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Investment firms that fix misconduct should be celebrated, not punished – The Globe and Mail

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The policy of giving prosecutorial discounts in deserving cases is meant to lighten the punishment that gets meted out. But what we really should be asking is: why are these firms being prosecuted and punished at all? THE CANADIAN PRESS/Adrien Veczan

Adrien Veczan/The Canadian Press

Bad things can happen in any financial services firm. None are immune to internal errors or systemic failure – and transgressions by wayward employees are, unfortunately, an occasional hazard of real life. What matters most, though, is how management responds when misconduct comes to light.

In particular, do the firm’s executives react by containing the problem and implementing robust measures to prevent a recurrence? Do they report the matter to regulators immediately? Does the firm compensate every harmed client in full promptly?

Smart firms do all this. They then qualify for special treatment in regulatory prosecutions that flow from the incident. For example, they receive “credit for co-operation” that can reduce fines substantially – by millions of dollars in one recent case alone.

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In some jurisdictions such as Ontario, these firms also become eligible for “no-contest” settlements, which resolve enforcement proceedings without the firm having to make an admission of wrongdoing that could come back to bite it if any clients sue afterward.

This policy of giving prosecutorial discounts in deserving cases is meant to lighten the punishment that gets meted out. But what we really should be asking is: why are these firms being prosecuted and punished at all?

By their own initiative, they’ve promptly put things right, including, most importantly, compensating everyone who was affected adversely. Firms that do so are poster children for corporate responsibility. If we want to encourage more such behaviour, spanking them doesn’t make a whole lot of sense.

Instead, we should be lauding them and easing the path for others to follow their example. So, why not simply create an administrative process allowing them to submit paperwork detailing what happened and documenting, specifically, these six key things:

  1. Their non-compliance was inadvertent or the result of rogue employee misconduct that the firm did not encourage, countenance or know about.
  2. The problem did not arise and its detection was not delayed by a lack of diligence on management’s part.
  3. The firm didn’t ignore or attempt to cover up the incident.
  4. Internal processes have been strengthened sufficiently to ensure the problem won’t occur again.
  5. Appropriate disciplinary action has been taken against every employee who engaged in deliberate wrongdoing.
  6. Every client harmed by the error or misconduct has been identified, the extent of the harm they’ve suffered has been accurately determined, and the firm has fully compensated them.

Let regulators pore over the material and investigate further as they deem necessary. But ultimately, if they’re satisfied that these six criteria have been met, the only action they should take against the firm is to identify it in a news release about the incident.

That bulletin should set out a description of the wrongdoing in enough detail to let the public understand the nature and gravity of it. Measures taken by the firm in response should be mentioned, including the fact that all affected clients have been made whole. Regulators should state they are satisfied the firm dealt with the event appropriately.

And that’s it.

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No need for officials to crank up their costly enforcement battle machinery, as a state of compliance has already been restored. No need for the firm to deploy reputation management countermeasures. No stigma. Best of all, no need for investors to spend money and incur angst to secure recompense. Everybody wins – except any employees who went rogue, if that’s what caused the problem. They would still get prosecuted, and deservedly so.

Neil Gross, president of Component Strategies, a capital markets policy consultancy in Toronto.

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Currently, regulators are limited to issuing a “no action” letter when they approve of the firm’s response and want to hold off taking enforcement action. The letter forms part of the firm’s record but is not disclosed publicly. That’s less than ideal as it fails to provide transparency. It also doesn’t capitalize on the opportunity for encouraging others to follow the firm’s good example.

Moreover, this approach keeps the matter pinned to a narrative that’s essentially negative in slant (we’ve decided not to prosecute you) instead of a celebratory one (you dealt with the situation well).

So, again, why not move these cases out of enforcement altogether and into a purely administrative process that isn’t freighted with prosecutorial overtones and limitations.

Perhaps there would be concerns about diminished deterrence – i.e., won’t this initiative foster a cavalier attitude toward supervision if companies can just clean up any messes when they occur and then walk away, penalty free?

Another related concern might be optics: will this make regulators appear soft on misconduct?

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The short answer to both questions is no. Recall that the program would excuse only non-compliance arising where there has been either no complicity or lack of diligence by the firm[PF1] . Those who have turned a blind eye to wrongdoing or have been lazy in their oversight duties won’t qualify for exemption. They’ll still face fines, denunciation and suspensions or bans and deregistration, where warranted.

So, this approach isn’t soft on malfeasance. Yet, it offers maximum redemption for those who act responsibly when “stuff happens.” It’s a big carrot, to be sure, but the deterrent stick’s still there to whack anyone in management who enables transgressions.

In addition, this approach emphasizes that the true dividing line between culpable misconduct and pardonable error lies in whether the wrongdoing was intentional or inadvertent, and whether good or bad choices are made once the problem surfaces.

Finally, this approach prioritizes getting redress for harmed investors – something regulation hasn’t always focused on as much as it should. That’s the right priority. So let’s actualize it now by stepping up from a system that offers credit for co-operation to one that strategically sets punishment aside and gives kudos for accountability instead.

Neil Gross is president of Component Strategies, a capital markets policy consultancy in Toronto.

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Investment regulator imposed $14M in enforcement penalties in latest fiscal year

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TORONTO — Canada’s investment product regulator says it imposed more than $14 million in fines and other financial enforcements in its last fiscal year.

The Canadian Investment Regulatory Organization (CIRO) says the total also includes imposed costs and the forced return of ill-gotten profits.

The regulator says it also ordered suspensions and permanent prohibitions in a significant proportion of proceedings against individuals.

Enforcement efforts included a $2 million fine against Fortrade Canada for recommending a high-risk product to unsophisticated retail clients, and a $1.7 million fine and permanent ban on securities-related business against Paul Walker for a range of misconduct including soliciting more than $1.5 million in investments for an outside business activity.

CIRO was created at the start of 2023 through a combination of the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada.

The new self-regulatory organization says it is focused on harmonizing its regulatory approach to create more consistency and timeliness with enforcement action.

This report by The Canadian Press was first published July 16, 2024.

The Canadian Press

 

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Conditions on Simandou investment now satisfied

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LONDON, July 15, 2024–(BUSINESS WIRE)–All conditions have now been satisfied for Rio Tinto’s investment to develop the Simandou high-grade iron ore deposit in Guinea, including the completion of necessary Guinean and Chinese regulatory approvals. The transaction is expected to complete during the week of 15 July 2024.

Along with the recent approval by the Board of Simfer1, this allows Simfer to invest in and fund its share of co-developed rail and port infrastructure being progressed in partnership with Winning Consortium Simandou2 (WCS), Baowu and the Republic of Guinea.

More than 600 kilometres of new multi-use trans-Guinean railway together with port facilities will allow the export of up to 120 million tonnes per year of mined iron ore by Simfer and WCS from their respective Simandou mining concessions in the southeast of the country3. Together, this will be the largest greenfield integrated mine and infrastructure investment in Africa.

Rio Tinto Executive Committee lead for Guinea and Copper Chief Executive Bold Baatar said: “We thank the Government of Guinea, Chinalco, Baowu and WCS for their partnership in reaching this milestone towards developing the world class Simandou project.

“Simandou will deliver a significant new source of high-grade iron ore that will strengthen Rio Tinto’s portfolio for the decarbonisation of the steel industry, along with trans-Guinean rail and port infrastructure that can make a significant contribution to the country’s economic development.”

Under the terms of the transaction, Simfer will acquire a participation in the WCS project companies constructing rail and port infrastructure, commit to perform a portion of the construction works itself and commit to funding its share of the overall co-developed infrastructure cost, in an aggregate amount of approximately $6.5 billion (Rio Tinto share approximately $3.5 billion)4.

Chalco Iron Ore Holdings Ltd (CIOH) has now paid its share of capital expenditures incurred or required by Simfer to progress critical works up to completion. A first payment of approximately $410 million, for expenditures until the end of 2023, was made on 28 June 2024, and a second payment of approximately $575 million, for 2024 expenditures, was made on 11 July 2024. These amounts settle all expenditures incurred up to date.

The co-developed infrastructure capacity and associated cost will be shared equally between Simfer, which will develop, own and operate a 60 million tonne per year5 mine in blocks 3 and 4 of the Simandou Project, and WCS, which is developing blocks 1 and 2.

Under the co-development arrangement, Simfer and WCS will deliver separate infrastructure scopes to leverage expertise. Simfer will construct the approximately 70 kilometre Simfer spur rail line and a 60 million tonne per year transhipment vessel (TSV) port, while WCS will construct the dual track approximately 536 kilometre main rail line, the approximately 16 kilometre WCS spur rail line and a 60 million tonne per year barge port.

Once complete, all co-developed infrastructure and rolling stock will be transferred to and operated by the Compagnie du Transguinéen (CTG) joint venture, in which Simfer and WCS each hold a 42.5% equity stake and the Guinean State a 15% equity stake6.

First production from the Simfer mine is expected in 2025, ramping up over 30 months to an annualised capacity of 60 million tonnes per year5 (27 million tonnes Rio Tinto share). The mine will initially deliver a single fines product before transitioning to a dual fines product of blast furnace and direct reduction ready ore.

Simfer’s capital funding requirement for the Simandou project as a whole is estimated to be approximately $11.6 billion, of which Rio Tinto’s share is approximately $6.2 billion, broken down as follows.

US dollars in billions (nominal terms) Simfer

capex

  Rio Tinto
share
Mine and TSVs, owned and operated by Simfer
Development of an initial 60Mt/a mine at Simandou South (blocks 3 & 4), to be constructed by Simfer $5.1 $2.7
Co-developed infrastructure, owned and operated by CTG once complete
Simfer scope (funded 100% by Simfer during construction)

Rail: a 70 km rail-spur from Simfer mine to the mainline, including rolling stock
Port: construction of a 60Mt/a TSV port

$3.5 $1.9
WCS scope (funded 34% by Simfer during construction)

Port and rail infrastructure including an approximately 552 km trans-Guinean heavy haul rail system, comprised of a 536 km mainline and a 16 km WCS rail spur

$3.0 $1.6
Total capital expenditure (nominal terms) $11.6 $6.27

Rio Tinto’s share of expected capital investment remaining to be spent from 1 January 2024 is to be $5.7 billion. Rio Tinto’s expected funding requirements for 2024 and 2025 are included in its share of capital investment guidance for this period, with project funding expected to extend beyond this timeframe.

Further details on the Simandou project can be found in the 2023 Investor Seminar presentation at https://www.riotinto.com/en/invest/investor-seminars.

As Chinalco, Baowu, China Rail Construction Corporation and China Harbour Engineering Company are Chinese state-owned entities, and given Chinalco indirectly holds 11.2% of shares in the Rio Tinto Group, they, and WCS, may be considered to be associates of a related party of Rio Tinto for the purpose of the UK Listing Rules. Rio Tinto’s funding commitment pursuant to the infrastructure co-development arrangement (Rio Tinto share $3.5bn) is a smaller related party transaction for the purposes of Listing Rule 11.1.10R and this announcement is, therefore, made in accordance with Listing Rule 11.1.10R(2)(c).

___________________________
1 Approval has been granted by the Board of Simfer Jersey Limited, a joint venture between the Rio Tinto Group (53%) and Chalco Iron Ore Holdings Ltd (CIOH) (47%), a Chinalco-led joint venture of leading Chinese SOEs (Chinalco (75%), Baowu (20%), China Rail Construction Corporation (2.5%) and China Harbour Engineering Company (2.5%)). Simfer Infraco Guinée S.A.U. will deliver Simfer Jersey’s scope of the co-developed rail and port infrastructure, and is, on the date of this notice, a wholly-owned indirect subsidiary of Simfer Jersey Limited, but will be co-owned by the Guinean State (15%) after closing of the co-development arrangements. Simfer S.A. is the holder of the mining concession covering Simandou Blocks 3 & 4, and is owned by the Guinean State (15%) and Simfer Jersey Limited (85%).
2 WCS is the holder of Simandou North Blocks 1 & 2 (with the Government of Guinea holding a 15% interest in the mining vehicle and WCS holding 85%) and associated infrastructure. WCS was originally held by WCS Holdings, a consortium of Singaporean company, Winning International Group (50%) and Weiqiao Aluminium (part of the China Hongqiao Group) (50%). On 19 June 2024, Baowu Resources completed the acquisition of a 49% share of WCS mine and infrastructure projects with WCS Holdings holding the remaining 51%. In the case of the mine, Baowu also has an option to increase to 51% during operations. After Closing, Simfer will hold 34% of the shares in the WCS infrastructure entities during construction with WCS holding the remaining 66%.
3 WCS holds the mining concession for Blocks 1 and 2, while Simfer S.A. holds the mining concession for blocks 3 and 4. Simfer and WCS will independently develop their mines.
4 A true-up mechanism will apply between Simfer and WCS to equalise most of their costs of constructing the co-developed rail and port infrastructure. The figures shown here are pre-equalisation.
5 The estimated annualised capacity of approximately 60 million dry tonnes per annum iron ore for the Simandou life of mine schedule was previously reported in a release to the Australian Securities Exchange dated 6 December 2023 titled “Simandou iron ore project update“. Rio Tinto confirms that all material assumptions underpinning that production target continue to apply and have not materially changed.
6 Ownership of the rail and port infrastructure will transfer from CTG to the Guinean State after a 35 year Operations Period, with Simfer retaining access rights on a non-discriminatory basis and at least equivalent to all Third Party Users.
7 By the end of 2023, Rio Tinto spent $0.5 billion (Rio Tinto share) to progress critical path works. Rio Tinto’s share of expected capital investment remaining to be spent from 1 January 2024 was $5.7 billion.

This announcement is authorised for release to the market by Andy Hodges, Rio Tinto’s Group Company Secretary.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240621382292/en/

Contacts

Please direct all enquiries to media.enquiries@riotinto.com

Media Relations,
United Kingdom
Matthew Klar
M +44 7796 630 637
David Outhwaite
M +44 7787 597 493

Media Relations,
Australia

Matt Chambers
M +61 433 525 739
Jesse Riseborough
M +61 436 653 412
Alyesha Anderson
M +61 434 868 118
Michelle Lee
M +61 458 609 322

Media Relations,
Americas

Simon Letendre
M +1 514 796 4973
Malika Cherry
M +1 418 592 7293
Vanessa Damha
M +1 514 715 2152

Investor Relations,
United Kingdom
David Ovington
M +44 7920 010 978
Laura Brooks
M +44 7826 942 797

Investor Relations,
Australia

Tom Gallop
M +61 439 353 948
Amar Jambaa
M +61 472 865 948

Rio Tinto plc
6 St James’s Square
London SW1Y 4AD
United Kingdom
T +44 20 7781 2000
Registered in England
No. 719885

Rio Tinto Limited
Level 43, 120 Collins Street
Melbourne 3000
Australia
T +61 3 9283 3333
Registered in Australia
ABN 96 004 458 404

riotinto.com

Category: Simandou

 

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BlackRock Pulls Ad Featuring Trump Rally Shooter Thomas Matthew Crooks

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A screengrab of Thomas Crooks from the BlackRock ad that aired in 2022.

Thomas Matthew Crooks, the 20-year-old who shot at former president Donald Trump at a rally in Pennsylvania, had briefly appeared in a 2022 advertisement for BlackRock Inc, the world’s largest money manager.

The ad, filmed at the Bethel Park High School in Pennsylvania, featured Crooks and several other unpaid students in the background, said the investment giant in a statement. Crooks graduated from the school in 2022.

BlackRock said it has pulled the ad but the video will be available to authorities. The ad, however, is being widely shared by social media users.

“The assassination attempt on former President Trump is abhorrent. We’re thankful former President Trump wasn’t seriously injured, and thinking about all the innocent bystanders and victims of this awful act, especially the person who was killed,” the company added in its statement.

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BlackRock, whose earnings figures are expected today, has faced scrutiny after shooting incidents since some of its index funds own shares in gunmakers.

Trump Assassination Attempt

Trump survived an assassination attempt on Saturday after a gunman opened fire at him at a rally in Pennsylvania ahead of the Presidential elections. The attack left him with a bloodied face as the former president said the bullet pierced his “upper part of right ear”.

Latest and Breaking News on NDTV

A bystander died in the attack while shielding his family and Crooks – a registered Republican – was shot dead by a Secret Service sniper.

Trump, whose Republican candidature will be finalised today, shared a message of unity after the attack and said Americans must not allow “evil to win”. “It was God alone who prevented the unthinkable from happening,” he said on social media.

Biden, too, appealed to the nation to “lower the political temperature” in a rare Oval Office address. “Politics must never be a literal battlefield, God forbid a killing field,” he said.

The US markets are expecting Trump trades to gain momentum after the attack. It has already been pinning hopes for the return of Republicans, especially after Biden’s poor performance in last month’s debate. Those trades are likely to take deeper hold as the attack sparks a wave of sympathy and support for Trump.

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