specializing in Banking and Finance and advising and representing both national and global companies. Marlene believes that today’s society needs focused, assertive and faster answers, and that the standard model of a full-service legal firm is becoming less attractive. Here she offers her insights into dispute resolution in Portugal and the challenges that her clients face.
Can you provide a brief overview of the dispute resolution process in Portugal?
The dispute resolution process in Portugal, from a technical point of view, has considerably evolved in the past. Being from a different nature when compared to common law countries, the process is based on Civil Law and its general and abstract legal standards apply to generality and abstraction of situations and where judge-made law has a different value than that of common law countries. This results in better legal certainty in regards to the different kind of economic players, since the kind of interpretation of the ruling is also determined legally.
In regards to less positive aspects, in Portugal, we are faced with frequent delay in the delivery of verdicts. However, this does not mean the decisions are more or less fair, or that the quality of the verdicts is not good enough.
How important can it be to resolve disputes as quickly as possible? What are the challenges you face as a lawyer tasked with understanding the technical nature of a business so that a speedy resolution can be found?
The resolution time of a dispute should always be a variable to be taken into account in all matters that relate to coming up with a solution. Understanding the technical nature of a business will not help you make a faster or slower decision. It is clear that if you understand the core of a business, you are going to be assertive and efficient, but the problem is not going to be settled faster because of your know-how. Yet, the know-how will provide you with several other advantages and will introduce you to more hypotheses.
Which types of disputes are you normally called upon to help resolve? How do you develop the best strategy for resolving a dispute?
Usually, I am called to intervene in cases of financial, banking and civil nature – that is my main area of expertise. In fact, T&G was the first law firm in Portugal to be certified by the new standard EN NP ISO 9001:2015 within credit litigation.
Regarding the strategy procedures, the best way to think about it is getting to know the interests in a dispute, because a good strategy doesn’t necessarily mean a winning strategy. In many circumstances, a good strategy means acting in a certain way, regardless of the verdict.
Are there any business sectors that are particularly prone to commercial disputes? What do you attribute this to?
In the past few years, Portugal has witnessed the development of our financial industry. A number of national courts are clogged with mortgage foreclosures and debt recovery lawsuits on unsecured credits. It is clear that a lot of these litigation proceedings were due to the economic situation.
Although this has improved in the past few recent months, it is easy to identify a pattern and easily predict that lawsuits related to foreclosures or debt recovery will definitely continue to be relevant.
Website: http://www.tesg.pt/
With just six months until GDPR hits Europe hard, Finance Monthly has heard from Nigel Edwards, SVP of Insurance Europe & Head of UK at EXL Service, on the threat GDPR poses to emerging technologies, fintech, regtech and so forth.
For insurers, the General Data Protection Regulation (GDPR) promises to be a difficult hurdle to overcome without the right strategic approach and expertise. Businesses in the insurance industry are some of the most vulnerable to being caught wrong-footed by the incoming GDPR rules because of the data rich environment they naturally operate in. The widespread use of third party administrators means that data flows can be difficult to control in a way that keeps firms compliant with the new regulation. Another question that is high up on the agenda for industry decision-makers is the effect that GDPR will have on future technology adoption.
In recent years, the insurance sector has undergone an unparalleled degree of technological disruption. Telematics technology, for example, has dramatically changed how insurers price policies by gathering data on individuals’ driving habits and behaviour. The use of social media analytics is making the claims process more straight forward and the use of technologies such as geo-location is creating better conditions for underwriters to evaluate pools of risk. One thing that these technologies have in common is their reliance on large amounts of collected customer data to function effectively. Will these techniques be hamstrung by the demands placed on companies under the GDPR regime?
Assessing the data ecosystem
For the most part, GDPR will not force insurers to curtail technology adoption, so long as precautionary steps are taken to better manage the data inputs and outputs on which new technologies rely. All of the existing InsurTech solutions that are on the market or close to arriving will remain options for brokers and underwriters to incorporate into their strategic spend - but only if the underlying infrastructure is in place to enable the rigorous management of client data.
Perhaps one of the most onerous demands placed on businesses due to GDPR is the so-called ‘right to be forgotten,’ which will grant EU residents the right in some places to request a full removal of their personal details from any company’s systems. For many insurance firms, of which a large proportion will have been trading since the start of the age of digitisation, large caches of over 30 years’ worth of client data have been accumulated. This is data which may not be in a single standardised format and spread across siloes in multiple locations – posing a considerable challenge when it comes to compliance to right to be forgotten guidelines.
Aligning with a long-term strategy
For new technologies to remain viable, steps must be taken to ensure that the core infrastructure upon which data is stored and transferred is responsive to frequent requests for deletion or transfer. This may result in the overhaul of legacy IT systems which are not fit for purpose and a more selective retention of customer information, as opposed to a policy which swallows up large pools of data indiscriminately.
Whilst this may entail some capital outlay, the decision to update legacy systems should be taken in the context of a new stance towards regulatory compliance. The GDPR is just one regulatory hurdle that must be overcome by insurers next year, but it can serve as a starting block for a more agile approach to data handling – especially for firms who have historically neglected the task. In the long term, laying the foundations for new technology adoption will not only facilitate better business agility but also a more intuitive approach when interacting with clients and their data.
