Panama Papers: Proceeds of Crime?

Drug dealer has a pile of cash. Drug dealer buys mother a house. Mother is pretty certain that the money is not clean, but it was from her son. Sweet boy. Time goes by. Drug dealer is caught. Assets are confiscated. Mother loses house. Proceeds of crime, after all.

And that is the way it is supposed to work. While mother is a nice woman and loves her son, she did knowingly accept assets that were the direct result of criminal activity. Apparently this standard does not apply to journalists. Journalists get Pulitzer prizes instead.

The "Panama Papers", while shining a bright light on the world of offshore companies and diversion management of assets, more importantly highlights the very grey line between the ethical hacker and the crooks, including the users of the information that was stolen. We still do not know how the information was released, although Mossack Fonseca is stating that the document were stolen in an external hack of their systems.

Basically there are two options; and insider copied the documents and made them available to the Süddeutsche Zeitung, or an external individual or group of individuals hacked Mossack Fonseca's systems and copied the files, providing them to Süddeutsche Zeitung.  We are told that the person (singular) who provided the document has not asked for money, only protection of identify. It is worth noting of course that an internal party could have been the hacker, to help obscure the source of the information.

As there was too much information for one news agency to fully explore, the data was distributed to a number of news agencies and papers, using the ICIJ (International Consortium of Investigative Journalists) as the network for distribution.

What is disturbing is the wide dissemination of the information for a long period of time, and teh ability of the journalists brought in to keep their silence. Almost mafia-like. While journalists as individuals have, in liberal western countries, a theoretical legal protection for use of sources (and in some case protection from releasing their sources), the information used in this case was sourced illegally. Once sourced however;

A network of about 400 journalists in 80 countries put together by the consortium spent months researching the documents. The media partners included the Guardian and BBC in the U.K., El Confidencial in Spain, Le Monde in France, Falter and ORF in Austria, Sonntagszeitung in Switzerland, and L’Espresso in Italy.

We are also told that newspapers and journalists have had access to the documents for many months, with the various reports saying anything from six months to a year. It is interesting that in that six months to a year, the story was kept secret from all, until Sunday April 3rd, when the bombshell exploded onto newspapers (online of course) and the TV news.

And what an explosion. 12 heads of state, 120 senior politicians or close associates of politicians, family members, etc. The first scalp has been taken, with the Prime Minister of Iceland stepping down. Score one for the "Revenge of the Sith Bankers". Personally I would not be surprised to find that the IMF, Troika, and individual banks that lost big in Iceland, are rubbing their hands in spiteful glee, but I digress.

In total, something like 214,000 companies were established by MF, with these companies spread around the world. Strangely, there are few American companies or individuals reported thus far - the current number seems to be 3072, with a total of 441 clients, but we're told to expect more. 3072 out of 214,000? Really?

Putin is just missed, but some around him are having their affairs aired in public. All, according to the Kremlin, part of a campaign of Putinphobia. Whose to know, but the Panama Papers are highlighting goings on that seem a little unsavory. In fact, a lot unsavory, by a huge range of people, from football stars to royalty, to criminals and (not criminal) individuals and companies.

And yet, all the information is not being released, raising questions about the political motives of those that released the information. Wikileaks climbed into the fray by stating categorically that one of the organisations involved in the dissemination of the information is effectively a front for Soros and his anti-Russia pro-democracy agenda.

And it is to that background that the relatively low number of Americans identified raises questions. If there is a dearth of Americans, is this because the information has been massaged? Is the number so low because the United States already has significant tax havens in Arizona and Delaware, and therefore there is less "need" for Americans to create international vehicles? Really?

At the core of my concerns then, is the question of whether the release of information, stolen information, was a crime, and not a "whistle blowing" action. And if it was a criminal activity (which hacking resulting in the theft of company information clearly is) then while there may be an argument that the thief was a whistle-blower, it does not absolve organisations from their use of the information for gain.

In this case, Süddeutsche Zeitung, the Guardian and other news organisations, instead of being legitimate news gathering and reporting organisations, are in fact the recipients and exploiters of illegally gains assets (the data). The drug data dealer has given then a home, and they know it came from criminal activity.

This makes their activities effectively the exploitation of the proceeds of crime.

I would expect that the vast majority of the companies formed will have been for perfectly valid business or personal reasons, legally using mechanisms to manage business activities and assets while also managing tax exposure - legally. None of that matters of course. Panama and anyone who does business with a Panama legal firm is now assumed to be a crook, while the real criminals, the Hacker(s) and the news outlets that has used the proceeds of that crime, will wear a mantel of purity of spirit.

If anything, I wonder if there will not be legal actions taken against the organisations that used and reported the data. Proceeds of crime indeed.

Suggestions for those who will leave if X wins the Presidency

It all goes back to that dark November night in 2004, when eventually a winner was called. I stayed up late to watch all the way through. It was a long day. At 6:15am as I approached the polling station, an advocate for one of the candidates rushed toward me - staying just outside the mandated boundary. I put my palm toward them, and said "Forget it, I'm here to overthrow the government".

So late that November night, well actually about 3am the following morning, I stumbled to bed. My wife woke enough to ask "What is the result"?

I responded "We're moving to France".

"Okay" she said, and went back to sleep.

Well, it is that time again, the US election cycle is heating up, and like good brewing beer, the scum is rising to the top. Unlike good beer brewing, the scum is not being scraped off and discarded, hosed away into the metaphorical gutters of history. The problem is that whoever wins, almost half of the US (and much of the rest of the world) will think that the scum won.

So as we lead up to the election, we are hearing again and again, "If (fill in the blank) wins, I'm leaving the country". Okay, good for you, but as someone who said that, and then did it, I have a few suggestions.

First, if it had been that easy. There was work to manage, property to find and (rent or buy), and attempting to find a way to economically survive post a move. And of course, the move needed to be legal, or there would be no difference between us and an economic migrant trying to sneak into Europe by boat.
So for those of you who really mean it, let me give just a few suggestions based on having actually said it, and then done it.

1. Make the personal commitment. Talk to yourself, you spouse, family. Make sure that everyone is, if not supportive, then understanding. But also test yourself - am I just saying this, or do I really, really mean it?

2. Plan. Long in advance. Get as much ready and thought out as you can. Depending on who wins, you may find yourself at the back of a very long queue of people who feel the same way. There may not be a million economic or political refugees streaming north and south across American borders into countries with makeshift refugee camps, but there will be a queue to speak to someone at a consulate or embassy, delays for passports and visas, and limited jobs already being taken by those in front of you.

3. Where? Not such an easy question. Canada; well maybe. But the real question is; where in the world will I feel at home, has what I need in infrastructure, and is politically acceptable to me (after all, you will be leaving because of a politically unacceptable outcome. One rule-of-thumb, you are NOT going on holiday, so if you've been somewhere on holiday and said "I could live here", you probably either cannot, or would not want to year round.

So what are your criteria? May I suggest the following:

a. Language: how important is language to you, or do you speak a second language, which will certainly help narrow down your choices. Learning a language is not easy, but is possible and can be huge fun. It can also be a huge hindrance to getting things done and enjoying yourself.

b. Political System: Are you happy with a totalitarian regime as long as they don't bother the foreigners, or do you demand a democratically elected government? Some very nice places are ruled by dictators or monarchs, yet are full of opportunity and fabulous people. Remember that you have NO say in that country, so be ready to leave your political opinions in the US when you leave.

c. Economy: If you are going to "retire" then the choices are much wider, but if you will need to work, you might want to consider developed economies. Associated with this is your ability to get a work visa or other authorization to earn a living in the country. Of course some countries are more "open" than others, and it does help to have a second citizenship.

d. Civil stability: Some countries have a higher potential (or current) for civil war, social unrest, or outright war with a neighbor. How safe do you want to feel? In some countries the overt oppression of minorities creates an environment of almost continual latent violence,  covered over by a patina of civility and culture.

e. Population density: Hey, we all want to be in the country, right? But realistically, most people live in cities, and some very attractive countries are effectively city-states. Remember also that Islands are wonderful, with beaches (most) and sunshine (many) but they are islands, and if you will suffer from "island fever". That applies to almost all islands, from the UK down to Singapore.

f. Weather: After all, if you want to ski and like winter, then Dubai probably isn't for you. Likewise, escaping winter seems to be a huge draw. Florida isn't full because New Yorkers can't get enough snow. I like some seasons, but not too much hot or too much cold. More important, my wife loathes the cold, so that is a major factor.

g. Distance: Never forget the tyranny of distance. If you need to be close to family and friends, then consider just how far you are willing to be, and how long it will take you to get "home" if that is what you will still call it. New Zealand may be heaven on earth, but it is 24 - 36 elapsed hours of travel from North America or Europe, meaning visitors effectively need to dedicate two weeks to make the trip worthwhile, and so will you going "home" for a visit.

You may have additional criteria of your own. Food, wine, sunshine, opportunities to work in IT, Risk, Accounting, Oil & Gas, etc.

4. Meet the Natives. Well, at least people from that country. Hear from them the pluses and minuses, and ask them why they do not live there. Your assumptions about a place will be reinforced or corrected by getting to know people - the kind of people that will be around you every day. These people will also provide you with great pointers on how to settle in, and with good contact in-country. Their networks will be invaluable to you.

5. Visit. So you've picked a few places (or only one), met and talked with people from there, now it is time to make your knowledge a bit more real; go there. Spend a week, or two or more. Do not look at it as a tourist, look at it as a resident. What do the supermarkets look like. Talk to local headhunters (if you are in an easily transportable profession).

You are now about as ready as you ever will be, and all that remains is for you to watch the November night results.

Of course there is the risk, that after doing all your prep, you may reach the conclusion that it doesn't really matter who wins, it is time to go.

Stop talking about Austerity as you have no idea what that means

It is disgusting to hear the British and French bleat on about the horrors of Austerity, as if they actually had any idea of what they are talking about.

My friend Andrew Brice in Wellington, New Zealand has produced some simple but effective graphs that showing GDP growth across the world from 1994 to 2014. Looking at the graphs for somewhere like Greece, and you quickly see what Austerity really means.He is graphing World Bank data since 1994 on a range of economic data points for all countries. While not setting out to show "Austerity", the graphical presentation does provide some interesting information. His site can be found here.

I've selected four countries for the chart below: France, Greece, Spain and the United Kingdom.

Notice how the GDP points expand fairly uniformly for France and the UK. Each point on the spider diagram, for the three reference years, shows growth, indicating and reasonably balanced growing of the various key elements of GDP.

Not Greece, in which that growth virtually implodes for 4 of the five factors between 2004 and 2014. Only 'X' - Exports, continues to grow, and that at a slower rate than the previous decade. Household consumption, General government, Gross capital formation and Imports all collapsed. Gross Capital Formation is less than it was in 1994.

Spain looks only marginally better.

Yet for the UK and France, all five indicators continue to expand through the crisis and into the second decade of this century.

GDP growth graphs for http://zyaneconomics.appspot.com/#/finmodel/

In the UK and France, governments have attempted to bring spending under control, and in large measure have failed miserably.

Oxfam's report on Austerity in the UK is a wonderful example of not understanding reality. "Since 2010, austerity – primarily in the form of deep spending cuts with comparatively small increases in tax – has been the UK government’s dominant fiscal policy, with far fewer measures to stimulate the economy. The stated aim of austerity was to reduce the deficit in the UK to give confidence to the markets and therefore deliver growth to the economy. While austerity measures have had some impact on reducing the deficit, they have delivered little growth, and public debt has risen from 56.6 per cent of GDP in July 2009 to 90 per cent of GDP (£1.39 trillion) in 2013."

It is almost as if "Austerity" actually only means "we cannot have everything that we want". Economies just balance what is required to keep the lights on, tax rates that do not disincentive investment, balanced against social programmes that effectively avoid rioting and revolution. In which case Austerity has become the a rejection of a "give me mine" mentality.

Yet contrast that with 10 things the Greeks cannot do (from July 2015 at the height of the crisis). If you want to see real austerity, look at Greece. Could the UK or French governments survive cutting pensions by greater than 50%. Or unemployment higher than 25% (and 50% for under 26 year olds)? What would Oxfam say to 45% of pensioners living below the poverty level, and food consumption dropping by almost 30%?

United Kingdom

Looking at the GPD growth chart for the UK it is almost easy to see the source of discontent. Yet it needs to be remembered that the economy has continued to grow (once over the Global Financial Crisis - GFC - induced great recession) and is now larger then it was in 2008.

UK GDP Growth, 1994 - 2014
Note the continued expansion of all five elements

 
Personal income has (as of 2015) grown to exceed personal income, inflation adjusted, pre-GFC. It took a long to time recover, and certainly the average POME (Prisoner of Mother England, or is that short for Pomme de Terre?) has had a rough ride. But pensions have continued to be paid, the health service has continued to treat patients, and to expand the range of coverage and care provided. The economic effectiveness of that service may be up to question, but that is a factor of quality of provision, not total expenditure in GDP terms.

France

France is not significantly different, with growth across all five data points through the years. Yet France (and the French) are mired in a psychological paradigm that says that they are suffering, oh so horribly, from massive austerity. Each new president is elected on a promise of change, or in the case of Sarkozy, "rupture" with the past. Yet for twenty years, each new president has been met by strikes at the mere hint of market reform legislation, strikes lasting weeks and covering the entire country sometimes. Each president has caved. Even the French military has a better (much) record of refusing to surrender.

France GDP Growth, 1994 - 2014
Not bad for coming through the GFC

Yet looking at the image above, you would think that France has had fairly steady growth, especially when you consider that between 2004 and 2014 there was the GFC knocking their economy into deep recession, and their being in a Europe that has seen lackluster growth at best over the past half decade.

Greece

Turning to Greece, we see a very different graph, in which the only growth has been in exports. The years between 1994 and 2004 showed good growth, in line with the UK and France. Yet with the GFC and their debt crisis, loss of sovereignty and destruction of the social welfare system, the years 2004 and 2014 we can see what austerity really means.

Greek GDP Growth, 1994 - 2014

The collapse in Greek GDP growth has been across the board, with only exports growing past 2004 levels, and that only marginally. The other four indicators have all collapsed, with Gross capital formation falling to below 1994 levels.

Compare that to the GDP performance of Greece's four land-border neighbours; Albania, Bulgaria, Macedonia (well, okay, the Former Yugoslav Republic of Macedoia to give it the official name) and Turkey. All four have experienced consistent and continual GDP growth.

 These countries have come through revolutions, civil wars and military dictatorships, but have then spent 20 years growing. And growing. Meanwhile their Eurozone neighbour has suffered at the hands of creditors and "friendly" governments. "But it's all the Greeks fault, they are perfidious and profligate, and they borrowed the money". All true (well, except the perfidious). Yet looking at the rouges gallery of neighbours, can we really say that the Greeks are any worse?

Greek is in austerity. And this is real austerity; the kind that results from the markets losing faith, and the bankers engaging in as much Moral Hazard as the Greek government itself. Yet when the bill came due, the banks (as effectively representatives of other governments or the ECB and IMF) decided that only one side of the perfidious (and here I mean it) cabal would pay.

Summary

The United Kingdom and France should, to use the English colloquialism, "shut their pie-holes". They are not in austerity, and do not actually know that it means. They are living *slightly* above above their means, but continuing to borrow like drunken sailors.

True Austerity is Greece, and this is in their futures when the markets say "enough". Then we will see real austerity in those two countries, as government debt becomes unavoidable and unsustainable. Greece saw:

– 25%: Fall of gross domestic product
– 28%: Reduction in public sector employees
– 28.5%: Drop in food consumption
– 61%: Drop in average pension (833 euro)
– 45%: Number of pensioners living below the poverty line
– 26%: unemployment (50% at ages under 25)

This is the real face of austerity, and something the UK and France should really fear. Today's weak attempts to controls spending are only a start, and a poor one at that.

Grexit: The "Left" Failed Again, and Europe continues to fail Greece.

Soon, the Prime Minister of Greece will be forced to accept that capitulation did not save Greece, and that he has failed. Not only did he fail, but he failed in every way. Not only did he not achieve any concessions from Europe (read Germany), the IMF, ECB or European Parliament, he also failed to deliver the mandatory legislative changed demanded by the creditors. He failed to reform the Greek government, and instead has spend nine months perpetuating an already disastrous status quo.

Sadly his personal failure to stand by his values, and more importantly to meet his obligations to the 61% of voters who said "OXI", will taint not only his memory, but the entire "Left" for years to come. Meanwhile for his failure of nerve, the Greek people have lost a year of potential recovery, or at least the additional pain before the recovery has been postponed by a year, and the base from which they will begin their recovery has been reduced even further.

But nobody should be of any doubt, there will be a Grexit.

The Greeks know that the only way is out. Is Tsipras simply trying to hold power long enough to feather his nest (and create a future personal revenue by 'saving' the EU)? Does he really think that he will be loved for his treason?

How much longer before tractors blocking highways and undertakers going out in sympathy strikes leads to mass demonstrations in downtown Athens? Riots of farmers are already happening in Athens. General Strike anyone?

Greek Tractors about to block the highway

Greece's masters, also known as the European Commission and the Reichstag, meanwhile vilify Greece for its response to the flood or migrants (oops, refugees) that pour across its borders from Turkey, their NATO ally.

So while we have two themes here; subjugation by European powers, and exploitation by a NATO ally, the core problem is the treason of the Prime Minister. He claims a "mandate" from the post-treason snap election, an election in which the choice was the current traitor, or the previous traitors.

And in the snap election, the voter turnout dropped significantly from the referendum, to just over 50%. Looks more like voter apathy then a mandate.

Meanwhile the Center (Brussels and Berlin - if two places can be "the Center") lambaste Greece for not spending their last Euro on stopping migrants from getting in, and then moving on to wealthier European countries. After all, would you want to be an economic migrant to Greece right now?

Migrants are coming in through Greece because it is the "easy" route, and appears to have the defacto blessing of the Turkish government in their 2500-year war against Greece. If, in the logic of the Center, Greece can stop boats from landing on their islands (or sinking part way with the Greeks being the ones expected to pull the living and the dead from the water), then surely a country that is not broke, that is getting massive aid to address their refugee / migrant crisis, can afford to run a basic police force that can identify the starting and gathering points for people smugglers on their own territory.

Unfortunately the only thing that Tsipras is accomplishing is delaying Greece's recovery, while making the starting point even deeper.

Risk Managers in Uncertain times

Over the past few weeks I have been thinking about the world as we move into 2016. Most of that thinking is not about daisies and pixey dust, but about the changes over the past few years, many of which seem to be leading either to crisis, trouble, or the slow boiling of the frogs. Personally I'm hoping for a few crises that will, although probably fairly terrible at the time, actually bring about some fundamental changes that will create real change and improvement, at least in the medium term.


What's a Risk Manager to do? Below I contrast "the Usual Suspects" that we are (or should be) watching every day as Risk Managers, and then "the Big Stuff" and implications for Risk Managers now.

We are going to see the world change through 2016 and 2017, potentially dramatically - and not necessarily positive change. That is my view. Of course, I could be very wrong, and we could see a world that "muddles along". At heart are our individual answers to the question "how do we best help our businesses manage the coming risk world?"

I am not confident, but that is my view.

So let me suggest, based on my view, the potential impacts on Risk Managers for the coming couple of years. Two years is a very short time in a world of potential regulatory change and economic cycles. Anything shorter than two years would fail to consider the potential impact of major business and economic cycles such as the current commodity depression, the US (and China) manufacturing recession, and the very serious systemic debt and migrant issues that Europe may or may not manage through the coming year.

The Usual Suspects:

Of course the world of Risk will be both immediate and longer term, local or specific as well as systemic and international. We'll start by reminding ourselves of some basic risks that have no direct link to the wider situation.

1. Cyber threats. This category of risk continues to be on the rise, and can be an existential threat to companies from a data-loss or damage perspective, while civil and regulatory sanctions continue to increase. This is a threat that has been growing, and increased access and growth in skill sets will increase the number of hackers and the breadth of tools and techniques they will use. Companies will be taken down by Cyber attacks. Companies can prepare for and attempt to limit the impact of Cyber attacks, but can do little to reduce the likelihood of such attacks (as exogenous threat likelihood is not subject to risk reduction activities on the part of the company). Reducing the impact requires planning, careful review of the potential threat (what are the data-crown jewels, and how are these protected?) and remediation where infrastructure is not adequately protected. Reputation damage limitation if an element of planned responses, and finally, consideration should be given to Cyber Insurance.

2. Fraud, Bribery and Corruption. If the economy continues to grow and unemployment continues to fall, there will be little impact on the likelihood of Fraud, internal or external, though of course these risks remain. However, if we see a degradation in economic conditions, this will probably lead to an increase in fraudulent activity, starting with external fraud and followed by an uptick in potential internal fraud. Of course, some fraud, bribery or corruption is simply due to greedy people, and has no linkage to economics. Exercise skepticism.

3. Solvency. For the insurance industry in Europe, this is the year Solvency II fully comes into effect, and insurers across the continent are getting their reporting houses in order. Yet the risk is not simply that companies may or may not be solvent, it is a question of the quality of internal processes supporting production and maintenance of the ORSA (Own Risk and Solvency Assessment). As risk managers we can learn from companies that have been through the process, such as the importance of the quality of documentation of the process, effectiveness of systems of control (nothing new there), and the ability to demonstrate how the ORSA contributes directly to business decision-making.

4. All Your Risks. Every risk on your Risk Register will remain as critical (or otherwise) through 2016 and 2017 as they are today. Some will increase in potential impact, many will eventuate in actual issues or problems. These risks will become incidents, and you will manage them through to resolution - or not. There will also be a host of issues and incidents that will result in you reviewing the Risk Register, and probably adding risks to the Register.

You can never go wrong keeping your eyes on the day-to-day risks, and ensuring that the business either has effective controls in place, or is building a control environment that can actually be monitored to indicate areas of existing or emerging risk.

Now for the Big Stuff:

A global correction may be underway, with no sign of a low for some time to come. Certainly there may be up days or weeks, but it appears that there is more likelihood of a longer down trend for the coming months. The questions now are "how far, how fast, how long, and how much stimulus"? There are no serious commentators calling for a near-term renewal of a global bull market. The IMF recently downgraded their expectations for global growth from 3.8 (July 2015 forecast) to 3.4 (January 20016) with developed economy growth downgraded from 2.4 to 2.1, the same level as 2015.

The US markets are down 15% from their highs (DJIA - 15,900 from 18,200 in 2015), and China is at 2014 levels (Shanghai is at 2750 from a high of 5100 in 2015). [as at 26 January 2016]  Where will they go?

Total global debt has continued to rise all through the supposed deleveraging after the Global Financial Crisis (GFC), increasing by $(US)57 Trillion since 2007 to almost 200 $(US) Trillion. The majority of this increase has been government debt, yet corporate debt (and personal debt) has also risen through that period. This also cannot continue without impact.

At the same time in developed countries we see a close to stagnation in growth in real incomes. Personal income in the UK has finally (May 2015) caught up with where it was before the GFC, and the strong employment growth has been reflected in falling unemployment and increased wages. The introduction of a "living wage" will also increase personal incomes (although some worry that imposed minimum wages reduce employment growth). All good news, but will the UK continue to grow as the rest of the world slows down, if the UK votes to leave the EU, or if markets continue to fall (the FTSE is now at 5800 from just over 7000 in 2015, and continues to fall). [as at 26 January 2016]

In the US, employment growth appears to be strong, at the same time that the labor participation rate continues to fall. The unemployment rate is around 5%, a level that is close enough to full employment that we should be seeing serious upward pressure on wages. Yet the continued fall in labor participation indicates that there remains a (growing) untapped pool of labor. The picture remains murky.

Recommendations for Risk Managers

The current economic situation is, in my view, as scary as it has been since the GFC. Fear has an impact on risk and companies' and individuals' perceptions of appropriate levels of acceptable risk. How do we translate this into meaningful decision-making by companies, and counsel from Risk Managers?

1. Risk Appetite. There should be no better time than now to review (or write) the Risk Appetite for the business. Risk Appetite will provide a construct for decision-making by management that is in line with the level of risk that is acceptable to the Board and through them the shareholders. Risk Appetite is not a single statement, but needs to be broken into key business activities or processes, and potentially high level business units / companies. When reviewing (or writing) the Risk Appetite, speak directly with the directors and in private companies, with the key shareholders.

2. Identify your Key Risk Indicators (KRIs). These are the indicators whose movement provides insight into the potential increase or decrease in the likelihood of the materialization of any particular risk. For example, this may include items such as average days receivables (expanding may indicate deteriorating customer business conditions), or less obvious indicators such as unplanned staff turnover rates (with falling unplanned turnover being a surrogate for a degrading jobs market for your employees).

3. Stress tests (EKRIs). Build the models, and then test them beyond what your CFO/Finance Director thinks are possible. Build in extremes such as cost of fuel for distribution networks, cost of capital, internal project huddle rates. Stress until the model breaks, then look at why the model broke. That will give you a strong indication of the most important factors to be watching on a daily basis - your External Key Risk Indicators (EKRIs). I know of a very large manufacturing company that failed to hedge fuel costs, resulting in significant business costs when oil did spike. While that may not be the case today, if cheap oil turns out to be transitory, will cost-reduction based profits evaporate?

4. Outside-In. Having built or reviewed the Risk Register, the KRIs and the EKRIs, how are the risks identified reflected in the Risk Registers and risk reporting? Is the current risk environment too inward looking, focusing on the specific risks, controls, actions and people that are within the organization and therefore "observable" to management? How strong is the monitoring of external factors, and how can this be built into risk reporting?

5. Regulation Watch. Times of crisis almost always breed new regulation, or changes to existing regulation. I'm not going to opine on the benefits or otherwise of regulation, but as Risk Managers we must ensure that our organizations has fully considered the potential impact of such changes. When SOx (Sarbanes Oxley) and the section 404 requirements were passed, who predicted $170/hour for bulk standard Internal Auditors spending thousands of hours documenting mundane financial reporting processes and identifying controls - followed then by the massive increases in compliance costs to test those controls? Something like this is in our collective futures.

These are a few of the considerations for Risk Managers today. Are these different from what Risk Managers should be doing or concerned with in good times or steady global growth? No. And that is the rub, and the message; times like today provide strong reminders of what we should be doing every day. The increased fear do however provide us with the energy to get this done.

So what is some good news for 2016?

Well, that last posts of mine did seem a little grim, and I've been asked if there is any good news for 2016. Well, there is. It just won't sound like good news when you read this, but do dig in, and provide your thoughts on 2016.

For example, health sciences continue to progress at a rapid pace, with improvements across the board. Major advances in the diagnosis and treatment of Alzheimer’s for example, and remarkable treatments for cancer. It is well worth noting the comment by Louise Perkins, chief science officer for the Melanoma Research Alliance: "The options were far fewer even a year ago". "My most recent MRI brain scan did not reveal any signs of the original cancer spots nor any new ones," Mr Carter said in a statement.

In the civil war in Syria, and terrorism and the Islamic civil war (ISIS vs the Shi’a world), the entry of Russia to the fray gives real hope. After 4 years of civil war in Syria, backed by the bloodied hands of the West and Saudi Arabia, real progress is now being made. No longer are the waves of fuel trucks streaming from the oil fields of Iraq and Syria to the refineries and tankers of Turkey. This year we will see then end of the civil war in Syria, and not a moment too soon.

Of course, strangely, if the Saudis and the Iranian start throwing exploding things at each other, or a cyber-attack on Aramco is successful this time, then we could see a dramatic reduction in oil production, spiking oil prices, and counter-intuitively, greater economic growth in the West, and a resurgence of the Russian economy. It might even be enough of a bounce to counter the China slowdown. Who said wars are all bad? 

Hopefully while the Saudis and Iranian are throwing exploding things at each other, they will avoid throwing things that go "boom" at US ships in the Gulf. Recently Iran demonstrated that it certainly can, and that it can get close enough to US ships to possibly, if they really mean it, do some damage to those ships. That would not be a good thing to happen this year.

But back to how does that happen to oil, etc? Oil at $35/barrel results in uneconomic wells in North America and Russia (the ‘other’ largest producers) resulting in lost jobs, failing companies, and local economies in trouble throughout their economic supply and support chains. Boost the price of oil, and we will see more ‘domestically’ produced oil and with it booming communities.

We would also see a Saudi Arabia that will desperately need to focus on their own people and economy, instead of exporting terror through individuals supporting, financially, the likes of ISIS and various alternative Sunni terror groups. Saudi Arabia need an oil price of over $100 per barrel to break even. Can they really outlast the West? Even if they try, they will consume their financial reserves in the process, leaving behind a bankrupt desert country with no effective economy, and thousands of princes expecting their monthly subsidy. Things do not look good for Saudi Arabia.

2016 is also the year that Europe will start to fall apart. This won’t be a permanent falling about, but we will see Schengen put on hold. Only yesterday former French President Sarkozy said “Schengen is dead”. No more free flow of people without identification between countries in Europe, allowing for local security and reduction in terrorism. Radical Islam will be on the retreat in Europe, but expect to see a spasm of increased attacks earlier in the year. By the 3^rd or 4^th quarter, I fully expect Europe to be quieter. Migrants will not find open doors, and those that did get in will be forced, on threat of summary expulsion (forget going to Strasbourg for a legal pass) for almost any offense.

Further good news in Europe will be the Grexit, in which Greece finally adopts the New Drachma and exists the Eurozone. Good news? Absolutely. The only hope that Greece has of recovery is through debt forgiveness or restructuring into a new currency. Otherwise the Germans, the ECB and the IMF will continue to crush the Greek people, in no small part to prove to all others that they must comply, or else.

This will also be wonderful news for Democracy in Europe, a land that has forgotten that people can vote out those that have cheated them and on them, and they can repudiate the bribes accepted on their behalf. Yes, Greece needs to pay back its loans. Absolutely. But when there is no ‘moral hazard’ then there are not incentives for lenders to act prudently. Greece is guilty, but equally guilty are those that provided loans knowing that they wold never be repaid, and that the Greek people would be skinned of everything they have.

I think my summary would be that there is very good news also, but some of it will not look very good as it happens…