FCA investigations up by 75 per cent
In a speech delivered by Mark Steward, Director of Enforcement and Market Oversight at the FCA, it was announced that the FCA has commenced 75% more investigations this year in comparison to last. Mr Steward attributed this to three principal factors: more investigations into 'firms', extended reporting obligations under the Market Abuse Regulation, and the FCA's changes in approach in deciding whether to open an investigation.
FCA warns against ICOs and bitcoin investors
The FCA has issued a consumer warning about the risks of initial coin offerings ("ICOs"). In recent months it is believed that as much as £1 billion may have been invested in ICOs in addition to various cryptocurrencies being established. The FCA has summarised the risks of investing in ICOs to include:
- No investor protection: Investors are unlikely to have access to UK regulatory protections like the Financial Services Compensation Scheme or the Financial Ombudsman Service.
- Unregulated space: Most ICOs are not regulated by the FCA and many are based overseas.
- Price volatility: Like cryptocurrencies in general, the value of a token may be vulnerable to dramatic changes.
- Potential for fraud: Some issuers may not have the intention to use the funds raised in the way set out when the project was marketed.
- Inadequate documentation: Instead of a regulated prospectus, ICOs usually only provide a ‘white paper’. An ICO white paper may be unbalanced, incomplete or misleading.
- Early stage projects: Typically ICO projects are in a very early stage of development and their business models are experimental. There is a good chance of losing one's whole stake.
FinTech increases the risk of failure in bank compliance and AML
The Basel Committee on Banking Supervision ("BCBS") has published a paper which considers the rapid adoption of technology-driven innovation in financial services ("FinTech) and enabling technologies and how they may affect the banking industry and attributes of bank supervision. The report notes the risk FinTech poses for banks in meeting compliance requirements, particularly anti-money laundering ("AML") and counter terrorist financing obligations. The paper also notes that new areas of vulnerability may develop in light of cryptocurrencies and new technologies. Key observations and related recommendations on specific supervisory issues for banks and bank supervisors are considered. Comments on the paper are requested by 31 October 2017.
Future Partnership Paper on Foreign policy, defence and development: including proposals for co-operation on sanctions, cyber security, and the defence and security industries
The UK Government has released a paper outlining the UK’s proposals for a future partnership with the EU regarding foreign policy, defence and development. The paper highlights the UK’s shared interests and values with the EU regarding foreign policy and defence, and the UK Government’s offer and intention to work closely with the EU in the future in a partnership “unprecedented in its breadth”, and that is deeper than any other third country relationship. The paper offers a number of insights into the practical ways in which the UK envisages that such cooperation will be achieved after Brexit, including in relation to sanctions, cyber security, defence and security, development and broader foreign policy. Please click here for the full briefing.
Following publication of the paper, on 19 October 2017, the UK Government published the text of a proposed new Sanctions and Anti-Money Laundering Bill (the “Bill”), which seeks to create a post-Brexit domestic legislative framework for the imposition and enforcement of sanctions.
The new proposals would give the Government broad discretionary powers to impose a wide range of sanctions by way of secondary legislation, including asset freezes and other financial sanctions, travel bans and immigration restrictions and trade restrictions affecting goods and services. The Bill also provides for the creation of exceptions and licences in relation to any sanctions, including a new ability for the Government to issue general licences to permit particular types of conduct, such as (according to the impact assessment for the Bill) the operation of NGOs in Syria. Please click here for the full briefing.
Criminal Finances Act 2017 provisions come into force
On 12 October 2017, the government published the Criminal Finances Act 2017 (Commencement No. 2 and Transitional Provisions) Regulations 2017 (“the Regulations”), which will bring into force several more sections of the Criminal Finances Act 2017 (the “Act”) on 31 October 2017.
The Act received royal assent on 27 April 2017. It contains various measures intended to “tackle money laundering and corruption, recover the proceeds of crime and counter terrorist financing”. For more information, see our blog post here.
The first commencement regulations under the Act were introduced on 13 July 2017, and brought into effect the “failure to prevent the facilitation of tax evasion” offences from 30 September 2017. For more information on these offences, please see our blog post here.
The Regulations provide for the coming into force of a number of sections of the Act, including the changes to the Proceeds of Crime Act 2002 in relation to aspects of the suspicious activity reports (“SARs”) regime:
Extended moratorium period: A person making a SAR may request “appropriate consent”/a defence against money laundering from the National Crime Agency (“NCA”) to carry out a transaction. Currently, if the NCA refuses consent, the entity is subject to a moratorium period of 31 days, at which point deemed consent applies. From 31 October 2017, a senior officer (as defined) will be able to apply to the Crown Court to increase the moratorium in up to 31 day increments, up to a total of 217 days. It remains to be seen how frequently this provision will be used, but companies should be mindful of the potential challenges inherent in delaying a transaction for this length of time, and in avoiding tipping off the subject of the SAR in the moratorium period.
Information sharing: The Regulations also provide for the coming into force of the Act’s provisions relating to a new procedure for information sharing in the regulated sector. Provided a notification has been made to the NCA, regulated entities will be able to share information relating to suspected money laundering with each other for the purpose of developing a joint disclosure report to the NCA (known as a “super SAR”). This is intended to: (i) allow regulated entities access to more information before jointly submitting a SAR (and therefore the super SAR should, in theory, be more detailed than if each entity provided an individual report); and (ii) ease the administrative burden on the NCA by reducing the number of reports it will be required to process. The process is voluntary, and is subject to a number of detailed conditions, which may limit its usefulness outside certain defined circumstances (such as JIMLIT).
Other: Other provisions being brought into force at this time include section 12 of the Act (a power for the magistrates’ court to make Further Information Orders following a SAR), section 15 (new forfeiture powers), section 17 (certain amendments to SFO powers), and amendments to the SARs provisions of the Terrorism Act 2000 corresponding to those referred to above in relation to money laundering.
SFO speech on DPAs On 5 September 2015, the Serious Fraud Office ("SFO") published a speech by Alun Milford, General Counsel at the SFO, on deferred prosecution agreements ("DPAs"). In his speech Mr Milford stated that the SFO will not offer a DPA to a company which is likely to re-offend. He also discussed how the UK's DPA regime had changed, differences in comparison to the US model and the possibility of reform.
SFO secures seven convictions in F.H. Bertling Limited corruption case
The Serious Fraud Office ("SFO") has announced that the logistics and freight forwarding business F.H. Bertling Ltd and six current and former employees have been convicted of conspiracy to make corrupt payments to an agent of the Angolan state oil company, in relation to forwarding the firm’s business in Angola and a contract worth around $20 million. The SFO launched its investigation in 2014 and previously charged the company and four other individuals with bribery in relation to contracts to supply freight forwarding services relating to a North Sea exploration project between January 2010 and May 2013.
SFO charges ex-cheif executive officer and chief operating officer of Afren Following an investigation initiated in 2015, the SFO has brought charges against the ex-chief executive officer and chief operating officer of former FTSE 250 oil and gas exploration company, Afren. Osman Shahenshah and Shahid Ullah are accused of an alleged £45 million fraud which led to the collapse of the £2 billion company. The SFO announced that the men were alleged to have received payments via secret companies they controlled, relating to business deals in Nigeria worth over $400 million. The company is currently in administration.
ESAs finalise guidelines to prevent terrorist financing and money laundering in wire transfers
The Joint Committee of the European Supervisory Authorities ("ESAs") has published final guidelines to prevent the abuse of electronic funds transfers for terrorist financing and money laundering purposes. The guidelines explain what payment service providers ("PSPs") should do to comply with their obligations under Regulation (EU) 2015/847 to detect transfers of funds that lack information on the payer or the payee, and to determine whether to execute, reject or suspend such transfers of funds.
EU public prosecutor for fraud to be established
The establishment of a European public prosecutor to fight fraud against EU funds has been announced. The European Public Prosecutor's Office ("EPPO") will be an independent body responsible for investigating, prosecuting and bringing to justice those committing offences against the EU budget such as fraud against the EU structural funds or large-scale cross-border VAT fraud. Currently, only national authorities can investigate and prosecute EU-related fraud, but their jurisdiction ends at their national borders and existing bodies cannot be given the mandate to conduct criminal investigations. The EPPO will have exclusive and EU-wide jurisdiction to deal with suspicions of criminal behaviour falling within its remit.
NCA: SARs annual report 2017
The National Crime Agency (NCA) has published the annual report for 2017 on Suspicious Activity Reports (SARs), which covers the period of October 2015 to March 2017. Over the period, it is reported that 634,113 SARs were made with the NCA witnessing a yearly increase. The report also discusses the UK Financial Intelligence Unit's (UKFIU) realigned resources and structure to successfully manage the receipt and processing of the increasing volume of SARs, as well as the impact of the Criminal Finances Act on the same.