Serious Fraud Office secures second Deferred Prosecution Agreement  

London’s Southwark Crown Court recently approved only the second Deferred Prosecution Agreement (DPA) since the introduction of DPAs in 2014. Herbert Smith Freehills' London Corporate Crime and Investigations team negotiated the first DPA with the SFO, which was concluded in November 2015. The recent announcement of the UK’s second DPA indicates that DPAs are likely to be an important tool in the SFO’s armoury as it pursues corporates alleged to have committed economic or financial crimes. Our full e-bulletin is available here.  

SFO investigation into Airbus Group

The SFO has opened criminal investigation into allegations of fraud, bribery and corruption in the civil aviation business of Airbus Group.  These allegations relate to irregularities concerning third party consultants.  

FCA policy statement on financial crime reporting  

The FCA has published a policy statement (PS16/19) on Financial Crime Reporting. The policy statement summarises feedback received on Chapter 6 of CP15/42 and presents the final rules and implementation timescale for the reporting requirement. The FCA consulted on its proposal to introduce a financial crime return (REP-CRIM) in December 2015. The policy statement contains the Supervision Manual (Financial Crime Report) Instrument 2016, which will come into force on 31 December 2016.  

FCA – Anti-money Laundering Annual Report 2015/16  

The FCA has published a report on its anti-money laundering work over the last year. The report includes:  

  • developments in its anti-money laundering (AML) supervision strategy;
  • findings and outcomes from its recent specialist supervision work;
  • policy developments in the last year;
  • independent assessments of its AML supervision; and
  • how the FCA cooperates with its partners both at home and overseas.

Deadline for implementing FCA and PRA whistleblowing rules  

Under the whistleblowing rules published by the FCA and PRA back in October 2015, relevant firms were required to implement effective internal whistleblowing arrangements by 7 September 2016. The arrangements must go further than the statutory whistleblowing protection available to workers and therefore even firms with pre-existing policies are likely to need to update them.   

The responsibility for overseeing the new arrangements lies with the "whistleblowers' champion", a senior manager who should have been appointed by 7 March 2016 (coinciding with the implementation of the Senior Managers Regime, Certification Regime and Senior Insurance Managers Regime).   

Our full briefing discussing the implications of the new rules, and highlighting action points for firms to consider now, is available here.  

FOS August Newsletter  

The Financial Ombudsman Service's ("FOS") August newsletter contains several case studies on the topic of fraud, and focuses on the challenges posed by new technologies in this domain. The FOS notes that protecting customers is high on the agenda of financial businesses and that ensuring that technology and other safeguards keep one step ahead of scammers must be part of efforts to combat increasingly sophisticated crime. Awareness is also considered a key element of preventative efforts and the Financial Conduct Authority ("FCA") has issued advice on some such issues, including situations in which fraudsters pose as legitimate companies in order to obtain personal information. Although an individual generally needs to be a customer of a business for the FOS to investigate a complaint of fraud, the FOS can also look into certain aspects of a complaint against the "receiving" bank to which funds fraudulently obtained have been transferred.  

HMT - money laundering and terrorist financing controls  

HM Treasury (HMT) has published an updated advisory notice on money laundering and terrorist financing controls in overseas jurisdictions, taking into account statements published by the Financial Action Task Force (FATF) on 24 June 2016.

New proposed measures to tackle tax avoidance – including penalties for "enablers"  

In August 2016, HMRC issued a consultation document, "Strengthening tax avoidance sanctions and deterrents: discussion document", containing proposals for what it describes as "tough penalties" targeted at "enablers of tax avoidance", namely accountants, tax planners and other advisers. The consultation proposes a new penalty for those who design, market or facilitate the use of tax avoidance arrangements which are defeated by HMRC. In announcing the consultation, the Financial Secretary to the Treasury, Jane Ellison, stated that those who advise on, or facilitate, tax avoidance schemes currently face little risk and that the Government is seeking to address this by expanding its efforts to target all those in the "supply chain" in order to root out tax avoidance "at the source". The proposed penalty is a fine of the higher of 100% of the tax evaded, or £3,000, for those who know their actions will, or are likely to, enable a person to carry out offshore evasion or non-compliance (where the evader is charged with a penalty or is criminally prosecuted).  The government also proposes including an option to name enablers subject to the new penalty. These penalties would be imposed irrespective of the final penalty position of the user of any tax avoidance arrangement if the scheme is defeated.   

The consultation document also seeks to clarify the rules around whether proven tax avoiders have taken reasonable care to ensure their tax returns do not contain inaccuracies, in an effort to simplify the enforcement of penalties when avoidance schemes are defeated.  

The closing date for comments is 12 October 2016.

HMICS CCU assurance review  

HM Inspectorate of Constabulary in Scotland has published an assurance review, which assesses the state, effectiveness and efficiency of Police Scotland's counter corruption unit (CCU). The review was requested by the Scottish Police Authority (SPA) in response to a finding by the Interception of Communications Commissioner that there had been contraventions of the Acquisition and Disclosure of Communications Data, Code of Practice 2015 in respect of five applications for communications data submitted by Police Scotland. These related to one investigation being undertaken by Police Scotland’s CCU. The review highlights some areas for immediate action and sets out recommendations. As a result of the review, Police Scotland will be asked to create an action plan in order that the recommendations are taken forward.  

EBA opinion on proposal to bring virtual currency entities in the scope of MLD IV  

The EBA has published an opinion on the Commission's proposal to bring virtual currency exchange platforms and custodian wallet providers within the scope of the fourth Anti-Money Laundering Directive (MLD IV). The Authority also makes several recommendations aimed at supporting the consistent pan-EU implementation and supervision of the proposals that the Commission had published on 5 July 2016.

MLD4 – delegated regulation  

The European Commission has adopted a delegated regulation supplementing the Fourth Money Laundering Directive (MLD4) by identifying high-risk third countries with strategic deficiencies. The regulation is accompanied by an Annex.  The delegated regulation will be published in the Official Journal if the European Parliament and Council do not express objections during the review period.  

MLD4 – impact assessment  

The European Commission has published its impact assessment accompanying the proposal for a Directive amending the fourth Money Laundering Directive (MLD4) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.   

MLD4 – proposed amendments  

The European Commission has adopted a proposal to amend the fourth Money Laundering Directive (MLD4) and make consequential changes to relevant company law rules under Directive 2009/101/EC.  The proposal aims to reinforce EU rules on anti-money laundering to counter terrorist financing and increase transparency around certain ownership structures.  

The European Commission has also published a Questions and Answers document and a factsheet on the proposals.   

Transparency International guidance on managing third party risk  

Transparency International has published guidance for companies on third party anti-bribery management. The guidance provides practical advice on addressing the challenges of managing third party bribery risk. The guidance is part of a continuing series of anti-bribery publications by Transparency International.  

FATF plenary meeting  

The Financial Action Task Force (FATF) has published the outcomes of its plenary meeting in Busan Korea on 22-24 June 2016. The main issues dealt with at the meeting included:  

  • work on terrorist financing;
  • two public documents identifying jurisdictions that may pose a risk to the international financial system;
  • the implementation of the FATF Standard on beneficial ownership information on legal persons and legal arrangements;
  • consolidation of FATF Standards on information sharing;
  • the mutual evaluation reports of Austria, Canada and Singapore;
  • Brazil's progress in addressing deficiencies identified in its mutual evaluation reports;
  • an update on anti-money laundering/counter-terrorism financing (AML/CFT) improvements in Myanmar and Papua New Guinea;
  • developments in the decline of correspondent banking; and
  • the establishment of the FATF Training and Research Institute (TREIN).

FATF objectives 2016/17

FATF has published its objectives for the period from June 2016 to June 2017. During this period, FATF will prioritise activity in the following areas:  

  • counter terrorist financing
  • enhancing transparency
  • outreach to the FinTech community
  • effective implementation of the FATF Standards
  • increased operational focus
  • enhanced international standing

FATF identifies jurisdictions with AML/CFT deficiencies

As part of its on-going review of compliance with the AML/CFT standards, FATF has identified the following jurisdictions which have strategic AML/CFT deficiencies for which they have developed an action plan with the FATF:

  • Afghanistan
  • Bosnia and Herzegovina
  • Guyana
  • Iraq
  • Lao PDR
  • Syria
  • Uganda
  • Vanuatu
  • Yemen

A large number of jurisdictions have not yet been reviewed by the FATF. The FATF continues to identify additional jurisdictions, on an on-going basis, that pose a risk to the international financial system.

IMF discussion note on the withdrawal of CRBs

The International Monetary Fund has published a discussion note on the withdrawal of correspondent banking relationships. The discussion paper sets out how correspondent banking relationships (CBRs), which enable the provision of domestic and cross-border payments, have been terminated in some jurisdictions following the global financial crisis. According to the paper, coordinated efforts by the public and private sectors are called for to mitigate the risk of financial exclusion and the potential negative impact on financial stability. These efforts should include the strengthening of regulatory and supervisory frameworks in line with international standards, including those for AML/CFT.