Welcome to the December 2019 edition of our corporate crime update – our round up of developments in relation to corruption, money laundering, fraud, sanctions and related matters.
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.
In a recent decision, the High Court has found that the terms of a Facility Agreement governed by English law allowed the borrower to withhold payment of interest instalments where there was a risk of secondary sanctions being imposed on the borrower under US law, notwithstanding that the Facility Agreement had no connection with the US: Lamesa Investments Limited v Cynergy Bank Limited  EWHC 1877 (Comm).
At first sight the decision is surprising because English law does not generally excuse contractual performance by reference to a foreign law unless it is the law of the contract or the place of performance (and these exceptions did not apply here). However, the court noted that parties can contract out of this general rule, which is precisely what happened in this case. The relevant clause of the Facility Agreement permitted the borrower to withhold payment of interest instalments “in order to comply with any mandatory provision of law, regulation or order of any court of competent jurisdiction”.
On August 5, 2019, President Trump issued a new Executive Order (“EO“), blocking all property and interests in property of the Government of Venezuela (defined to include the Central Bank of Venezuela and Petróleos de Venezuela (“PdVSA“)) in the US or in the possession of US persons. The EO also empowers the Secretary of Treasury, in consultation with the Secretary of State, to block the property and interests in property of individuals or entities that materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to, any “specially designated nationals” (“SDNs“) or blocked persons under the EO, or entities owned, controlled by, or acting on behalf of the foregoing. As is common practice, the US Department of Treasury’s Office of Foreign Assets Control (“OFAC“) has issued revised FAQs and a number of revised and new general licenses (“GLs“) authorizing certain limited activities by US persons involving the Government of Venezuela. These licenses relate primarily to the maintenance or winding down of existing activities with the Government of Venezuela, humanitarian efforts in the country, and other non-commercial and administrative tasks.
The EO follows months of incremental tightening of sanctions on Venezuela, meant to place increased pressure on the Maduro regime, and the expiration of a number of GLs authorizing certain activities in Venezuela. For US persons and companies, the EO further limits their ability to do business in Venezuela if that business involves the Government of Venezuela. For non-US persons and companies, the EO creates a new basis for the imposition of secondary sanctions, authorizing the sanctions designation of non-US persons who engage in material transactions with the Government of Venezuela.
The EO blocks all property and interests in property, in the US or in the possession of US persons, of the Government of Venezuela, including those entities owned, directly or indirectly, 50 percent or more by the Government of Venezuela (such as the Central Bank of Venezuela, as well as PdVSA). The EO also empowers the Secretary of Treasury, in consultation with the Secretary of State, to block the property and interests in property of individuals or entities that materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to, any SDNs or blocked persons under the EO, or entities owned, controlled by, or acting on behalf of the foregoing.
OFAC’s amended FAQs make clear that the US has stopped short of imposing a full embargo on Venezuela: “US persons are not prohibited from engaging in transactions involving the country or people of Venezuela, provided blocked persons or any conduct prohibited by any other Executive order imposing sanctions measures related to the situation in Venezuela, are not involved.”
OFAC has revised several existing GLs to authorize certain transactions that would otherwise be prohibited by the new EO, namely:
- GL 2A, authorizing certain dealings in debt, equity, and securities of PDV Holding, Inc. (“PDVH“) and CITGO Holding, Inc. (“CITGO“);
- GL 3F, authorizing dealings in certain bonds of the Government of Venezuela;
- GL 4C, authorizing certain transactions related to, inter alia, the export and re-export of agricultural commodities, medicine, and medical devices to Venezuela;
- GL 7C, authorizing all transactions and activities with PDVH and CITGO, where they are the only Government of Venezuela entities involved, through January 2021 (subject to renewal), and authorizing those entities to purchase and import petroleum and petroleum products from PdVSA through April 28, 2019;
- GL 8C, authorizing the maintenance of operations or contracts with PdVSA by Chevron Corporation, Halliburton, Schlumberger Limited, Baker Hughes, and Weatherford International through October 25, 2019;
- GL 9E, authorizing certain dealings in the debt or equity of PdVSA;
- GL 10A, authorizing US persons in Venezuela to purchase refined petroleum products from PdVSA for personal, commercial, or humanitarian uses;
- GL 13C, authorizing certain transactions with Nynas AB through October 25, 2019;
- GL 15B, authorizing activities by Mastercard Inc., Visa Inc., American Express Company, Western Union Company, and MoneyGram International with certain Venezuelan banks, through March 22, 2020;
- GL 16B, authorizing transactions related to the maintenance, operation, or closure of accounts of US persons at certain Venezuelan banks, through March 22, 2020;
- GL 18A, authorizing certain transactions relating to the maintenance or operation of Integracion Administradora de Fondos de Ahorro Previsional, S.A.; and
- GL 20A, authorizing certain transactions and activities by specific humanitarian entities involving the Central Bank of Venezuela, through January 2021.
Additionally, OFAC has issued a number of new GLs:
- GL 21, authorizing US financial institutions to debit accounts blocked under the EO or Executive Order 13850 (relating to entities operating in the gold or oil industry) at that institution in payment or reimbursement of normal service charges;
- GL 22, authorizing the provision of certain goods or services in the US to Venezuela’s mission to the UN;
- GL 23, authorizing US depository institutions, registered brokers or dealers, and money transmitters to process funds in relation to the operating expenses or other official business of third-country diplomatic or consular missions in Venezuela;
- GL 24, authorizing all transactions involving the Government of Venezuela incident to the receipt and transmission of telecommunications, and all transactions of common carriers involving the Government of Venezuela incident to the receipt or transmission of mail and packages between the US and Venezuela;
- GL 25, authorizing the exportation or re-exportation from the US or by US persons to or involving the Government of Venezuela of services, software, hardware, and technology incident to the exchange of communications over the Internet (e.g., through instant messaging);
- GL 26, authorizing the provision of certain medical services involving the Government of Venezuela;
- GL 27, authorizing certain transactions in connection with US patent, trademark, copyright, or other intellectual property protection;
- GL 28, authorizing through September 4, 2019, transactions ordinarily incident and necessary to the wind down of operations, contracts, or other agreements involving the Government of Venezuela in effect before August 5, 2019;
- GL 29, authorizing all transactions involving the Government of Venezuela ordinarily incident and necessary to certain activities of non-governmental organizations or “NGOs”;
- GL 30, authorizing all transactions involving the Government of Venezuela ordinarily incident and necessary to the operation or use of ports and airports in Venezuela;
- GL 31, authorizing US persons to engage in all transactions involving the Interim President of Venezuela, Juan Gerardo Guaidó Márquez, and his administration, including the Venezuelan National Assembly;
- GL 32, authorizing US persons in Venezuela to engage in transactions involving the Government of Venezuela prohibited by the EO ordinarily incident and necessary to their personal maintenance in Venezuela (e.g., payment of housing expenses, acquisition of personal goods, payment of taxes or fees, and the purchase of permits, licenses, and public utilities); and
- GL 33, authorizing the payment of fees to the Government of Venezuela related to emergency landings or other air-related medical emergencies.
We continue to monitor developments in this area. Please contact the authors or your usual Herbert Smith Freehills contact for more information.
Welcome to the Spring 2019 edition of our corporate crime update – our round up of developments in relation to corruption, money laundering, fraud, sanctions and related matters. Our update now covers a number of jurisdictions.
Authors: Susannah Cogman, Daniel Hudson and Hannah Lau
On 17 May, the EU adopted legislation which will enable it to impose sanctions against persons and entities who engage in cyber-attacks against the EU and its member states. The sanctions will be designed “to deter and respond to cyber-attacks with a significant effect which constitute an external threat to the EU and its Member States”. The new regime underlines a clear commitment by the EU to continue to strengthen its capability to address its “[concern] at the rise of malicious behaviour in cyberspace”.
In recent years, the EU has taken a series of actions to tackle cyber threats. On 19 June 2017, the EU developed a framework for a joint response to malicious cyber threats (known as the “Cyber Diplomacy Toolbox”), and subsequent implementing guidelines envisaged sanctions as one of the tools available. The timing of the announcement of the new regime is also notable given its proximity to the EU Parliament elections which started on 23 May.
Reported concerns amongst officials from the EU and certain member states in the past have related to hacking incidents or threats linked to China, Russia and North Korea. However, the legislation explicitly states that the imposition of sanctions against a person or entity does not amount to attribution of responsibility to a third state, which is a political decision.
The sanctions will target persons involved in cyber-attacks with a significant effect which constitute an external threat to the EU and/or its member states. It also covers attempted attacks with a potentially significant effect.
Cyber-attacks constituting an external threat include those which:
- originate, or are carried out, from outside the EU;
- use infrastructure outside the EU;
- are carried out by any person or entity established or operating outside the EU; or
- are carried out with the support, at the direction of or under the control of any person or entity operating outside the EU.
“Threat to member states or the EU”
Attacks which are a threat to member states are envisaged to be cyber-attacks targeting: (a) critical infrastructure; (b) social and economic services (such as in the energy, health and financial markets sector); (c) critical state functions (such as areas of defence and public elections); and (d) classified information.
Threats to the EU include cyber-attacks carried out against its various institutions and its common security and defence policy (“CFSP”). The legislation also reserves the right to apply sanctions in relation to cyber-attacks against third States and international organisations where deemed necessary to achieve CFSP objectives, giving it a potentially broad scope.
Whether an attack has a “significant effect” will depend on a range of factors including the scale of disruption, the number of persons or entities concerned, the loss caused, and the nature of the data stolen.
Who can be penalised
There is a broad scope for those who could be listed. The sanctions could target individuals or entities who:
- carry out (attempted) cyber-attacks;
- provide financial, technical or material support for such attacks including facilitating such attacks by action or omission; or
- are associated with those in (a) or (b) above.
The type of sanctions imposed
The sanctions available will include a ban on any listed persons from travelling to the EU and asset freezes. EU persons and entities will also be forbidden from making funds or economic resources available directly or indirectly to those listed.
The new regime emphasises the continuing willingness of the EU to use sanctions to address concerns, noting the similarity of these sanctions to recent EU sanctions aimed at targeting the use of chemical weapons. While no one has yet been listed under this framework, there is a continuing need for companies to ensure that they have thorough, up-to-date and ongoing screening to identify any listed persons they might directly or indirectly deal with.
It is noted that the UK government has said that in the event of a “no deal” Brexit, it will look to carry over all EU sanctions through regulations made under the Sanctions and Anti-Money Laundering Act 2018, in order to ensure a smooth transition. These UK regulations will come into force on 11 June 2019.
Authors: John O’Donnell, Jonathan Cross, Geng Li, Christopher Milazzo, Susannah Cogman and Daniel Hudson
Further emphasizing its expectation that all companies whose business touches on the United States should maintain a robust, risk-based US economic sanctions compliance program (“SCP”), the US Treasury’s Office of Foreign Assets Control (“OFAC”) has published a detailed “Framework for OFAC Compliance Commitments” (the “Framework”) setting forth the key components of an adequate SCP. OFAC’s release of the Framework heightens the need for US and international companies to review their existing policies, procedures and controls relating to sanctions compliance, and to make appropriate changes to update relevant policies in line with OFAC’s guidance. As the number and scale of US sanctions enforcement actions increase, maintaining an effective SCP is an essential tool for managing sanctions risk; conversely, the Framework makes clear that the absence of an adequate SCP will be viewed negatively by OFAC pursuant to its Economic Sanctions Enforcement Guidelines.
The Framework includes a discussion of the typical “root causes” of sanctions violations leading to OFAC enforcement action; in most cases, SCP deficiencies are key elements in these examples. Thus, all companies whose business directly or indirectly involves the US or US persons should review their SCP carefully in consideration of these identified root causes.
On April 22, 2019, the White House announced that the Trump administration will not issue further “significant reduction waivers” exempting specified countries from the threat of secondary sanctions based on their purchases of Iranian crude oil. The move signals the Trump Administration’s intention to utilize economic sanctions to bring Iran’s level of oil exports to zero. The announcement follows the recent determination to designate the Islamic Revolutionary Guard Corps as a foreign terrorist group, both forming part of the Administration’s “maximum pressure” campaign with respect to Iran. The campaign aims to push Iran to take action in response to the Trump Administration’s “twelve demands,” which relate both to nuclear issues and to other aspects of Iran’s behaviour, such as its involvement in conflicts in Syria and Yemen and tensions with US allies in the region.
Robert Hunt, a partner in the firm’s corporate crime and investigations practice, has recorded a podcast for the Corporate Compliance and Ethics Blog on trends in internal investigations in Asia.
Whilst investigations used to be largely corruption-related, Rob is seeing an increasing number of investigations into sales and revenue fraud, money laundering and sanctions. Robert discusses these as well as the rise of data privacy and privilege issues and the role played by language and culture in investigations.
In this article we summarise some of the key points arising from two important reports regarding economic crime in the UK which have been published in recent weeks.
On 8 March 2019, the House of Commons’ Treasury Committee published its “Economic Crime – Anti-money laundering supervision and sanctions implementation” report (the “Treasury Committee Report”), which suggests improvements to be made in order to tackle economic crime and develop anti-money laundering (“AML”) supervision.
On 14 March 2019, the House of Lords’ Select Committee on the Bribery Act 2010 (“UKBA”) published a report titled “The Bribery Act 2010: post-legislative scrutiny” (the “UKBA Report”) which considered whether the Act is achieving its intended purposes.
We outline some of the key conclusions and recommendations of the reports, including in relation to:
- Proposed Legislative Reform – including potential changes to corporate criminal liability and the Bribery Act Guidance in relation to the “adequate procedures” defence and corporate hospitality;
- Deferred Prosecution Agreements (“DPAs”) – suggested improvements including in relation to the court’s discretion, discounts, the prosecution of individuals and their application to smaller companies;
- AML Supervision – the risks of the current approach to AML supervision by multiple bodies and suggested improvements;
- Financials Sanctions – the effectiveness of sanctions for economic crime, including the possibility of introducing a discretion to block UK listings on the grounds of national security and the influence of e.g. Russian money in the UK;
- Derisking – recommend strategic action to combat derisking;
- Suspicious Activity Reports (“SARs”) – consideration of the SARs reform programme and suggested improvements;
- Information Flows – potential information flows at bank level and the National Economic Crime Centre’s (the “NECC”) role as a co-ordinator of law enforcement, regulators and the private sector; and
- Resources and Delays – the impact of delays and a lack of resources on combatting economic crime.
Please click here to read our full briefing.