Category Archives: Emerging Risk

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Avoiding Social Media’s Legal Pitfalls

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Social media is now a standard communications tool for businesses, with many companies regularly using Facebook, Twitter and other social networks to engage with the public. More and more businesses are hiring social media specialists whose sole responsibility is to be the company’s “voice” on these platforms. But this activity comes with risk for both the organization and the individual. The potential for any posting to be retweeted, shared or even go viral underscores the need to be aware of the rising legal risks associated with your business’s social media accounts.

Potential Defamation Lawsuits

The first tip for anyone engaged in social media on behalf of their business or employer is obvious, but not always followed—think before you post. Even if the tweet or post contains an unintended error and is deleted immediately, postings can still be pulled and reposted or retweeted by others. Once something is out there on social media, however, you’ll need to deal with the consequences. Although the laws surrounding social media are still developing, it is possible for a business to be hit with an expensive defamation suit based on a single posting or comment.

Since most posts on social media pages are generally shorter than what a business normally has the space to say in a traditional publication, sales pitch or marketing brochure, the lack of context can present a greater risk of defaming someone or another business. Think about it like this: If a customer comments on a business’s Facebook page asking about one of their competitors, an employee might reply that the competitor provides “untrustworthy service” without much context or explanation to back up that claim. Just those two words have the potential to spiral into a defamation suit if the competitor feels the comment was untrue and harmed their reputation. Since most online statements are brief, it would be more difficult in court for the person posting the comment to prove that he or she is entitled to the same legal defenses available to a traditional publication, even if the post was true or was an opinion rather than a statement. To minimize defamation lawsuit potential, every comment, posting, tweet or retweet should be completely factual and have a positive tone. It is not always possible to check every post before it is published, but anything potentially controversial should be read by another pair of eyes before clicking ”submit.”

Personal versus Professional

Another still-developing area of social media regulation is the distinction between personal and professional profiles or accounts. Businesses are legally accountable for anything tweeted, blogged, or posted on the company’s social media accounts. But this is where it gets complicated; it is possible for a company to also be held responsible for what an employee posts on their personal accounts, especially if it’s not clear to the reader whether they are speaking on behalf of the company or only for themselves. Here’s an example: An employee who works in the food industry posts a photo to his Twitter account of himself handling food in an unsanitary way. Even though the employee may have meant it as a private joke for his followers, any customer who sees the photo could sue that business for lack of training and unsanitary conditions.

To proactively prevent this type of situation, it is important for employers to have a social media policy outlined in their employee handbook. Depending on the business and applicable law, it may also be beneficial to establish upfront that employees’ public social media accounts may be monitored. It is also worth considering a handbook policy stating that any work-related posts on an employee’s private social media accounts are not allowed, and the violation of this policy could result in termination. Some organizations require employees who have personal Twitter or Facebook accounts to post a disclaimer in their “about me” section saying something along the lines of, “I work for X Company, but all posts reflect my personal views only.” This can potentially protect both the employee and employer should a lawsuit arise, but it is not a failsafe.

The rise of social media is bringing significant benefits to businesses, but they also need to be aware of potential legal pitfalls. As the laws regulating social media continue to develop, smart business owners and managers should be prepared to implement appropriate safeguards and policies to ensure that their business can sustain a 140 character mishap, should one occur.

To protect themselves from any potential lawsuits, companies should have adequate insurance coverage in place to address social media activities. Since most commercial general liability policies do not cover online content, it’s important to truly understand what activities your policy covers.

 

Canada Approves National Bitcoin Regulation

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Canada bitcoin regulation

In our May cover story, “Making Cents of Bitcoin,” I wrote about the risks of bitcoin and other digital currency given the current lack of regulation or oversight. Without more guidance and structure for digital currency, the extreme risks of volatile values and considerable illegal activity are simply too high to generate viable widespread adoption.

As Cyrus R. Vance, district attorney of New York County, said, “Without stronger government oversight in this area I believe we are going to be permitting cybercriminals, identity thieves and even traffickers of child pornography and other criminal actors to operate in what would be a digital Wild West.”

In March, the Monetary Authority of Singapore (MAS) announced plans to require intermediaries that facilitate digital currency exchange to verify customers’ identities and report suspicious transactions. Here in the United States, the Financial Crimes Enforcement Network issued guidance stating that anyone operating an exchange for virtual currencies would be considered to be running a money transmitting business.

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By doing so, FinCEN required exchanges to collect information about customers, as mandated under Bank Secrecy Act regulations intended to prevent transactions through anonymous accounts. The IRS also announced plans to tax bitcoin as income or property, not currency. Yet no country had really taken action to regulate virtual currency.

Now, Canada may become the first nation to try. One provision of a new Canadian budget law amends anti-money laundering and counter-terrorist financing laws to regulate virtual currencies, the Wall Street Journal reported. The measure makes digital currencies subject to the same reporting requirements as other money-services businesses.

According to the WSJ:

In addition to the money services business treatment, digital-currency exchanges will have to register with the Financial Transactions and Reports Analysis Centre of Canada, or Fintrac. With that registration comes requirements to report suspicious transactions, keep certain records, implement compliance programs and determine if any of their customers are politically exposed people. And the law is extraterritorial: It captures foreign companies that have a place of business in Canada and those directing services at Canadians.

“Canada approving a national Bitcoin law as a matter of anti-money laundering law should not be discounted,” Canadian barrister and solicitor Cristine Duhaime wrote on her firm’s website. “It is important not only because it may be the first Bitcoin national law but also because most countries may now follow suit because of their membership in the Financial Action Task Force.”

The FATF is an international body that sets standards on anti-money laundering and counter-terrorist financing policy. Failure to comply with those standards can result in a country being blacklisted as high-risk or uncooperative, making it more expensive and more difficult to do business with member states.

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According to Duhaime, the five most important aspects of the new legislation are:

  1. Regulates Bitcoin as MSB – Bitcoin dealing, more specifically referred to as “dealing in virtual currencies” in Bill C-31, will be subject to the record keeping, verification procedures, suspicious transaction reporting and registration requirements under the PCMLTFA as a money services business.
  2. Does not define “dealing in virtual currencies” – The phrase “dealing in virtual currencies” was left undefined and it is not known what the defined term will encompass in terms of business activities once defined by regulation.
  3. Registration with FINTRAC – Bitcoin dealers will be required to register with FINTRAC and if successfully registered, to implement a complete anti-money laundering compliance regime.
  4. Captures foreign Bitcoin companies targeting Canada – Bill C-31 extends to: (a) entities that have a place of business in Canada; and (b) entities that have a place of business outside Canada but who direct services at persons or entities in Canada. Bitcoin businesses in Canada, however, that provide services to persons or entities outside of Canada are exempt from Bill C-31 for those external services.
  5. Prohibits banks from opening accounts for Bitcoin entities if unregistered – Under Bill C-31, banks will be prohibited from opening and maintaining correspondent banking relationships with Bitcoin dealers that are not registered with FINTRAC. This is an extremely important aspect of Bill C-31 and Bitcoin businesses should ensure they understand what a correspondent banking relationship is and how it can affect the provisions of banking services to them.

Implementation of the new Canadian law may take up to a year, Dunhaime wrote.

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NAMIC Nixes Car-Sharing

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While car-sharing has been given the green light in California, Oregon and Washington, some insurers are cautioning against it.

In the states that have passed laws, legislation prevents insurers from canceling the policy of an owner who rents a vehicle. Car-share programs are also required to provide liability insurance acceptable approved by the state.

Car-sharing services allow a car’s owner to turn a personal auto into a personal Zipcar and rent it out by the hour or the day. The owner sets a price, and an intermediary service lists the car online, connects the owner with people who want to it and takes a portion of the fee.

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According to CNBC, insurance companies worked with California’s legislature on the car-sharing law to make it work. Pete Moraga with the Insurance Information Network of California said, “We knew that this was a trend that was not going away, so our goal was to come up with a law that was advantageous to all parties.”

But the National Association of Mutual Insurance Companies (NAMIC) is opposed to New York’s proposed bill, A.8007B, which would regulate car-sharing programs.

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They claim it would likely result in lawsuits arising out of disputes over coverage.

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NAMIC pointed out that the rise of formal car-sharing programs throughout the United States has uncovered numerous insurance-related challenges, especially over the role of the car owner’s personal insurer and what exposure it may have.

“Unfortunately, the insurance provisions in this bill lack sufficient clarity and will likely result in unnecessary coverage disputes and consumer confusion,” said John Murphy, NAMIC’s state affairs director for the Northeast. “With a car-sharing program, an insurer lacks important information for gauging the risk. Car sharing is essentially a commercial enterprise, and the personal auto carrier should not be required to cover a risk that it never intended to cover.”

Murphy said that the insurer of any car involved in a car-sharing program needs to be free to decide whether it wants to underwrite the vehicle, exclude any damage resulting from such use, and cancel or not renew any vehicle participating in a car-sharing program. He also said that because New York has a competitive auto insurance marketplace, it is likely that some carriers will develop insurance products for the car-sharing market.

The 1,400 NAMIC member companies serve more than 135 million auto, home and business policyholders and write more than $196 billion in annual premiums, accounting for 50% of the automobile/homeowners market and 31% of the business insurance market.

RIMS Risk Maturity Model: Root Cause Discipline

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After the last article, which discussed the first two attributes of the RIMS Risk Maturity Model (RMM), ERM Based Approach and ERM Process Management; our focus here is on the third attribute, Root Cause Discipline.

Root Cause Approach

In Washington, D.C., officials tried, but were nearly helpless in stopping the deterioration of the Lincoln Memorial. Rather than address the damage with costly repairs, they instead traced the concern back to a root cause. Deterioration was caused by the high powered hoses needed to clean the building—which were necessary because the building was an attractive home for birds.

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Birds were drawn to a very dense population of insects, which were attracted to the bright lights of the memorial.

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So how do you stop the Lincoln Memorial from deteriorating? You dim the lights.

The root cause methodology provides clarity by identifying and evaluating the origin of the risk rather than the symptoms. Unveiling the triggers behind high level risk and loss events point to the foundation of where an organization is vulnerable.
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Uncovering, identifying and linking risk back to the root causes from which they stem allows organizations to gather meaningful feedback, and move forward with accurate, targeted mitigation plans.

To illustrate an example in a business environment, consider the risk of inadequate training. Within an organization, there may be multiple departments experiencing risk regarding their training policies, procedures and documentation, yet each area is likely to be recording and recognizing this risk in its own way. The result is an extensive amount of information recorded in spreadsheets that requires time and energy to sort and sift through. By identifying the root cause, a risk manager can expose the underlying commonality between departments and their concerns, allowing more effective identification and mitigation of systemic risk.

Applying root cause to your current approach

To integrate this type of approach to an enterprise risk management (ERM) program, you must first identify the root cause foundation of your organization. The RMM is built on five root cause categories which cover all enterprise risks:

  • External – risk caused by third-party, outside entities or people that cannot be controlled by the organization
  • People – risks involving employees, executives, board members and all those who work for the organization
  • Process – risks that stem from the organizations business operations including transactions, policies and procedures
  • Relationships – risks caused by the organization’s connections and interactions with customers, vendors, stakeholders, regulators  or third parties
  • Systems – risks due to theft, piracy, failure, breakdown, or other disruption in technology, plant, equipment, facility, data or information assets

Understanding which core area of the organization a risk stems from provides the ability to effectively understand and mitigate the risk. For instance, theft from an external third party is very different than theft from an internal employee, and will thus have a very different response and mitigation strategy.

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One strategy would require an investment in IT or infrastructure, while the latter would need an HR policy change or new ethics program.

Looking for an example of root cause? Download our complimentary Risk Assessment Template.