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Asian directors under scrutiny

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Singapore Financial Centre - picture credits: S. Venardos

Singapore Financial Centre – picture credits: S. Venardos

Asian directors under scrutiny (source: Lloyd’s of London)

Wed 12 Jun 2013 – Directors & officers (D&O) liability in Asia is changing as a result of globalisation and changing regulations.

Companies in Asia are becoming more international in their activities, leaving them exposed to regulatory scrutiny in other parts of the world, particularly in the US, UK and Europe where enforcement activity has increased since the financial crisis.

Around the world there have been increased efforts by governments and regulators to curb corruption. While senior managers of companies in mature D&O markets are vulnerable, there is also a trend whereby directors of Asian companies are increasingly exposed to international regulatory action and litigation .

The UK Bribery Act, and several global treaties and statutes, now exist to tackle bribery on a global scale.

In the US, actions under the Foreign Corrupt Practices Act (FCPA) nearly doubled between 2009 and 2010. Significantly, slightly less than half of all FCPA enforcement actions by the US Department of Justice (DoJ) and Securities and Exchange Commission (SEC) involve corruption in Asia, especially China.

Japanese companies have also fallen within the US regulators’ scope . In 2012 and 2011 two Japanese construction firms (in partnership with US companies) agreed to pay criminal fines of $54.6m and $218.8m to resolve charges that they had participated in a decade-long scheme to bribe Nigerian government officials to obtain engineering, procurement and construction contracts.

Employee-led action

“In general we are seeing a trend where there are increasingly more claims being brought against directors and officers of Asian companies than was previously the case, ” says Marsh’s financial and professional liability practice leader for Southeast Asia Gary Chua.

“I would put it down to competition for foreign investment and foreign capital that continues to flow into this part of the world, ” he continues. “In that process the whole notion of legal liability and corporate responsibility to various stakeholders has now been increased compared to before.”

Global regulators continue to shine their spotlight on foreign subsidiaries and joint ventures of US and European companies. “Asian directors are now being exposed to the model of higher accountability for directors and joint venture partners usually associated with mature markets, ” says Chua.

“Obviously regulatory driven investigation has always been there but we’re also seeing claims being filed by employees against directors of companies in some parts of South East Asia, ” he adds.

Much of this employee-led action has a skew towards, “white collar” workers, according to Marsh’s Asia Directors’ Series. In Singapore, seven former employees of insolvent financial services firm MF Global Holdings have brought a legal action against the firm claiming they are owed at least $2.8m. It follows a claim filed in London with employees there seeking £39m ($63m).

Former MF Global chief executive Jon Corvine has been sued by the insolvency trustee liquidating the firm, who accused him of negligently pursuing a high-risk business strategy that culminated in the firm’s destruction.

Trustees in the dock

Insurers and brokers are responding to growing D&O exposures in Asia Pacific. Last year, Willis extended its Darcstar all risk cover for company directors to Hong Kong, Singapore and Australia. The product is underwritten by a panel of insurers led by Allianz, QBE and XL .

“Recent legislative developments in Asia-Pacific reinforce the requirement for broad D&O protection, ” said Francis Kean, Willis executive director in Finex Global. “Company directors will be pleased to know that a specific D&O insurance is available which gives them certainly of indemnification, more focused cover for regulatory investigations and the peace of mind that all risks are covered unless specifically excluded,

Marsh and Catlin Singapore have also launched a product backed by Lloyd’s that directly tackles exposures for charities and other non-profit groups in Singapore. It provides up to SG$3m for legal defence costs in respect of any claim alleging fraud and dishonesty – which is typically excluded under normal D&O policies.

A high-profile trial of six senior religious leaders in Singapore began in May, involving the directors of non-for-profit and charitable organisations. The six City Harvest Church leaders are accused of embezzling more than $40m to fund the pop music career of the wife of the religious organisation’s founder.

“In Singapore there has been a spate of regulatory investigations against non-profit organisations including government agencies and statutory bodies as well as charitable organisations, ” says Chua. “We are seeing more of that and in particular we are seeing this being focused on the areas of improper behaviour allegedly committed by key officers in these organisations.”

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