E-Business
Allianz: Volatile Markets, US Lawsuits, ESG Issues and SPACs Create New Risks for Managers
Board members and company executives can be held liable for an increasing range of scenarios.
Today’s market volatility, with the increased threat of asset bubbles and inflation, the prospect of a growing number of insolvencies due to the pandemic environment, together with rising scrutiny around the environmental, social and governance (ESG) performance of companies and the urgency for robust cyber resilience are key risks for Directors and Officers (D&Os) to watch in 2022.
Risk managers and their D&O insurers should also closely monitor potential exposures to US derivative actions and other forms of litigation, while also not underestimating the challenges around increasingly popular SPACs (special purpose acquisition companies), according to the latest edition of Allianz Global Corporate & Specialty (AGCS)’ annual D&O report.
“The actions and culture of organizations and their directors and officers are coming under heightened scrutiny from a wide range of stakeholders, with litigation risk a primary concern,” said Shanil Williams, global head of Financial Lines at AGCS.
“This comes against the backdrop of a stabilizing D&O marketplace, although capacity is still tight in some segments and many companies would like to buy more limits than the industry can offer. The market remediation has advanced, including our own portfolio at AGCS, and this will gradually ease the pressure that some of our clients are facing. We are adopting a cautious and disciplined underwriting approach and need to remain wary about the current volatile business environment and closely monitor loss trend patterns. However, the D&O insurance space is slowly, but surely, offering opportunities for profitable growth again in selected pockets – and we are eager to pursue these.”
Uncertain insolvency issues continue to be key topic in the D&O space
The withdrawal of support measures for companies established during the pandemic sets the stage for a gradual normalization of business insolvencies in 2022.
The Euler Hermes Global Insolvency Index is likely to post a +15% y/y rebound in 2022, after two consecutive years of decline (-6% forecast in 2021 and -12% in 2020).
While the wave of insolvencies has so far been milder than anticipated, mixed trends are expected across the world.
In less developed markets, such as Africa or Latin America, the number of insolvencies is expected to increase faster compared to more developed economies, such as France, Germany and the US, where the impact of the governmental support is expected to last for longer.
Traditionally, insolvency is a major cause of D&O claims as insolvency practitioners look to recoup losses from directors.
There are many ways that stakeholders could go after directors following insolvency, such as alleging that boards failed to prepare adequately for a pandemic or for prolonged periods of reduced income.
Market volatility, climate change and digitalization key issues
The financial services industry, but also companies from other sectors, continues to face multiple risk management challenges in the current economic climate.
Markets are likely to become more volatile with the increased risk of asset bubbles and inflation rising in different parts of the world.
At the same time, more banks and insurers are expected to assign individual responsibility for overseeing financial risks arising from climate change, while investors are paying closer attention to the adequate and timely disclosure of the risk that it poses for the company or financial instrument they invest in.
The tightening regulatory environment, the prospect of climate change litigation or ‘greenwashing’ allegations could all potentially impact D&Os.
Meanwhile, digitalization has further accelerated following Covid-19, creating enhanced cyber and IT security exposures for companies.
This requires firms’ senior management to maintain an active role in steering the ICT (information and communication technologies) risk management framework.
“IT outages and service disruptions or cyber-attacks could bring significant business interruption costs and increased operating expenses from a variety of causes including customer redress, consultancy costs, loss of income and regulatory fines. Last, but not least, brand reputation can also suffer. All this can ultimately impact a company’s stock price with management being held responsible for the level of preparedness,” said Pauline Vacher, head of Financial Lines for South Africa and France.
Heightened litigation risk in the US
Litigation risk continues to be a top D&O concern, in particular around shareholder derivative actions which are increasingly being brought on behalf of foreign companies in US courts.
“A number of new lawsuit filings, the recent openness of certain courts to extending long-arm jurisdiction, and a possibly record-breaking settlement announced in October 2021, point to heightened US litigation risk for directors and officers of non-US domiciled companies,” David Ackerman, Global Claims Key Case Management at AGCS emphasizes.
Since early 2020, a group of plaintiffs’ firms has brought more than 10 derivative lawsuits in New York state courts on behalf of shareholders of non-US companies seeking to hold directors and officers legally and financially accountable for various breaches of duty to their corporations.
The financial hurdles to bring suit in the US are significantly lower than in many other countries, while US courts and juries are considered more plaintiff-friendly than many others around the world.
The consequences to directors and officers forced to defend themselves in derivative litigation before US courts can be severe.
In what may turn out to be a record-setting settlement for a US derivative lawsuit, in October of this year defendants agreed to pay a minimum of US$300mn to settle litigation brought in a New York state court by shareholders of Renren, a social media corporation based in China, and incorporated in the Cayman Islands, after allegations of corporate misconduct.
Scrutiny over SPACs
Another emerging risk in the global D&O insurance space comes from the growth of so-called Special Purpose Acquisition Companies (SPACs), also known as ‘blank check companies’.
These represent a faster track to public markets. Advantages fueling the growth of SPACs over traditional Initial Public Offerings (IPOs) include smoother procedures, less regulatory and process burdens, easier capital sourcing and shorter timelines to complete a merger with target companies. During the first half of 2021, the number of SPAC mergers in the US, both announced and completed, more than doubled the full year total of 2020 with 359 SPAC filings, garnering a combined US$95bn raised.
The growth of SPACs in Europe may not match the scale of the US boom, but there is still a growing expectation that it will increase despite a less favorable company law environment compared to the US.
In Asia the market is slowly gaining momentum with a significant uptick in companies in China, Hong Kong and Singapore as a new route to accessing capital markets.
SPACs carry a set of specific ‘insurance-relevant’ risks, and losses are already reported to be flowing through to the D&O market as both the SPAC and the private target company typically obtain D&O coverage.
“Exposures could potentially stem from mismanagement, fraud or intentional and material misrepresentation, inaccurate or inadequate financial information or violations of rules or disclosure duties,” said David Van den Berghe, global head of Financial Institutions at AGCS.
In addition, a failure to finalize the transaction within the two-year period, insider trading during the time a SPAC goes public, a wrong selection of a target to acquire or the lack of adequate due diligence in the target company could also come into play. Post-merger the risk of the go-forward company to perform as expected or failure to comply with the new duties of being a publicly-listed company also needs to be considered.
E-Business
FG Invests $40m in Intercept Technology, $583m in Surveillance- S4C
Nigeria has reportedly invested $40 million in intercept technology and $583 million on public surveillance, according to a new report by Spaces for Change (S4C), a civil society organization.
So-called intercept technology and surveillance allow legally sanctioned official access to private communications, such as telephone calls or e-mail messages in a bid to enhance national security, prevent crime and aid criminal investigations.
Victoria Ibezim-Ohaeri, executive director of S4C, said that “The Nigerian government has allocated approximately $40m for intercept technologies and an estimated $583m on public surveillance projects with Chinese tech firms.”
Ibezim-Ohaeri, spoke at the West Africa Civil Society Week held in Abuja with the “Leveraging Technology for Civic Engagement and Social Change in West Africa”
At the event held in collaboration with Civic Space Resource Hub, West Africa Civil Society Institute and the Ford Foundation, Ibezim-Ohaeri stated that this expenditure prioritised security over essential public services like education and healthcare, raising questions about the government’s commitment to human rights.
With lawful interception (LI), law enforcement authorities, in response to a warrant from a judge, can perform interception, simply by applying a ‘tap’ on the telephone line of the target, making it possible for security agencies in Nigeria to listen to terrorist and criminal cell phone calls and gather communications intelligence on their dark activities.
But Ibezim-Ohaeri said her organization’s report emphasised the historical context of surveillance in Nigeria, linking colonial practices to modern state surveillance tactics.
Ibezim-Ohaeri noted, “Colonial authorities established a framework for surveillance that persists today, where security agencies continue to repress dissent and monitor civic actors.”
Key findings from the report indicated that the military regime significantly intensified state surveillance, enacting laws that curtailed press freedoms and facilitated the harassment of journalists and political activists.
“Just as the U.S. expanded surveillance post-9/11, Nigeria mirrored this response after the 2011 UN building bombing,” she remarked, referring to legislation that broadened surveillance powers under the guise of national security.
The report outlined how civic actors and opposition politicians are often the primary targets of these surveillance initiatives.
“Evidence shows that state governors have acquired surveillance technologies to monitor political rivals, demonstrating the pervasive nature of these tactics,” Ibezim-Ohaeri explained.
Furthermore, the report highlighted that most surveillance technologies used in Nigeria are imported from countries like Israel, China, and the United States, emphasizing the risks posed by dual-use technologies that can be repurposed for oppressive measures.
“The dual-use nature of these technologies significantly contributes to their unchecked proliferation, often leading to abuses by both state and non-state actors,” she stated.
Despite existing legal frameworks, the report criticised the inadequacy of regulatory controls over surveillance technologies.
“While laws exist to govern surveillance, their enforcement is weak, creating a fertile ground for abuse and misuse,” Ibezim-Ohaeri cautioned.
In light of these findings, the report called for urgent reforms, including improved regulatory oversight and transparency in the procurement processes for surveillance technologies.
“We need a commitment to human rights that begins at the production stage, ensuring that surveillance technologies do not infringe on civil liberties,” she said.
Llawful interception (LI), in response to a warrant from a judge, lawful interception is performed simply by applying a ‘tap’ on the telephone line of the target, making it possible for security agencies in Nigeria to listen to terrorist and criminal cell phone calls and gather communications intelligence on their dark activities.
E-Business
Oba Otudeko Honoured with Doyen of Business Award @Family Business Summit 2024
Dr. Oba Otudeko, business mogul and chairman of Honeywell Group, has been awarded the prestigious “Doyen of Business” accolade at the recently concluded Family Business Summit 2024.
The summit held on Thursday, October 17, at the Wheatbaker Hotel, Ikoyi, Lagos, and themed “Family Business Legacy: Strategies for Building and Maintaining Multigenerational Wealth,” focused on empowering family-owned enterprises and explored strategies for navigating leadership transitions and transferring wealth and values across generations.
Dr. Otudeko was recognised for his significant contributions to nation building and economic development through his various investments and commitment to job and wealth creation opportunities in Nigeria.
The citation described Otudeko as “a paragon of innovation,” noting his unwavering commitment to creating value and driving economic prosperity across multiple sectors through Honeywell Group Limited.
Under his leadership, the company has set new benchmarks in various industries, including food, agriculture, and real estate, fostering sustained excellence and growth.
At the event, Honeywell Group was also honoured with the ‘Revolutionary Family Business Award’ in recognition of its commitment to innovation, strategic leadership, and sustained excellence.
The company was lauded for consistently setting new standards across diverse industries it operates in, including food, agriculture, real estate, among others.
In his acceptance speech, Otudeko highlighted the importance of resilience in business longevity, noting that the ultimate measure of success is a legacy that outlives its founder.
“Business leadership is a continuous journey that transcends short-term gains.
“A legacy is built on resilience, and at an advanced stage, your primary concern becomes ensuring continuity at a level even higher than when you started,” he said.
He expressed gratitude to the event organisers, BusinessDay and PwC, for the recognition, noting that it serves as a motivation for emerging family businesses.
“I am honoured to receive this award, and I extend my heartfelt thanks to BusinessDay and PwC for this acknowledgement.
“As we look ahead, succession and the empowerment of the next generation of leaders must remain key priorities to guarantee that the legacy we are building today endures for generations to come.”
The summit also honoured other outstanding leaders, including Dr. Stella Chinyelu Okoli, founder and CEO of Emzor Pharmaceuticals, for her exceptional contributions to Nigeria’s pharmaceutical industry and overall economic development.
Several leading family-owned businesses were recognized for their impact, including Tolaram Group, Orange Drugs Limited, Daily Need Group, amongst others.
The Family Business Summit, an annual event, is dedicated to supporting the growth of family businesses in Africa.
It provides a platform for discussing the unique challenges facing these enterprises, particularly around succession planning, governance structures, and strategies for sustaining wealth across generations.
E-Business
Nigeria Makes List of Top 10 Countries with Highest Cases of Internet Scams
As the digital age progresses, internet scam have become a significant concern for individuals, businesses, and governments worldwide.
While providing numerous opportunities for communication and commerce, the internet has also opened the door for fraudulent activities that exploit unsuspecting victims.
The prevalence of online scams has led to financial losses, psychological distress, and a general erosion of trust in digital transactions.
In this landscape, certain countries stand out for their vulnerability to internet scams due to various socio-economic and technological factors.
According to Sanction Scanner, these top 10 countries have the highest cases of internet fraud, in no particular order.
India
India has witnessed an alarming rise in internet scams, particularly in the realms of online shopping, tech support fraud, and lottery scams.
With over 600 million internet users, the country has become a fertile ground for cybercriminals.
India faces a severe cybercrime challenge, recording $7.93 million USD. in losses across 4,850 cases in 2023, according to the National Crime Records Bureau (NCRB). Digital financial frauds alone amounted to $14.86 million USD over the past three years.
The government has initiated several awareness campaigns, but the rapid growth of digital infrastructure continues to challenge law enforcement agencies to keep up with the evolving tactics of scammers.
Brazil
Brazil’s financial ecosystem has been significantly impacted by internet scams, especially banking trojan attacks that infiltrate user accounts and syphon off funds. Cybercriminals exploit vulnerabilities in online banking systems, leading to millions of dollars in losses annually.
Brazil’s fintech boom has attracted cybercriminals. In 2023, 1.8 million banking trojan infections were recorded, as reported by Kaspersky Lab.
The introduction of the Pix payment system has revolutionised financial transactions but exposed users to malware attacks, with eight of the top 13 trojans globally originating from Brazil.
As the digital banking sector expands, Brazilian authorities are working to implement stronger cybersecurity measures, but the cat-and-mouse game with scammers remains a constant struggle.
Pakistan
The landscape of internet fraud in Pakistan has been marked by a surge in suspicious transaction reports, indicating a growing problem with financial crimes, including money laundering.
Pakistan’s Financial Monitoring Unit (FMU) reported 32,072 suspicious transaction reports (STRs) in 2023.
Fraudulent activities involve money laundering and terrorist financing schemes, reflecting rising threats in both the financial and criminal sectors.
Despite government efforts to regulate and monitor online transactions, the lack of awareness among the populace often leads to individuals falling victim to these schemes.
This has created a pressing need for enhanced cybersecurity education and more robust regulatory frameworks.
South Africa
In South Africa, internet scams have manifested primarily through identity theft and online auction fraud.
The rise of social media platforms has provided scammers with new avenues to target victims.
Ranked 7th on the Global Criminality Index (2023), South Africa faces escalating identity theft and credit card fraud. Fraudulent loan applications and phishing attacks are widespread, exacerbated by vulnerabilities in online platforms and digital banking systems.
South African authorities have ramped up efforts to combat cyber fraud through public awareness campaigns and stricter regulations, yet the prevalence of scams continues to challenge consumers and businesses alike.
Morocco
Morocco faces a troubling rise in online scams, particularly those involving identity theft and fraud through social networks.
Many Moroccans lack awareness of the tactics employed by fraudsters, leading to increased victimisation.
Fraudulent activities are growing, with the Unit for the Processing of Financial Information (UTRF) monitoring suspicious transactions linked to money laundering and embezzlement.
The government is beginning to address these issues, but as the digital economy grows, so too does the need for comprehensive cybersecurity education and preventive measures.
Romania
Romania has emerged as a significant player in the realm of internet scams, characterised by complex networks of financial fraud, money laundering, and identity theft. While the country has made strides in improving its cybersecurity infrastructure, the sophistication of scams has outpaced regulatory efforts.
Romania’s vulnerability to business email compromise (BEC) scams and money laundering is significant. Europol reports highlight cases involving human trafficking and financial fraud.
Ongoing initiatives to combat these challenges are vital for restoring trust in Romania’s digital environment.
Nigeria
Known for its notorious “419” scams, Nigeria continues to battle a reputation fraught with issues related to cyber fraud.
Scammers often target individuals both locally and internationally, employing tactics that promise lucrative returns in exchange for upfront fees.
The Nigerian Financial Intelligence Unit struggles with enforcement due to institutional corruption. Educational initiatives aimed at raising awareness among citizens about online scams are critical to changing perceptions and reducing victimisation.
Venezuela
The dire economic situation in Venezuela has led to a surge in internet scams, including credit card fraud and various government-related schemes.
As citizens grapple with financial instability, scammers exploit their vulnerabilities, preying on desperate individuals seeking financial relief.
With frequent cases of identity theft, credit card fraud, and government-related corruption, narcotics trafficking exacerbates financial crimes, as the Unidad Nacional de Inteligencia Financiera (UNIF) works to monitor suspicious activities.
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