REUTERS |
April 29, 2016

What can we learn about improving AML from the Gala Coral settlement?

The Gambling Commission is calling on gambling operators to learn lessons from its investigations into failings at the Gala Coral Group Ltd. The Gambling Commission began an investigation following information received from the police regarding the conviction for theft of a customer of Gala Coral Group who had been sentenced to several years’ imprisonment after pleading guilty to stealing £800,000 from a vulnerable adult. The police had examined the customer’s bank accounts and concluded that the thefts had been used to fund the customer’s gambling. Continue reading →

REUTERS |
April 14, 2016

Raids result from leak of Panama papers

Mossack Fonseca has about 40 offices globally, located in Gibraltar, the Isle of Man, Jersey, Geneva and China, including some countries identified as tax havens by the European Commission.

Consequently the number of agencies worldwide who have begun investigations into the business affairs of Mossack Fonseca is increasing daily.

Ramon Fonseca (founding partner) told Reuters that his firm, which specialises in setting up offshore companies, had broken no laws, that that no documents had been destroyed and all its operations were legal.  Continue reading →

REUTERS |
April 8, 2016

The ripple effect of the Panama papers widens

The Lawyer has reported that the Solicitors Regulation Authority (SRA) has asked several  law firms to review whether they are linked to the law firm Mossack Fonseca at the centre of the Panama Papers data dump. For more, see Blog post, Our man in Panama, 6 April 2016. The SRA is understood to be working with the Financial Conduct Authority (FCA) and a number of other regulatory bodies. For more, see  Legal update, FCA writes to firms requesting they check for links to law firm at centre of “Panama Papers” leak.

The 10 mandatory Principles in the Solicitor’s Code of Conduct (which was updated on 1 April 2016) require that a solicitor both upholds the rule of law and the proper administration of justice (Principle 1) and to act in the best interests of each client (Principle 4). Where these mandatory Principles come into conflict, the one that takes precedence is the one which best serves the public interest. Another mandatory Principle is to comply with your legal and regulatory obligations and deal with your regulators and ombudsmen in an open, timely and co-operative manner. For more information, see the SRA Handbook.

The third section of the SRA Handbook sets out the cooperation required by the SRA. The law firms approached may be required in connection with their practice or in connection with any trust of which the firm is, or formerly was, a trustee to:

  • Comply promptly with any written notice from the SRA.
  • Produce for inspection by the SRA documents held by you, or held under your control.
  • Provide all information and explanations requested.
  • Comply with all requests from the SRA as to the form in which you produce any documents you hold electronically, and for photocopies of any documents to take away.

The repercussions of the Panama Papers continue to spread  through the legal and financial world. For more, see Legal update, SRA commences action on the Panama papers. 

Practical Law Morag Rea
REUTERS |
April 6, 2016

Our man in Panama

The Panama papers revealed by the International Consortium of Investigative Journalists (ICIJ), the fourth tax haven leak coordinated by the ICIJ since 2013, raise all kinds of legal issues both for the firm and their clients.

Mossack Fonseca, which specializes in setting up offshore companies, denies any wrongdoing. It is not illegal to use off- shore structures. Nor is tax avoidance is illegal. The UK in part enables these structures as many tax havens, such as the British Virgin Islands and Cayman Islands, are British overseas territories, while Jersey and the Isle of Man are British crown dependencies.

However, a lack of transparency is connected to all sorts of corporate wrongdoing, from bribery and corruption to money laundering and human trafficking. Continue reading →

REUTERS |
March 17, 2016

Deferred prosecution agreements and third party litigation

On 30 November 2015, the Serious Fraud Office reached the first Deferred Prosecution Agreement (DPA) with ICBC Standard Bank Plc. The DPA is covered in detail in an earlier blog. This week, the DPA has come under some criticism and calls were made for the investigation to be reopened, according to reports.

A former senior bank official in Tanzania has suggested, contrary to the agreed statement from the DPA, that officials in London were aware of what was occurring in London and “suppressed key facts” to help secure the deal. The official claims her career was ended after she was alleged to have participated in the bribery.

The SFO stated in response:

The SFO conducted an independent investigation into the matters self-reported to us by Standard Bank Group.  We have now concluded the case into those matters that fall within the UK’s jurisdiction. The SFO can and does provide mutual legal assistance (MLA), this includes assisting overseas authorities to investigate and prosecute bribery and corruption. Any request for assistance in this case can be made to the UKCA who will consider it and if appropriate refer it to the SFO.  We cannot comment on third party litigation.

 

It is of course too early to determine the outcome of any third party litigation. However, it highlights two interesting elements to a DPA.

Firstly, the word “deferred” is sometimes overlooked, but is probably the most significant element of the agreement. A DPA can be breached by failing to notify the prosecutor of material relevant to the offences particularised in the draft indictment. If a DPA is breached, and the prosecutor considers the matter appropriately serious, it can be returned to court. The court will have to decide whether, on the balance of probabilities, the corporate body is in breach. If the court finds for the prosecutor, the corporate body can terminate the DPA and the prosecution can be recommenced.

This has occurred in the US, where DPAs are more established. The Swiss bank UBS  violated its non-prosecution agreement over Libor-rigging after it was found to have also manipulated forex rates. For more information see Practice note, DPA: breach, variation and discontinuance.

Both the prosecution and the company need to be cautious. Just as a company that fails to make a full disclosure or misleads a prosecution authority can find itself subject to breach proceedings and subsequent prosecution, a breach occurring that could reasonably have been uncovered during an investigation would be a significant embarrassment for a prosecutor.

Secondly, the problem of third party rights was highlighted in a blog dated 17 December 2015. As written at the time:

The legislation providing the framework for DPAs makes no provision for the rights of third parties. While this problem was perhaps unforeseen in the drafting of the Crime and Courts Act 2013, it does present a real problem for individuals, who may lose their professional reputations and employment prospects. While both the court and the prosecution can avoid naming any individuals directly, a problem remains when the individual can clearly be identified simply by the terms of the agreement. Perhaps the first amendment to the DPA legislation will enable relevant third parties to make representations.

When DPAs were in the implementation phase, the difficulties of obtaining a global resolution were well documented. The response from individuals is perhaps an equally significant risk, especially when they have little to lose.

Practical Law David Bacon
REUTERS |
March 14, 2016

Is the SARs regime fit for purpose?

In February 2015, the Home Office launched a “call for information” on the Suspicious Activity Reports regime. The call recognised that the current system needed to be reviewed, and requested responses to a number of questions, including improved identification, information sharing, efficiency of reporting and consent and international best practice.

In October 2015, the Home Office and HM Treasury published the UK’s national risk assessment of money laundering and terrorist financing. The objective of the risk assessment was to better understand the UK’s money laundering and terrorist financing risks, inform the efficient allocation of resources and mitigate those risks. The report indicated that:

  • There are significant intelligence gaps, in particular in relation to ‘high-end’ money laundering,  relevant to major frauds and serious corruption, where the proceeds are often held in bank accounts, real estate or other investments, rather than in cash.
  • The effectiveness of the supervisory regime in the UK is inconsistent.
  • The law enforcement response to money laundering has been weak for an extended period of time.
  • SARs form a critical intelligence resource, and enable law enforcement agencies to intervene to prevent suspicious transactions. The SARs regime also provides SARs reporters with a mechanism to obtain a statutory defence from a money laundering or terrorist financing prosecution when they report suspicion.
  • In December 2014 the government committed to reviewing the regime. This will provide an opportunity for individuals and firms in the regulated sector, supervisors and law enforcement agencies to make proposals for improvements to the regime.

The risk assessment was reported in an earlier blog.

In March 2016, the National Crime Agency (NCA) published its annual review of SARs for the period October 2014 to September 2015. The review suggested

  • The total number of SARs submitted to the NCA increased by 7.82% on the previous year, to 381,882 in 2014/15.
  • The number of consent SARs showed a slight increase, from 14,155 to 14,678. Of these, the number refused decreased from 1,632 to 1,374.
  • The total sum of money restrained as a result of consent SARs was £43,079,328. This was substantially down from the previous reporting period (£141,517,652). However, this explained by the NCA as last year’s figure skewed by five large cases with a cumulative value of £119milion.
  • The number of financial intelligence requests made by the UKFIU to overseas authorities increased from 1,359 to 1,801.

There is clearly a significant discrepancy between the government’s estimates of the costs from organised crime, at least £24 billion a year, and the sums of money restrained as a result of consent SARs – £43million.

More importantly, the report does not provide information on the effectiveness of the SARs regime prior to reporting. There is no consideration of the number of genuine suspicions actually detected, the number referred to and processed correctly by nominated officers or the number of investigations and prosecutions or appropriate regulatory action following reporting.

Part of the problem is surely the lack of focus on money laundering. Whereas the NCA is the lead agency for reporting and intelligence, no particular body takes the lead in the investigation and prosecution of suspected money laundering, and despite the handful of high profile successes, the number of prosecutions  arising from reported breaches is miniscule. Transparency International has suggested the UK should consider replacing the existing patchwork and inconsistent structure of multiple AML supervisors with a single, well-resourced supervisor.

If the risk assessment is to be acted upon, there will need to be improvements in all agencies tasked with a role in tackling money laundering. With the fourth AML directive due to be in force through updated domestic money laundering regulations by June 2017, and an inspection of the UK by the FATF due the same year, now is surely the time to make those improvements.

For more information on the current reporting regime, see Practice note, Reporting suspicious activities: overview. 

 

 

Practical Law David Bacon
REUTERS |
March 8, 2016

Are there too many hurdles to making human rights complaints about multinational companies?

Amnesty International has published recommendations for improving the effectiveness of the UK National Contact Point (NCP) following a study into the work of the NCP.

UK’s NCP handles human rights complaints under the OECD Guidelines for Multinational Enterprises. Each of the 46 governments adhering to the OECD’s Guidelines for Multinational Enterprises has a NCP to handle complaints. The NCP provides the complainant with access to a non-judicial remedy so they are not compelled to pursue a civil or criminal claim. Complaints are lodged on behalf of both identifiable and non-specific victims with the expectation that the NCP takes into account the needs of victims throughout the complaint process. A complaint may be made by:

  • A community affected by a company’s activities.
  • Employees or their trades union.
  • Non-government organisations.

Continue reading →

REUTERS |
February 26, 2016

Transparency International publishes Global Corruption Report on sport

Transparency International (TI) has published a report into corruption in sport. Although the main motivation for the report was the indictments in relation to current and former FIFA officials, there have been numerous reports of corruption in professional sport in recent times, including match fixing at the highest levels of tennis, the Formula 1 bribery allegations, convictions of test cricketers, the deflategate matter and perceptions of corruption at the Winter Olympics.

Continue reading →

REUTERS |
February 24, 2016

Legal debate series: “Do our laws keep London safe from terror?”

The Thomson Reuters legal debate series, featured a distinguished panel debating the motion “Do our laws keep London safe from terror?”.

Supporting the motion were Adam Wagner, a barrister and author of Human Rights Blog, and Diane Abbott MP, the Shadow Secretary of State for International Development. Against the motion were Lord Blair, the former Commissioner of the Metropolitan Police, and Jonathan Swift QC.

Continue reading →