Welcome to the Autumn 2019 edition of our corporate crime update – our round up of developments in relation to corruption, money laundering, fraud, sanctions and related matters. This bumper edition covers a number of jurisdictions, and includes content from the summer break.
Tag: Investigations
Hong Kong SFC publishes licensing conditions for virtual asset fund managers
On 4 October 2019, the Securities and Futures Commission (SFC) published proforma terms and conditions which will apply to virtual asset fund managers that meet specified criteria.
This follows the SFC’s statement of 1 November 2018 regarding the regulatory framework for virtual asset fund managers, fund distributors and trading platform operators (see our e-bulletin of 2 November 2018 for further details), in which the SFC indicated (among other things) that it would impose terms and conditions on certain virtual asset fund managers.
Corporate Crime & Investigations Podcast Episode 2: Suspicious Activity Reports
In our Corporate Crime & Investigations podcast we look to bring you timely and incisive commentary on key developments in the CC&I space.
In this second episode we take a look at the Law Commission’s recent report on the Suspicious Activity Reporting (SAR) regime under the Proceeds of Crime Act 2002 (POCA).
Hong Kong SFC consults on new type 13 regulated activity to regulate depositories of public funds
Last Friday, the Securities and Futures Commission (SFC) launched a consultation on proposals to regulate depositaries (trustees and custodians) of SFC-authorised collective investment schemes (CISs) which are offered to the public in Hong Kong. Responses are required to be submitted by 31 December 2019.
Corporate Criminal Liability and Internal Investigations – Expected Legislative Changes in Germany
In their March 2018 coalition agreement, the coalition partners CDU, CSU and SPD have agreed to establish new rules on criminal sanctions against companies and – for the first time – legal requirements for internal investigations. The agreement already sets out a clear framework and demonstrates a strong political will to tighten the level of sanctions, introduce an obligation to prosecute corporate crimes and create incentives for compliance measures as well as for the assistance in the clarification of criminal offences through internal investigations. The former Federal Justice Minister, Katarina Barley, declared the law reform to be a “priority project”. Following her election to the European Parliament, her successor, Christine Lambrecht, made the draft bill available to a small circle of experts in mid-August 2019 and started the consultation process with the other ministries. The legislative proposal is being discussed extensively in legal practice and academia.
FSCA levies record R1.5 billion fine against Steinhoff International Holdings N.V. for false, misleading and deceptive statements to the market
On 12 September 2019, the South African Financial Sector Conduct Authority (FSCA) announced the conclusion of its investigations into Steinhoff International Holdings N.V. (Steinhoff). The FSCA found that Steinhoff provided false, misleading or deceptive statements to the market and accordingly breached the provisions of the Financial Markets Act No. 19 of 2012 (the FMA). As a consequence of this breach, the FSCA has fined Steinhoff R1.5 billion but has remitted a portion of the fine due to the precarious financial position of the Steinhoff group, resulting in Steinhoff paying a penalty of R53 million. This is the largest fine ever to be levied by the FSCA.
The Steinhoff investigation and enforcement action
In December 2017, Steinhoff’s shares plunged following the sudden resignation of its CEO, Markus Jooste, and allegations of accounting irregularities. Following a lengthy internal investigation conducted by an independent expert, it was revealed that a range of “fictitious and/or irregular” transactions “substantially” inflated the profits and assets of the group by over €6.5 billion between 2009 and 2017. The investigation also found “a pattern of communication” showing that executives “instructed a small number of other Steinhoff executives to execute their instructions, often with the assistance of a small number of persons not employed by the Steinhoff Group”. These “fictitious and/or irregular transactions were entered into with parties said to be, and made to appear to be, third party entities independent of the Steinhoff group and its executives” but which the investigation found appeared instead to be “closely related to” those executives who were issuing the instructions to perform these transactions.
Although the fine’s quantum remains R1.5 billion, the FSCA took into consideration Steinhoff’s financial position, the losses already sustained by Steinhoff’s shareholders and the cooperation of the current management of Steinhoff in the investigations, and decided to remit a portion of the penalty resulting in Steinhoff being required to pay an amount of R53 million. Brandon Topham, the divisional executive for investigations and enforcement at the FSCA, said in an interview that “if you look at the financial statements you will see that it is actually insolvent and there is just no way it would have been able to pay a fine of R1.5 billion.”
While the investigations into Steinhoff itself have been concluded, Mr Topham confirmed that “the perpetrators behind the actual misrepresentation … are still on our radar and we are busy with investigations into that”. Mr Topham also warned that those behind the fraudulent actions are unlikely to receive the same treatment that Steinhoff did in respect of the remission of a portion of the fine, and that the FSCA would be making further announcements in this respect in the next 8-12 months.
Going forward – higher fines to come from the FSCA?
The magnitude of the fine issued by the FSCA against Steinhoff not only demonstrates the significant impact that the Steinhoff scandal had on millions of South Africans (through losses in investments and retirement/pension savings) but also suggests a change in behaviour of the FSCA – issuing fines far beyond the levels previously seen and more in line with the penalties administered by foreign regulators such as the US Securities and Exchange Commission. While the FSCA did remit a large portion of the fine in order to assist the embattled company, the comments from Mr Topham suggest that the fines to be issued against the individuals involved may be as significant and with no remittance possible. Entities subject to the provisions of the FMA should be cautious of this development and ensure that their corporate governance protocols relating to insider trading and other market abuse matters adequately protect against any conduct which may expose such entities or their management to the new agenda of the FSCA.
Cameron Dunstan-Smith
Director, Johannesburg
+27 10 500 2692
Adam Schnider
Associate, Johannesburg
+27 10 500 2636
Herbert Smith Freehills launches updated guide to cross-border financial services investigations
Financial services firms conduct their business activities across markets and borders, often performing services and holding data in locations other than those in which they interact with their clients. Over a decade after the financial crisis, their regulators remain under sustained public and political pressure to improve customer outcomes and punish poor conduct. When issues arise, those regulators frequently need to seek assistance from their global counterparts to be able to unravel what has occurred, irrespective of where it took place.
Understanding how and when regulators interact with each other and with firms across borders, how firms are required, or expected, to respond, and how to handle multiple proceedings in different jurisdictions, is more critical than ever.
This fourth edition of “The Long Arm of Regulation: Responding to Cross-Border Financial Services Investigations”, Herbert Smith Freehills’ guide to cross-border financial services investigations, gives an overview of how to approach these issues, and aims to assist firms in navigating the differing regimes across 15 key jurisdictions, including, for the first time in this edition, South Africa. The guide covers a range of important topics, including the regulators’ breadth of powers, mechanisms for obtaining – and withholding – information, consequences for failing to comply, and the management of competing confidentiality and reporting obligations.
In producing this publication, we have drawn on the expertise of our financial services regulation practice across our international network of offices and through our formal alliance with Prolegis (Singapore). In addition, we are enormously grateful for contributions from law firms Anderson Mori & Tomotsune (Japan), Stibbe (the Netherlands) and Homburger (Switzerland).
Indonesia’s KPK ramps up Rolls-Royce investigation with key arrests and charges
Indonesia’s Corruption Eradication Commission (KPK) has charged Emirsyah Satar, the former head of state airline, Garuda, with money laundering and ordered his detention for 20 days. Emir Satar has been caught up in the KPK’s two year investigation, a spin-off of the SFO’s major investigation into Rolls-Royce. The SFO and Singapore’s Corrupt Practices Investigation Bureau have assisted the KPK with its investigation.
Corporate Crime & Investigations Podcast Episode 1: Deferred Prosecution Agreements
In our Corporate Crime & Investigations podcast we look to bring you timely and incisive commentary on key developments in the CC&I space.
In this inaugural episode we take a look at the Deferred Prosecution Agreements (DPAs) landscape. In particular we set in context the latest DPA agreed between the Serious Fraud Office (SFO) and a subsidiary in the Serco Group of companies.
Moscow Corporate Crime and Investigations Newsletter – July 2019
This newsletter summarises recent Russian regulation, enforcement and court practice developments which may be relevant for doing business in Russia from a corporate crime and investigations perspective.
Additionally, this newsletter spots some US and other relevant developments which should be kept in mind by Russian businesses having foreign parents or operations.