On 31 October 2019, the Hong Kong Securities and Futures Commission (SFC) published a circular (Circular) on the use of electronic data storage providers (EDSPs) by licensed corporations (LCs).
Every quarter our financial services regulatory team publishes the Financial Services Regulatory Timeline, a look ahead at key regulatory milestones in the coming months and years in a range of areas, created for our clients in financial institutions. Three areas covered in the Timeline are Financial Crime, Enforcement, and Market Abuse. For the readers of our FSR and Corporate Crime blog, we have produced these sections as a Calendar of key developments in Financial Crime, Market Abuse and Enforcement which can be accessed here.
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.
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.
On 6 August 2019 the UK Serious Fraud Office (“SFO“) published its Corporate Co-operation Guidance which forms part of the SFO’s internal Operational Handbook. The Guidance is designed to assist SFO staff with assessing the co-operation of organisations when considering charging decisions and the possibility of Deferred Prosecution Agreements (“DPAs“).
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.
The SFC has recently published its Statement on the conduct and duties of directors when considering corporate acquisitions or disposals.
- outlines the recurring types of misconduct relating to corporate acquisitions and disposals which the SFC observed over the past two or so years, since it adopted a front-loaded regulatory approach;
- reminds listed company directors and their advisers to comply with their statutory and other legal duties when evaluating or approving such corporate transactions; and
- warns listed company directors and their advisers that where the SFC has serious concerns that an announced acquisition or disposal may be structured or conducted in a manner that constitutes a breach under the Securities and Futures Ordinance (SFO) or other applicable laws, it will have no hesitation in using its powers under the SFO and the Securities and Futures (Stock Market Listing) Rules (SMLR) to protect market integrity and the investing public.
Front-loaded regulatory approach in action since 2017
Over the last two or so years, the SFC has been using its powers under the SMLR and the SFO to intervene at an early stage in serious cases of corporate misconduct, as part of its “front-loaded” or “real time” regulatory approach.
As the name suggests, the approach involves “nipping problems in the bud” through early targeted intervention (such as making inquiries or directing the stock exchange to suspend trading in the listed company’s shares) to minimise damage to the market. It also involves being more direct, upfront and transparent about how it regulates as a gatekeeper (such as issuing statements, guidelines and bulletins) to prompt fast behavioural changes. This is in addition to the enforcement work which the SFC will continue to conduct at the back end.
The SFC has issued a series of bulletins – SFC Regulatory Bulletin: Listed Corporations – to provide guidance on the manner in which it performs its functions under the SMLR and the SFO. The series can be accessed here and contains numerous case examples.
Recurring types of misconduct relating to corporate acquisitions and disposals
In the present statement, the SFC focuses on the recurring types of misconduct relating to acquisition and disposal transactions. The SFC notes that more than 55% of the cases in which it issued letters of concern in 2017 and 2018 involved corporate acquisitions and disposals.
Some of the recurring types of misconduct highlighted by the SFC include:
- lack of independent professional valuation for a planned acquisition or disposal;
- lack of independent judgment in considering valuation reports by external valuers and profit forecasts from vendors;
- performing little or no independent due diligence on the forecasts, assumptions, or business plans provided by the vendors or the management of the targets;
- cherry picking companies rather than using a representative sample of comparable companies for the purpose of valuation;
- failing to assess the potential negative impact of a planned acquisition on the resources and financial position of the listed issuer;
- no verification of the vendor’s ability to pay compensation or other safeguards to protect the listed issuer’s interests, where the issuer has paid consideration upfront based on the vendor’s profit forecast and the projected profits are not met;
- suspicious transactions that suggest undisclosed relationships or arrangements among purported independent third parties.
On 4 July 2019, Mr Justice William Davis approved a Deferred Prosecution Agreement (“DPA“) agreed between the Serious Fraud Office (“SFO“) and Serco Geografix Ltd (“SGL“), a wholly-owned subsidiary of outsourcing company Serco Group plc (“Serco Group“). SGL has agreed to pay £22.9 million, comprising a financial penalty of £19.2m and the full amount of the SFO’s investigative costs of £3.7m. This is in addition to the £12.8m in compensation Serco paid to the Ministry of Justice as part of a £70m civil settlement in 2013.
Following the introduction of DPAs in the UK in 2014 and the conclusion of the first DPA with the SFO in November 2015, the Serco DPA is the fifth and latest in a growing body of DPA case-law and confirms the importance placed by the SFO on the use of DPAs in tackling financial crime.
In this briefing, we provide some background on DPAs generally, an overview of the Serco DPA and discuss some of the emerging themes relating to DPAs and the SFO’s approach to enforcement.
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.
Welcome to the Winter 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.
For the full update on each jurisdiction, please click on the name of the jurisdiction below. Below we provide a brief overview of what is covered in each update.