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”.
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).
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: Kyle Wombolt, Jeremy Birch and Charlotte Benton
The US Department of Justice Criminal Division (DOJ) has issued updated guidance on the Evaluation of Corporate Compliance Programs (guidance). Under the guidance, DOJ prosecutors evaluate the effectiveness of a company’s compliance programme when conducting an investigation, determining whether to bring charges or negotiating plea or other arrangements.
“Whether in the US, Asia Pacific or elsewhere, the guidance sets out useful prompts for a best practice compliance framework” observes Hong Kong corporate crime and investigations partner, Jeremy Birch. “Given the propensity of regulators to borrow from each other’s procedures and practices, it will also be of interest to companies subject to regulatory scrutiny, investigation or enforcement outside the US, as a benchmark for appropriate remediation and resolution.”
The guidance covers many of the same areas as the previous version, providing additional context to the multifactor analysis of a compliance programme.
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.
In a decision illustrating the court’s strict approach to the rule prohibiting the use of disclosed documents and witness statements for a collateral purpose, the High Court has refused a party permission to provide disclosed documents and witness statements to the US Federal Bureau of Investigation (FBI) for the purpose of complying with a US Grand Jury subpoena: ACL Netherlands BV v Lynch  EWHC 249 (Ch).
The court’s permission was required because under CPR 31.22 (in relation to disclosed documents generally) and 32.12 (in relation to witness statements), a party may only use disclosed material for the purpose of the proceedings in which it is disclosed, subject to certain exceptions including where the court gives permission.
On the facts of the case, the court held that the applicant had not established cogent and persuasive reasons in favour of granting permission, as it was required to do. The court also considered that the grant of permission might have occasioned injustice, particularly given that the trial in the civil proceedings was imminent.
The decision highlights that the fact that a party may be facing legal compulsion to produce documents is not a “trump card” leading necessarily to the grant of permission (although in any event the court was not satisfied here that compulsion had been established). Courts considering such applications will not apply a mechanistic approach and will consider all the circumstances in weighing the competing public interests involved. That is the case even if refusing permission may result in a party finding itself effectively stuck between a rock and a hard place, unable to comply with a legal demand from an enforcement or regulatory agency – though that will be a relevant factor. Continue reading