Market Abuse Update April 2016
Herbert Smith Freehills has published its last Market Abuse update before 3 July 2016, the date when both the new Market Abuse Regulation and the Criminal Sanctions (Market Abuse) Directive come into application across Europe. Some significant pieces of the regulatory jigsaw have yet to be slotted into place, so our briefing sets out the current state of play in a little more detail. Both pieces of legislation have significant extra-territorial implications: in our briefing we highlight some quirks in the potential application of the criminal regime. The advent of new regulation has not led to any significant let-up of regulators' enforcement efforts, and our briefing also reviews some recent cases in the UK, the US and Australia.
Our full e-bulletin is available here.
UK launches Panama Papers taskforce
In April 2016, David Cameron announced the creation of a new taskforce to deal with the so-called Panama Papers. The taskforce is jointly led by HMRC and the National Crime Agency (NCA) and draws on personnel from HMRC, the NCA, the Serious Fraud Office (SFO) and the Financial Conduct Authority (FCA). Funding of up to £10 million has been committed to support the taskforce's work.
Giving evidence to the Treasury Select Committee on 26 April 2016, Tracey McDermott (Acting CEO of the FCA) confirmed that the FCA had written to a number of firms (64 in total), in two tranches, asking "a number of high level questions" about their relationships with Mossack Fonseca, and the activities firms are taking to assess their position. Ms McDermott recognised that the FCA's enquiries are at a very early stage and that whilst some issues reported in the media are suggestive of "some very serious cases of criminality", others "may or may not be attractive but may or may not be criminal", as there is nothing necessarily illegal about having offshore arrangements. Our tax disputes team have published an e-bulletin discussing whether investment via an offshore investment fund is objectionable, which can be accessed here.
Other regulators and law enforcement agencies across the globe have launched enquiries and initiatives in the wake of the publication of the Panama Papers.
On 9 May 2016, The International Consortium of Investigative Journalists (ICIJ) published a searchable database on of "information on more than 200,000 offshore entities that are part of the Panama Papers investigation", said to be "the largest ever release of secret offshore companies and the people behind them.
Anti-Corruption Summit: London 2016
On 12 May 2016, the Prime Minister will host an international anti-corruption summit in London to agree a package of measures to address corruption and promote transparency. A number of initiatives are understood to be scheduled for discussion at the summit, including a new international anti-corruption body. As many as 40 world leaders are reported to be attending. The summit on 12 May will be preceded by a conference on 11 May for leaders in civil society, businesses and government, to "reinforce and showcase successful initiatives".
SFO article on self reporting
Writing in The Lawyer, Ben Morgan, joint Head of Bribery and Corruption at the SFO, has reiterated the SFO's position on the benefits of corporate self reporting. The article is available here.
Money Laundering Action Plan
The government has published an Action Plan for anti-money laundering and counter-terrorist financing. The Plan proposes potentially very significant reforms to the UK's anti-money laundering reporting regime, and advocates a range of new powers and tools for law enforcement, including "Unexplained Wealth Orders", new asset confiscation powers and powers to designate persons of significant money laundering concern. It also proposes a range of measures on information sharing, public-private partnerships and multi-agency responses. Whilst much of the detail of the proposals has not been explained (and will be further consulted upon), there is an opportunity to comment on the legislative proposals at this, relatively early, stage. We will be publishing a fuller briefing on the Action Plan shortly.
Recent developments in English and Scottish bribery enforcement
On 5 April 2016, The Scottish Crown Office and Procurator Fiscal Service ("COPFS") announced the latest resolution of a Bribery Act enforcement action against the Glasgow-based logistics company, Braid Logistics (UK) Limited. Braid agreed to pay £2.2 million pursuant to a Civil Recovery Order and accepted responsibility for the contravention of sections 1 and 7 of the Bribery Act 2010 (section 7 being the so-called 'corporate offence' of failure to prevent bribery).
This is the latest development in an exciting few months in anti-corruption enforcement. Earlier this year, the Court applied the Sentencing Council's 2014 Definitive Guideline: Fraud, Bribery and Money Laundering Offences (the "Guideline") for the first time in a contested corporate case, and sentenced a company following a successful prosecution under section 7 of the Bribery Act. These two eagerly anticipated cases, Smith & Ouzman Limited and Sweett Group Plc, represent the first steps in building a body of much-needed caselaw outlining the Court's approach to the Guideline, following the first Deferred Prosecution Agreement ("DPA") entered into by the SFO last year.
Our briefing provides an overview of the Braid, Smith & Ouzman and Sweett Group cases, and explains how the penalties imposed on the companies were determined.
Sanctions update – creation of Office of Financial Sanctions Implementation and changes to UK financial sanctions
The Summer Budget 2015 contained a commitment to significantly revamp the UK's approach to the implementation and enforcement of financial sanctions, at both the administrative and legislative level. These changes have been introduced through the creation of the Office of Financial Sanctions Implementation ("OFSI") within Her Majesty's Treasury ("HMT") and the proposed introduction of new financial sanctions legislation contained in the draft Policing and Crime Bill (the "Bill"). The Bill provides for an increase in the minimum criminal penalties applicable to breaches of financial sanctions, and introduces a new power for HMT to impose civil monetary penalties in certain circumstances, such as when it is not in the public interest to prosecute but the issuance of a warning letter would be unlikely to bring about a sufficient change in behaviour. The Bill also provides for swifter implementation of UN financial sanctions in the UK.
Our briefing provides an overview of OFSI's role and summarises the proposed changes to the UK financial sanctions regime and additional powers to be granted to OFSI under the Bill. In addition, it highlights key points in the updated financial sanctions guidance recently published by OFSI.
The Register of Persons with Significant Control - Q&A for UK companies
From 6 April 2016, UK incorporated companies and LLPs are required to keep a new statutory register providing details of persons with significant control over them (a “PSC register”). From 30 June 2016, companies and LLPs will be required to file this information at Companies House, creating a publicly accessible central registry of beneficial ownership information.
The purpose of the PSC register is to provide greater transparency around corporate ownership and control as part of the Government’s “Transparency & Trust” agenda. Our briefing outlines the new requirements, the practical implications for companies, and the key actions that companies should take to comply with the new regime. To read the briefing, please click here.
Treasury Committee letters on tax deductibility of fines imposed by regulators on banks
The House of Commons Treasury Committee has published letters on the tax deductibility of fines imposed by regulators on banks. The letters seek further clarification on whether banks can offset any of the payments they make to regulators against their corporation tax bill. The letter from George Osbourne MP confirms that fines imposed as a punishment by a regulator are non-deductible for UK corporation tax purposes, as are the administrative and regulatory costs associated with misconduct and mis-selling by banks. However, the letter indicates that compensation payments arising from trading activities are, in principle, tax deductible.
EU extends sanctions in respect to actions undermining the territorial integrity of Ukraine and to former members of the Ukrainian regime in respect to the misappropriation of public funds.
Sanctions on former members of the Ukrainian regime are extended to March 2017
On 4 March 2016, the duration of the EU's economic sanctions against former members of the Ukrainian regime was extended to 6 March 2017 (see Council Decision (CFSP) 2016/318).
Sanctions and restrictive measures against persons, entities, and bodies responsible for the misappropriation of Ukrainian State funds and persons responsible for human rights violations were originally introduced for a 12 month period from March 2014, but had been extended, on 5 March 2015 (Council Decision (CFSP) 2015/364) and on 5 June 2015 (Council Decision (CFSP) 2015/876), until 6 March 2016.
Sanctions in respect of actions undermining the territorial integrity of Ukraine are extended for six months until September 2016
On 10 March 2016, the duration of the EU's economic sanctions against persons and entities undermining the territorial sovereignty of Ukraine was also extended for 6 months until 15 September 2016 (see Council Decision (CFSP) 2016/359). These measures were originally introduced on 17 March 2014 and were renewed for another six months on 14 September 2015 (CFSP 2015/1524).
Earlier in the month to, the EU's economic sanctions against former members of the Ukranian regime were extended to 6 March 2017 (see Council Decision (CFSP 2016/318)). The Crimea and Russia 'sectoral sanctions' are unaffected, as they are imposed by separate legal instruments which are not due to expire until later in 2016.
Commission inception impact assessment on Directive amending MLD IV
The European Commission has published an inception impact assessment on the proposed Directive amending the Money Laundering Directive IV (MLD IV) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. The assessment finds that most of the measures proposed are likely to have the desired effect of improving the framework on the prevention and disruption of terrorist financing.
IOSCO study of regulatory approaches to cyber risk
The International Organization of Securities Commissions (IOSCO) has published a report entitled "Cyber Security in Securities Markets – An International Perspective". The report provides a review of the different regulatory approaches related to cyber security and the potential tools available to regulators to respond to the cyber risk. It also describes some of the practices adopted by market participants.