Corporate Crime Update – Winter 2019

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.

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Anti-money laundering regulatory round-up

Author: Susannah Cogman

Late 2018 and early 2019 saw a flurry of regulatory developments and proposals relating to anti-money laundering. We have reported on these in brief in our regular corporate crime updates, but for those who have been – for example – too immersed in Brexit to read the underlying documents in detail, we have taken this opportunity to bring together an overview of, and commentary on, a number of recent anti-money laundering/counter-terrorist financing (“AML/CTF”) developments. In particular, we discuss in this briefing:

  • the FCA’s report on data submitted in the first annual financial crime data return;
  • recent developments in the EU’s list of high risk third countries;
  • amendments to compliance requirements in respect of anonymous safety deposit boxes;
  • the FCA’s thematic review on money laundering risks in the e-money sector;
  • a Decision Notice issued by the FCA to a CEO for failings in his oversight of his bank’s AML systems and inadequate supervision of the MLRO to whom he had delegated relevant responsibilities;
  • proposals relating to money laundering supervision in the EU;
  • the FATF’s Mutual Evaluation Review of the UK;
  • FATF guidance on a risk-based approach to the securities sector;
  • other FATF developments of interest, in particular in relation to virtual assets;
  • reform of the UK Suspicious Activity Reporting regime;
  • a recent RUSI paper on the scale of money laundering in the UK;
  • AML-related amendments to the Financial Crime Guide (FC), following consultation GC 18/1; and
  • an overview of the current position regarding AML compliance post-Brexit, in the event of a no-deal exit.

Please click here to read our full briefing.

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FCA consults on further changes to SMCR

Authors: Sarah Thomas, Cat Dankos and Hywel Jenkins

At the end of January, the UK Financial Conduct Authority (FCA) issued a further consultation paper (CP19/4, the CP) on the Senior Managers and Certification Regime (SMCR). Responses to the CP are requested by 23 April 2019. Alongside other minor proposed changes which seek to “optimise” the SMCR, the key proposals are:

  • For all firms (banks, insurers, and all solo regulated firms), the legal function will not need to have a SMF Manager responsible for it.
    • Responsibility still has to be allocated to someone, but that individual does not need to be a SMF Manager.
    • The FCA expects the Head of Legal to be a certified function and that the conduct rules will apply to all legal staff.
    • Banks and insurers need to think about whether to change their SMF Manager allocations in light of this confirmation (as well as statements of responsibility and responsibilities map), and how to depict the position of the legal function on their responsibilities map.
  • For all firms (banks, insurers and solo regulated firms) the certification regime definition of the ‘client dealing’ function has been clarified (with a narrowing effect). It will exclude individuals who have no scope to exercise discretion.
    • Insurers and banks may wish to cross-check their existing pool of client dealing staff against the proposed new definition in readiness for the final rules.
  • For solo regulated firms, the FCA has expanded the scope of the forthcoming Enhanced regime to cover more intermediaries.
  • For limited scope solo regulated firms, Manager Conduct Rule 4 (SC4) will be amended to cover non-approved executive directors.

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OFSI imposes its first monetary penalty — Raphaels Bank sanctions breach

Authors: Daniel Hudson, Partner, London and Daniel Hyde, Associate (Australia), London

On 25 February 2019, the UK Government’s Office of Financial Sanctions Implementation (“OFSI”) published a notification of its first imposition of a monetary penalty under new powers afforded to it under the Policing and Crime Act 2017 (“the Act”). The £5,000 penalty was imposed on Raphaels Bank for dealing, without a licence, with funds belonging to a designated person in breach of EU financial sanctions in relation to Egypt. The penalty amount represents a 50 per cent reduction of the baseline penalty amount initially assessed by OFSI as a result of Raphaels Bank’s voluntary disclosure of the breach and subsequent cooperation.

The notification is brief, seemingly because OFSI is making ongoing enquiries in connection with other aspects of the breach unconnected with Raphaels Bank. However, it is apparent that OFSI determined the penalty amount in accordance with its case assessment process set out in its monetary penalty guidance (“Guidance”), which makes this case a useful, albeit currently limited, illustration of its application of that process.

In this briefing, we discuss the significance of the first monetary penalty imposed by OFSI, particularly:

  • the reduction to the final penalty amount as a result of Raphaels Bank’s disclosure and co-operation;
  • the low-value of the breach;
  • the current brevity of the notification;
  • possible public interest considerations behind the penalty; and
  • the two procedural rights of review available under section 147 of the Act.

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FCA fines asset managers in first use of its competition powers

On 21 February 2019, the FCA announced its first decision under its competition enforcement powers, finding three asset management firms have breached competition law. This decision is an important assertion of the FCA’s intention to use its competition powers – previous matters which involved the FCA were subsequently taken over by the European Commission under EU competition law. In its announcement, the FCA emphasised its commitment to taking enforcement action to protect competition, issuing a warning to the asset management industry to avoid undermining the proper process for setting the prices of shares in IPOs and placings and the potential impact failure to do so has on the UK’s capital markets.

To read our full briefing on the decision, please click here.

High Court orders disclosure of SFO documents in s.90A FSMA shareholder class action

In a recent decision, the High Court has ordered that documents provided to Tesco plc (“Tesco“) by the SFO for the purpose of negotiating a deferred prosecution agreement (“DPA“) must be disclosed by Tesco in the separate civil action relating to the same subject matter, brought by its shareholders under s.90A of the Financial Services and Markets Act 2000 (“FSMA“): Omers Administration Corporation & Ors v Tesco plc [2019] EWHC 109 (Ch). The court reached this conclusion notwithstanding the fact that these documents were obtained by the SFO from third parties using its powers to compel the production of information/documents under s.2 of the Criminal Justice Act 1987 (“CJA“), and provided to Tesco during the DPA process on the understanding between the SFO and Tesco that the information they contain would be kept confidential.  In this briefing, our litigation team considers the rationale for and implications of the decision. Continue reading

Preparing for Brexit: EEA Firms – UK Temporary Permissions Regime (“TPR”)

The UK FCA and PRA propose to implement the TPR if the UK leaves the European Union on 29 March 2019 without an implementation (or transitional) period, to ensure that EEA firms currently operating under an incoming passport (either from a UK branch or on a cross-border services basis into the UK) can continue to carry out regulated activities in the UK until they receive new direct authorisation by the UK regulators. For more information, please see our HSF briefing – UK Temporary Permissions Regime placemat

Brexit Final Political Declaration: Nothing [new] to see here?

On financial services, the final political declaration contains essentially the same three points as in last week’s outline political declaration (the implications of which were discussed in our blog post of 15 November, available here), although there is some limited further clarification.  The three points on financial services are copied below with new substantive additions underlined: Continue reading

High Court considers extraterritorial application of compulsory powers

In the case of R (On The Application Of KBR Inc) v The Director of the Serious Fraud Office [2018] 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

Corporate Crime update – May 2018

Welcome to the May 2018 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.

We are proud to announce that the Corporate Crime and Investigations practice at Herbert Smith Freehills has been awarded Investigation Firm of the Year at the Who’s Who Legal Awards 2018. Continue reading