The Hong Kong Court of Final Appeal (CFA) has recently allowed the Securities and Futures Commission’s (SFC) appeal against the Market Misconduct Tribunal’s (MMT) findings that two former executives of a listed company (ATML), Mr Charles Yiu Hoi Ying and Ms Marian Wong Nam, had not engaged in insider dealing in ATML shares. Continue reading
Following President Trump’s decision on May 8, 2018 to withdraw the United States from the Joint Comprehensive Plan of Action (“JCPOA”), the US government announced that it would re-impose pre-JCPOA nuclear-related Iran sanctions (both primary and secondary) that were lifted under the JCPOA. As we reported previously, two “wind-down” periods—of 90 and 180 days respectively—commenced from the day of the announcement, during which non-US, non-Iranian companies were encouraged by the US government to withdraw from operations in Iran that would be affected by re-imposed sanctions. OFAC’s guidance discouraged non-US persons from engaging in new activity during the wind down periods, and stated that any such new activity may be a factor in connection with future enforcement action for actions taken after the wind-down period.
In the case of R (On The Application Of KBR Inc) v The Director of the Serious Fraud Office  EWHC 2368 (Admin) (“KBR“), the High Court dismissed a judicial review brought by the applicant, finding that the SFO was able to compel the production of documents located outside the jurisdiction held by a foreign company. This is the first time that an English court has reasoned that compulsory disclosure powers exercisable by a UK criminal enforcement agency have extraterritorial application. Continue reading
How far can a sanctions clause protect a party from having to perform their contractual obligations – and in the case of Iran-related sanctions concerns, how does this interact with the Blocking Regulation? In Mamancochet Mining Limited v Aegis Managing Agency Limited and Others EWHC 2643, the High Court held that, in order to avoid payment of a claim, insurers were required to show that payment would expose them to sanctions under US or EU law. A mere exposure to the risk of a sanction was not sufficient.
In this post, our Insurance Disputes team consider the implications of the decision. Continue reading
On 5 October 2018, HM Treasury’s Office of Financial Sanctions Implementation (OFSI) published its Annual Review for the 2017-18 financial year. This is the first such review published by OFSI and provides an overview of OFSI’s activities in 2017-18, as well as looking to the future. We set out some of the highlights of the Annual Review below.
The Annual Review confirms that 122 new asset freeze targets (or “designated persons”) were added to the UK Consolidated List, mostly under the DPRK and ISIL regimes. During this period, the UK also introduced ‘avoidance of delay’ provisions allowing new UN sanctions regimes to be implemented immediately after the relevant resolution is adopted (rather than waiting for EU action, as was previously the case), reducing the risk of asset flight.
In 2017-18, 122 suspected breaches of financial sanctions were reported to OFSI. OFSI did not impose any monetary penalties in 2017-18 (having had the power to do so since April 2017), but it is currently investigating several cases where a penalty may be appropriate. OFSI states that it is likely to impose monetary penalties in 2018-19, although the majority of cases will continue to be resolved by enforcement activity short of a penalty.
The Annual Review says that OFSI will continue to raise awareness of financial sanctions obligations in 2018-19, by producing guidance and speaking at events. It will ensure it maintains a central role in global sanctions implementation as the UK prepares to leave the EU. It is said that the Sanctions and Anti-Money Laundering Act, which received Royal Assent in May, will help to achieve this.
On October 11, 2018, the Financial Crimes Enforcement Network (“FinCEN”) issued official guidance entitled “Advisory on the Iranian Regime’s Illicit and Malign Activities and Attempts to Exploit the Financial System” (the “Advisory”). The Advisory intends to help US financial institutions to “better detect potentially illicit transactions related to the Islamic Republic of Iran.” The Advisory also aims to help foreign financial institutions understand the obligations of their US affiliates and avoid the breach of US sanctions laws.
According to the Advisory, the Iranian regime accesses, and abuses, the international financial system using a variety of methods. These methods include:
- Using senior officials of the Central Bank of Iran to help procure hard currency and conduct transactions for the benefit of the Islamic Revolutionary Guard Corps-Qods Force (“IRGC-QF”) and the Lebanese Hizballah.
- Using exchange houses to hide the origin of funds and to procure foreign currency for the IRGC-QF, through the use of front companies and complex currency exchange networks. Exchange houses and trading companies have also been used to process funds transfers to evade sanctions laws.
- Using front and shell companies in order to help procure various goods and technologies that enable malign actors to further their illicit activities. Such goods and technologies include printing equipment, dual-use equipment (in support of Iran’s ballistic missile programs), and aviation-related materials.
- Using deceptive shipping practices to hide the connection between certain business activities and Iran and thus evade US sanctions.
- Using gold and other precious metals to help facilitate the sale of Iranian oil and other goods, and to further evade the imposition of US sanctions.
- Using virtual currencies to evade US sanctions.
The Advisory stresses repeatedly that US financial institutions should be particularly cautious at this time, in light of the fact that all sanctions on Iran previously lifted under the Joint Comprehensive Plan of Action (JCPOA) are to be reimposed (or already have been reimposed) following 90- and 180-day wind-down periods. Because of this, FinCEN expects that the evasive, deceptive, and illicit activities described above will increase in frequency. In order to better assist with the detection of deceptive activities, FinCEN provides a set of “red flags” that financial institutions should review and keep in mind when analyzing specific transactions.
Finally, the Advisory reminds US financial institutions of their various obligations under US sanctions laws, the USA Patriot Act, the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA), and other related regulations.
We continue to monitor developments in this area. Please contact the authors of this newsletter or your usual Herbert Smith Freehills contact for more information.
David AtiaAssociate, New York
+1 917 542 7841
Our investigations team has published an article for Thomson Reuters Regulatory Intelligence looking at the impact of data privacy laws on investigations in Asia. This also summarises the potential impact of Europe’s GDPR and what else is on the horizon trans-nationally. Continue reading
The former CEO of Saint Vincent-based Loyal Bank pleaded guilty and was convicted on 11 September of conspiring to defraud the US by failing to comply with the Foreign Account Tax Compliance Act (FATCA). This is the first conviction obtained by the US Department of Justice (DOJ) since FATCA came into effect in 2014 and was the result of a sting operation. The FBI worked with the US Internal Revenue Service (IRS), the US Securities and Exchange Commission, the City of London Police, the UK Financial Conduct Authority and the Hungarian National Bureau of Investigation. The offender’s sentencing date is yet to be scheduled and he is facing a maximum of five years in prison.
This conviction, on the heels of a US governmental report critical of the IRS’s limited use of FATCA, could mark a more active enforcement environment going forward. Under FATCA, certain foreign financial institutions (FFI) must report US citizens’ account information to the IRS and the US has intergovernmental agreements with Hong Kong and other Asian jurisdictions to facilitate this. The DOJ has indicated that financial institutions in Hong Kong and Singapore are on the US authorities’ priority list in terms of FATCA enforcement. As such, both US citizens and financial institutions in the region should remain cognisant of FATCA’s requirements and ensure compliance. For our full briefing on the conviction, please click here.
Kyle WomboltHead of Global Corporate Crime & Investigations Practice, Hong Kong
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+852 2101 4005
Pamela KiesselbachSenior Registered Foreign Lawyer (England and Wales), Hong Kong
+852 2101 4032
The SFC has issued a circular to remind intermediaries to comply with the self-reporting obligation under paragraph 12.5 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. Licensed corporations and registered institutions should review their incident escalation and reporting mechanisms as soon as possible and consider whether any enhancements are required.
Paragraph 12.5 requires intermediaries to report to the SFC immediately upon the happening of (among other things) any material non-compliance with any law, rules, regulations and codes administered by the SFC or any such suspected non-compliance.
The SFC has recently observed that some intermediaries have not promptly reported to the SFC non-compliance with various legal or regulatory requirements, such as suspected unlicensed dealing activities, non-compliance with the suitability requirements and order recording requirements under the above code of conduct, and breaches of record keeping rules.
The SFC reminds intermediaries that:
- registered institutions (although primarily regulated by the HKMA) are required to fulfil their reporting obligation by making the report directly to the SFC, in addition to reporting to the HKMA;
- all material non-compliance referred to under paragraph 12.5 should be reported as soon as practicable upon identification, ie, not after the intermediary has completed its investigation, obtained legal advice or taken remedial action;
- failure to comply with the reporting obligation may result in disciplinary action against intermediaries and their management.
The SFC also reminds intermediaries of: