The Netherlands | News
Financial Markets Amendment Bill 2014
This bill has been submitted to the Second Chamber of Parliament and introduces the following changes:
- The supervision on financial reporting will be improved when the bill is enacted. The AFM may, for example, force supervised companies via the Enterprise Chamber to provide further explanation in their financial reports.
- Financial supervisors may pass on confidential information received in carrying out their supervisory tasks to the following Dutch agencies: the General Intelligence and Security Service, the Tax and Customs Administration, Fiscal Intelligence and Investigation Service, National Police Force, Financial Supervision Office, Financial Intelligence Unit, and Public Prosecution Service.
- A provision will be added to the Act on the prevention of money laundering and terrorism financing that brokers must also include their client's counterparty in the client audit, in accordance with the requirements of the Financial Action Task Force (FATF).
New bill on computer criminality allows decryption orders
A new Computer Criminality III Bill was published in May 2013, enabling the Public Prosecution Service to obtain an order to unlock encrypted electronic information. Such 'decryption order' may be applied amongst others where there is a suspicion of terrorist activities where encrypted electronic information has been used. Suspects failing to comply with the order could face a maximum prison term of three years or a maximum fine of EUR 19,500. The introduction of a decryption order for suspects has received much criticism as it could arguably be at odds with rules against self-incrimination arising from the right to a fair trial.
The bill also extends the means of investigating computerised materials. New and rather radical powers are introduced to remotely and secretly access computerised data, i.e. to hack into computers. These powers include not only blocking or transferring data such as e-mail messages containing information relating to criminal activities but also to systematic observation or communications interception. These powers may only be exercised where the investigation urgently requires this and have to be based on an order by the Public Prosecutor authorised by the Examining Judge. The reason for introducing these new powers is that as outlined in the bill, criminals increasingly use encryption of electronic data, different wireless networks and Cloud services.
A far-reaching element of the bill is the possibility of extraterritorial application of the hacking powers. Data found in the course of an investigation may also be blocked or transferred if the locations of the data, corresponding IP address, or state involved in the data storage or processing is unknown.
Agreement on access to a lawyer during police interviews
Suspects should have access to a lawyer from the first police interview until the end of the criminal proceedings. The European Parliament and EU member states recently reached agreement on this. According to the proposed directive, communications between the suspect and his lawyer are confidential. In addition, a suspect has the right to inform at least one family member or his employer about his arrest. The proposals also provide for contact between the suspect and the consulate of his home country. The proposals form part of a set of measures safeguarding the right to a fair trial in the entire EU (see RCE Newsletter July 2011 for more information.) The directive will have to be formally adopted by the European Parliament and the Ministers of Justice before entering into force in 2015.
AFM can send letters asking for copies
The District Court of Rotterdam recently ruled that the AFM can ask for copies of business documents by sending a letter to that effect. The District Court reversed an earlier decision by a preliminary relief judge on this point. This means that the AFM will resume its practice of sending letters to companies or individuals asking for copies of certain documents during investigations. The recipients of these letters have a duty to cooperate.
AFM issues fine of KPMG
The Rotterdam District Court, on 30 May 2013, upheld fines issued by the AFM to KPMG in 2011. The fines were levied because KPMG had failed to take adequate policy measures and had conducted incorrect procedures with regard to engagement quality control review according to the AFM in 2008 and 2009.
AFM fines director of Floresteca
The AFM issued a EUR 96,000 fine to the "indirect" director of Floresteca BV on 7 March 2013 for being de facto in control of a violation of the FMSA. The violation consisted of offering bonds to the public without an AFM-approved prospectus. The person in question was directly involved in the violation as he personally signed at least 189 agreements with investors. According to the AFM, he was aware of the violation and in a position to stop it, but failed to do so.
AFM fines Quotiënt Groep B.V.
Quotiënt Groep B.V. was fined EUR 25,000 by the AFM on 20 December 2012 for failing to conduct its business with the necessary integrity. The credit broker allegedly charged visiting fees to consumers. This is prohibited. Financial service providers are not allowed to charge a fee for credit brokerage as they receive a continuous fee from the credit providers. The AFM based the amount of the fine on the size of the Quotiënt group.
AFM appeals District Court's reversal of fines
The AFM is appealing a recent decision of the Rotterdam District Court that the AFM wrongly issued two fines for market manipulation, totalling EUR 24,000, in 2011.
The case revolved around two e-mails that an MF Global trader sent via the Bloomberg platform to several people within and outside MF Global in 2009. Some of his colleagues also forwarded these e-mails to various market parties. The e-mails stated that Fortis would need much more money than it would raise in its rights issue announced in June 2008 and because of this there would be an extra share issue. The e-mails also mentioned what the exchange ratio / exercise price of the newly issued shares would be. The AFM believed that this information sent out or might send out an incorrect or misleading signal and imposed two fines on the trader for market manipulation.
The Rotterdam District Court reversed the fines because it was of the view that the information had not sent out an incorrect or misleading signal. The information, i.e. two sales commentaries, contained such a number of subjective elements that it clearly concerned an opinion.
International | News
Global trends in anti-bribery and anti-corruption
Anti-bribery and corruption continues to be a high priority for policymakers around the globe. The first half of 2013 shows that the battle against bribery and corruption continues in various jurisdictions through the introduction of new laws and policies. We outline below recent developments.
In February, Canada introduced amendments to strengthen its anti-corruption laws. Once amended, the Corruption of Foreign Public Officials Act will no longer require a territorial nexus between Canada and the offence, significantly broadening the scope of enforcement. Furthermore, a books and records offence is introduced, criminalising concealment of bribery in company records. Other changes include the removal of the exception for facilitation payments and an increase in penalties.
Russia's new anti-corruption law, which entered into force 1 January 2013, requires companies to set up compliance programmes. Unlike the US Foreign Corrupt Practices Act ("FCPA") and the UK Bribery Act, the Russian law does not provide for an 'adequate procedures' defence in the event of a compliance failure.
China introduced new rules on obtaining records of bribery-related investigations and convictions from local authorities. The new Rules on Queries on Bribery Records which entered into force on 6 February broaden the scope of those parties who may request access to the records, now also including foreign companies and individuals. The Rules expand possibilities for foreign companies to conduct pre-employment and third-party supplier criminal background checks.
On 19 January 2013 Colombia acceded to the Organisation for Economic Co-operation and Development ("OECD") Anti-Bribery Convention, bringing the total number of parties to the convention to 40. In recent months the OECD has issued several reports on the implementation of the Convention in member countries. It specifically called upon Austria, the Czech Republic, Denmark, the Netherlands and Spain to step up their anti-bribery efforts.
African officials met in February 2013 to establish an organisation to fight corruption. Expected to be launched officially in September, the African Organisation of Public Accounts Committee ("AfroPAC") aims to enable information-sharing among nations and to guide anti-corruption enforcement efforts on the African continent. AfroPAC will be based in Tanzania.
SEC signs non-prosecution agreement involving FCPA misconduct
The Department of Justice ("DoJ") announced on 22 April 2013 that Ralph Lauren Corporation ("RLC") had agreed to pay a USD 882,000 penalty to resolve allegations that it had violated the FCPA by bribing government officials in Argentina. These alleged bribes were made to obtain improper customs clearance of merchandise. Due to the company's prompt self-reporting of the violations, the Security Exchange Commission ("SEC") decided not to charge RLC with violations of the FCPA and announced a non-prosecution agreement. The misconduct of RLC was uncovered in an internal review undertaken by the company and the company promptly reported it to the SEC.
Allegedly, the manager of RLC’s subsidiary in Argentina had bribed customs officials in Argentina over a five-year period with a view to improperly obtaining the paperwork necessary for goods to clear customs, to secure clearance of items without the necessary paperwork and clearance of prohibited items. RLC also completely avoided inspection on some occasions. RLC’s employee disguised the payments by funnelling them through a customs clearance agency which created fake invoices to justify the improper payments. During these five years, RLC did not have an anti-corruption programme and did not provide any anti-corruption training or oversight with respect to its subsidiary in Argentina.
French oil and gas company charged in international bribery scheme
Total, S.A. ("Total"), a French oil and gas company, reached a settlement with the U.S. DoJ on 28 May 2013 by agreeing to pay an amount of USD 245 million. The DoJ charged Total with making illegal payments through third parties to a government official in Iran to obtain valuable oil and gas concessions. Total falls under the FCPA since it is an issuer on the New York Stock Exchange. According to the DoJ, Total corruptly paid about USD 60 million in bribes in order to encourage an Iranian official to use his influence to obtain and retain lucrative oil rights in Iranian oil and gas fields. The DoJ stated that the unlawful payments, contrary to Total's description as “business development expenses”, were bribes designed to corruptly influence a foreign official.
Total agreed with the DoJ to pay a fine of USD 245 million, which amount was determined by using the 2012 United States Sentencing Guidelines. Total also agreed to cooperate with the DoJ to develop an independent corporate compliance monitor and to continue to implement an enhanced compliance program designed to prevent and detect FCPA violations. Total in addition entered into a cease and desist order with the SEC, according to which Total agreed to pay an additional USD 153 million in disgorgement and prejudgment interest. French enforcement authorities also announced that they had requested that Total, Total’s Chairman and Chief Executive Officer, and two additional individuals be referred to the French Criminal Court for violations of French law, including France’s foreign bribery law.
Parker Drilling Company agrees to fine in connection with FCPA investigations
The DoJ announced on 16 April 2013 that Parker Drilling Company had agreed to pay a USD 11.76 million fine to resolve charges related to the FCPA for authorising payment to an intermediary. The company knew that according to the announcement the payment would be used to corruptly influence the decisions of a Nigerian governmental panel reviewing Parker Drilling's adherence to Nigerian customs and tax laws.
San Francisco investment banker pleads guilty to insider trading
A former San Francisco investment banker and his friend pleaded guilty to their role in an insider trading scheme involving two impending corporate mergers. According to the plea agreements, the investment banker had disclosed insider information to his friend about two impending mergers involving clients of the company that he worked at. The friend, a businessman, subsequently used the information to buy shares. They are both scheduled for sentencing on 23 July 2013. The maximum penalty for conspiracy to commit securities fraud is five years in prison and the maximum penalty for securities fraud is 20 years in prison.
Toronto investment banker charged with insider trading
An investment banker in Toronto was recently charged by the SEC with insider trading. According to the SEC, the banker used information that he obtained through his job of pitching investment ideas to the Canada Pension Plan Investment Board (CPPIB). Allegedly, the CPPIB was one of the banker's top clients at that time. The banker agreed to settle the charges by paying more than USD 340,000.
Denver-based businessman charged with insider trading
The SEC recently charged a Denver-based businessman with insider trading. According to the SEC, the businessman obtained inside information about an oil and gas company ahead of the company's announcement that it had secured a USD 684 million investment from a private investment firm. The SEC also charged the source (a former CEO) and another trader in this insider trading investigation. The businessman subsequently settled the charges by paying nearly USD 900,000.
Former KPMG partner and a friend charged with insider trading
Recently the SEC charged the former partner in charge of KPMG's Pacific Southwest audit practice and a friend with insider trading based on non-public information about the firm's clients. According to the SEC, the former partner tipped his friend with confidential details about five KPMG audit clients. The tips enabled his friend to make more than USD 1.2 million in illicit profits trading ahead of earnings or merger announcements.
European Union reaches agreement on mining industry transparency
The European Commission struck a deal on 9 April 2013 on mandatory disclosure of payments made to governments by companies in the extractive industry and loggers of primary forests. The requirements apply to both public and private companies which meet or exceed two of the three following criteria: turnover of EUR 40 million, assets of EUR 20 million or 250 employees. These companies will be required to publicly disclose all payments above EUR 100,000 to governments of countries in which they operate. Payments subject to disclosure include taxes, royalties, licences, concessions, and other payments.
The United States 2010 Dodd-Frank Act has similar obligations. Under the 2012 SEC clarification all payments above USD 100,000 (EUR 77,000) made to governments must be disclosed. However, these rules apply only to public companies, while the EU rules will apply to both public and private companies.
European Court extends scope of financial transactions disclosure obligations
The European Court ruled on 25 April 2013 that national banking supervisors in the EU are entitled to information about suspicious clients of banks that are not established in their territory but do provide financial services there from another EU country. The key question in this case was: does a bank have to provide information to the supervisor in the EU country of establishment only, or also to the supervisory authority in the EU country where it operates?
The background of this ruling was a request by the Spanish banking supervisor in January 2007 for information about clients of Jyske Bank Gibraltar. The reason for the request was that names of intermediaries had emerged in numerous real estate transactions on the Spanish Costa del Sol and that these names may be connected to money laundering activities. The bank provided part of the information in June 2007, but it refused to disclose information on its clients' identity and submit copies of suspicious transactions in Spain, referring to Gibraltar's banking secrecy rules. The bank argued that its only disclosure obligations were vis-à-vis Gibraltar's financial investigation unit. The Spanish Council of Ministers then issued two public reprimands to the bank and imposed two fines of EUR 1.7 million in total, on the basis that the bank had failed to comply with the Spanish rules on disclosure. The bank appealed this decision before the Spanish Supreme Court, which referred the case to the European Court.
EU and US move to improve cybersecurity
On 7 February the European Commission and the High Representative of the Union for Foreign Affairs and Security Policy presented the Cybersecurity Strategy of the European Union and a Proposal for a Directive on Network and Information Security (the "Directive" and "NIS"). The Strategy outlines the EU's vision on how best to prevent and respond to cyber disruptions and attacks. The proposed Directive instructs member states to adopt a NIS strategy and institute an authority responsible for handling NIS risks and incidents. The Directive creates communication channels through which member states can cooperate and share early warnings on risks and incidents.
Notably, the proposed Directive imposes obligations on operators of critical infrastructures in financial, transport, energy and health sectors and providers of information society services. Under the Directive, these entities will have to adopt risk management practices and report major security incidents on their core services to NIS authorities.
The Obama Administration, on 12 February 2013, published the Executive Order on Improving Critical Infrastructure Cybersecurity (the "Order") and the Presidential Policy Directive on Critical Infrastructure Security and Resilience (the "PPD").
The Order and the PPD seek to improve security and resilience of critical infrastructure through a collaborative effort with government agencies and operators of critical infrastructure. The Order requires the development of a set of standards, methodologies, procedures, and processes to address cyber risks. While implementation of these standards and guidelines remains voluntary, the Order does direct agencies to "determine if current cybersecurity regulatory requirements are sufficient given current and projected risks" and to make recommendations if they are deemed to be insufficient.
Cybersecurity has been put firmly on the political agenda and as the EU and US intensify their involvement more regulatory requirements are to be expected.
Trends in export controls
Export control laws have been significantly updated on both sides of the Atlantic in recent months.
President Obama signed an executive order on 7 and 8 March 2013 effectively restructuring the delegated presidential authorities over the administration of certain export and import controls. The executive order consolidates and delegates to the Secretary of State all licensing and registration requirements for brokering of defence articles and services on the State or ATF lists.
In Europe, Germany adopted a revision of the Foreign Trade and Payments Act, which directs export controls. The new legislation differentiates between intentional and negligent violations of export control law. Under the new law, an intentional breach of the duty to request authorisation for dual use items will be treated as a criminal offence with sentences of up to ten years. At the discretion of the authorities negligent violations of the law could lead to administrative offences. The law also introduces voluntary self-disclosure where under certain circumstances penalties for violations may be reduced. And unlike the former legislation, exporters can now be held liable for changes in EU law, even though these changes have not been published in the German legal gazette. This means exporters need to keep abreast of developments in EU law.
Californian Health Company settles in exports to Kuwait
Californian health food and nutritional supplement company, SAN Corporation ("SAN") has agreed to a USD 22,500 settlement with the Office of Foreign Assets Control ("OFAC"), after being charged with selling nutritional supplements to an entity in Kuwait. SAN allegedly violated the Iranian Transactions and Sanctions Regulations ("ITSR"), ‘with knowledge that such goods were intended for end use in Iran'. According to OFAC, SAN acted with reckless disregard for US sanctions requirements when it sold the particular goods to an entity in Kuwait, knowing that the goods were destined for Iran, and having been informed by the Iranian end user that shipping to Iran required an OFAC licence. Accordingly, SAN had not fully cooperated with OFAC’s investigation by not providing complete and/or accurate statements to OFAC. The goods that SAN sold for end use in Iran appear to have been eligible for a licence under the Trade Sanctions Reform and Export Enhancement Act of 2000.
Deloitte suspended for Standard Chartered 'violations'
Deloitte Financial Advisory Services LLP ("Deloitte FAS"), on 18 June 2013, agreed with the New York State Department of Financial Services ("DFS") to a suspension for one year from doing consulting work in New York State and the payment of USD 10 million. Deloitte agreed to the terms of the agreement after having been charged with violations of banking law by knowingly disclosing confidential supervisory information to Standard Chartered Bank ("SCB") in 2004 and 2005.
SCB at that time was under investigation by the DFS for apparent violations related to money laundering and illegal U.S. dollar clearing activities on behalf of foreign entities subject to U.S. economic sanctions leading up to a USD 340 million settlement between SCB and the DFS in 2012.
During the investigation SCB was obliged to retain a qualified independent consulting firm to conduct an historical review of account and transaction activities and engaged the predecessor entity of Deloitte FAS to conduct the review. According to the DFS, Deloitte FAS had removed recommendations regarding 'cover payments' from its final report during the SCB engagement and thereby did not demonstrate the necessary autonomy and objectivity that is required from consultants performing regulatory compliance working for entities supervised by the DFS.
The DFS added that it had found no evidence that Deloitte FAS intentionally aided and abetted or otherwise unlawfully conspired with SCB to launder money on behalf of sanctioned entities.
Bank of Tokyo-Mitsubishi reaches settlement with DFS
Bank of Tokyo-Mitsubishi ("BTMU") has agreed to a USD 250 million settlement with the regulator DFS. DFS had also reached a settlement with Standard Chartered Bank at the end of 2012 (see RCE Newsletter October 2013), and with Deloitte FAS (see above). DFS stated that BTMU had violated New York Banking Law in connection with countries and entities that are subject to international sanctions, including the regimes of Iran, Sudan and Myanmar.
According to DFS's press statement: "BTMU moved between 2002 and 2007, billions of dollars through New York for government and privately owned entities in Iran, Sudan and Myanmar, and entities on the Specially Designated Nationals (SDN) list issued by the OFAC."
As part of the settlement, BTMU has to make a payment of USD 250 million to the State of New York, and it also agreed on engaging an independent consultant. This independent consultant will report directly to DFS and monitor risk controls related to BTMU's sanctions compliance in its New York branch and its implementation of corrective measures.
DFS is becoming increasingly active as a regulator in relation to US economic sanctions legislation.