WikiLeaks’ Next Target? Your Company

By now, I’m sure you’re familiar with WikiLeaks. (If not, read this good, introductory summary.) The whistle-blower company has released hundreds of thousands of documents about the wars in Afghanistan and Iraq and, just this week, it made headlines worldwide by unveiling a new torrent of documents related to U.S. foreign policy and diplomacy. (Here are the Daily Beast’s “9 Most Shocking WikiLeaks Secrets.”)

Predictably, the company and its founder Julian Assange are not very popular among federal and military officials in Washington, D.C., many of whom see the release of such confidential documents as paramount to a criminal act of espionage against the United States.

Amidst the political firestorm, Assange has said that WikiLeaks’s next target will not be political or military — but corporate.

In a rare interview, Assange tells Forbes that the release of Pentagon and State Department documents are just the beginning. His next target: big business.

Early next year, Julian Assange says, a major American bank will suddenly find itself turned inside out. Tens of thousands of its internal documents will be exposed on with no polite requests for executives’ response or other forewarnings. The data dump will lay bare the finance firm’s secrets on the Web for every customer, every competitor, every regulator to examine and pass judgment on.

Risk managers are always looking for emerging risks. And being able to see the threats that lurk beyond the horizon can be what separates the good from the great. A few years ago, it would be hard for anyone to see this peril looming.

But here we are.

For companies, the threat may be even greater than that posed to the government and the military. Those institutions have time-tested procedures of secrecy and multiple levels of confidentiality to ensure everything remains on a need-to-know basis. Sensitive information is obviously getting released by people who think it should be in the public record, but we can probably be pretty sure that there is plenty of even more restricted information known in the halls of the White House, Pentagon and Congress that has not — and will never be — exposed to the masses

Businesses, too, have protections to keep the perhaps-incriminating or at-least-embarrassing details of their operations from seeing the light of day. But the proliferation of digital information — data that can be accessed by both employees and cyber-savvy outsiders — makes everything harder to protect. Most companies don’t have Apache helicopters and M-16-toting soldiers to protect their servers.

So all it would take is one whistle-blower with access to severely damage the reputation of the company — and perhaps imperil the freedom of its less-than-lawful execs.

For what it’s worth, Assange’s freedom is once again being threatened by those he has angered. Attempts to shut down the site in the past have almost all failed, however.

We’ll see if the latest hornet’s nest he has kicked will lead to any different results, but my guess is that the business risk of exposure at the hands of WikiLeaks — and the other imitators that will inevitably surface — will not be dissipating any time soon.

Q&A: The Impact of Basel III

Banks have feared the impending Basel III reforms for some time now. We have covered the topic in the past, both on the Monitor (the most recent Basel III-related post here) and in Risk Management (our April 2010 issue).

Starting tomorrow, regulators will come together for a two-day meeting of the Basel Committee on Banking Supervision. The purpose of the meeting is to come to an agreement on liquidity and the quality of capital to fill gaps in an overhaul of rules known as Basel III. Earlier this month, the G-20 endorsed the Basel reforms.

To get a bit of insight on the matter and how the reforms will affect insurers, I contacted Adam Girling, principal at the Financial Services Office of Ernst & Young, with a few questions on the topic.

How will the largest global investment banks deal with the impact of Basel reforms?

Adam Girling: One of the most significant impacts of the new Basel reforms is the substantial increase in capital requirements for trading book exposures, which are those positions held on a short-term basis with the intent to trade. The Basel Committee Quantitative Impact Study (QIS) and industry estimates suggest that risk-weighted assets for many trading portfolios will rise under the new requirements by three to four times on average, and potentially more for some portfolios. Particularly hard hit are securitization exposures. The global banking organizations with sizeable trading portfolios are looking at where their capital requirements are increasing most and whether they need to bring capital requirements down by hedging or unwinding positions — although liquidity of positions remains an issue. Coupled with the analysis of changing capital requirements are new Basel III leverage and liquidity coverage standards, as well as industry reforms around over-the-counter (OTC) derivatives and proprietary trading. So institutions are reviewing their business strategies and considering which businesses to exit stay the course or grow given the combined impact of changing market dynamics and new regulatory constraints.

Do you think economic growth will be hampered by Basel III bank capital standards?

AG: This is a profound question and there is certainly a divergence of views. For example, the Institute of International Finance (IIF) analysis suggests a potentially large impact, while the Basel Committee itself projects a quite limited impact. Theoretically, the extended implementation period should provide an opportunity to identify potential unintended consequences and an opportunity to make adjustments as, and if, necessary. The biggest risks are likely in the transition phase. The Basel committee has calculated that with the long transition periods retained earnings can boost capital ratios sufficiently, but the industry may set expectations for banks to meet the new standards sooner. If this is the case, banks will either need to raise extra capital or will need to reduce the risk in their balance sheets — potentially via changing their lending profiles to maintain an acceptable rate of return on equity.

How will the Basel reforms affect insurers?

AG: Basel II applies to banking organizations and Basel III does not propose to change those subject to the risk-based capital standards.  In the US, Basel II has, to date, only applied to the largest and most internationally active banking companies on a consolidated basis. And to my knowledge, none of these institutions have a top-tier parent that is an insurance company. If any insurance companies were deemed systemically significant under the Dodd-Frank Wall Street Reform and Consumer Protection Act, it is quite possible that the enhanced capital and liquidity requirements to which they would be subject would incorporate Basel III. In Europe, however, Solvency II is enhancing risk-based capital for insurers using a three pillar framework similar to Basel II.

Staying Safe on Black Friday

Every year it seems like Christmas shopping season kicks off earlier and earlier. When I went to pick up Halloween candy last month, I could have sworn there were more candy canes than candy corn. (Much to my dismay since I’m probably one of the only people on the planet who actually likes candy corn. I should have bought some anyway just to confuse trick-or-treaters.) But despite retailers’ seeming desire to start the Christmas shopping season in the summer, the traditional beginning of the season is still the day after Thanksgiving, otherwise known as Black Friday.

Unfortunately in recent years, Black Friday has come to stand less for the effect is has on retail balance sheets and more for the incidents of tragedy that have befallen shoppers caught up in the buying frenzy. Reports of injuries, tramplings and worse have become all too common. One of the most infamous incidents occurred two years ago when a seasonal worker at a Valley Stream, New York Walmart was trampled to death after shoppers broke down the doors to the store in their rabid hunt for bargains.

This year, in an effort to prevent another tragedy OSHA has sent a letter to the CEOs of 14 national retailers, including Walmart, Target, Macy’s and Best Buy, encouraging them to take proper precautions to protect the safety of workers and customers. OSHA also included a fact sheet entitled, “Crowd Management Safety Tips for Retailers.”

OSHA has prepared these guidelines to help employers and store owners avoid injuries during the holiday shopping season, or other events where large crowds may gather. Crowd management planning should begin in advance of events that are likely to draw large crowds, and crowd management, pre-event setup, and emergency situation management should be part of event planning.

OSHA tips concern the proper training of workers, suggestions for the use of barricades to control the flow of crowds and the importance of communication with customers, employees and security personnel.

The National Retail Federation expects that 138 million shoppers will head out to the stores on Black Friday this year, up from the 134 million that had planned to go out last year. It’s bound to be chaotic but let’s make sure that the holiday season kicks off safely.

And if you want to pick me up something nice, I won’t mind.


Reuters’ Best Photos of the Year

Granted we still have a month and change left in 2010, but Reuters has posted their 55 best photos of the year. Considering that their photographers produce over 500,000 photos each year, these are some impressive shots. As you would expect, they depict everything from tragedy to human interest and run the gamut of emotions from harrowing to heart-warming to just plain awesome (I’m looking at you, kid carrying a shark through the streets of Mogadishu). They are certainly not boring. Don’t miss it.

June 8: East Grand Terre Island, Louisiana

April 22: Eyjafjallajokull volcano, Iceland

September 23: Mogadishu, Somalia