White Collar Crime Forum 2017: key takeaways

Author: IFLR Correspondent | Published: 29 Jun 2017
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Corporate crime – the 2017 global outlook

  • Volumes of money laundered each year is between $2 trillion and $3.5 trillion depending on reports. This raises the question as to whether regulation is working and whether, a less prescriptive approach may be more successful.
  • Organised crime is still using the banks to launder, criminals just know the regulations and are engaging lawyers to assist.
  • Within five years financial institutions will move from a transaction monitoring system to institution-wide, pulling on third party data, KYC, and using it as an automated artificial intelligence verification of your investigation.
  • Individual responsibility is crossing the Atlantic to the UK and now enforcement bodies are targeting the most senior level executives possible.
  • Brexit will exacerbate the already pronounced staffing shortage in banks’ anti-corruption teams. Most banks are already 20% understaffed in their London function.
  • Frankfurt, Paris and other post-Brexit locations will offer even fewer qualified staff. This will result in huge pay rises and under – qualified staff.
  • The only way to fill this shortfall is investing in graduate programmes or training up candidates with matching skillsets but often no financial experience.

Bribery and corruption – promoting coordination and cohesion

  • What constitutes cooperation on DPAs is unclear for self-reporting obligations. Sir Brian Leveson, President of the Queen’s Bench Division, has issued guidance but one thing is clear: self-reporting does create cooperation credit.
  • Plans to scrap Serious Fraud Office (SFO) have been condemned. Many believe decision to be 'ridiculous’, considering the recent Rolls-Royce and Tesco DPAs where the body has made real progress. Pledge was not mentioned in queen’s speech so reprieve possible but morale thought to be low.
  • The SFO has gained worldwide recognition. It had solidified relationship with DoJ and other international peers but since the decision was taken the DoJ is thought to be sharing less intelligence with the body.
  • UK Bribery Act was motivated by a desire for more convictions. A wider number of crimes possible to convict companies on – anything with a dishonesty portion. It is worrying from a financial crimes perspective. FCA already has systems and control systems in place where fines are incurred without proper systems.

FOCUS: protecting and representing executives and board members

  • Since crash of 2008, there has been a political imperative to satisfy a perceived public demand to put heads on sticks. Seen in the Libor case onwards. But junior staff were often targeted and senior managers left alone. This has changed, with more DPAs now taking place and senior individuals more liable.
  • Panellists discussed the relationships between companies and executives during investigation processes. The UK is more guarded about sharing information on defence cases. The motive should be creating cooperative atmosphere with those conducting the investigation.
  • On cross-border investigations, if a company is going to make a decision based on the facts that have been found through interviews with the lawyer, then they need to be sure that the facts are reliable.
  • There are real dangers for companies conducting surprise interviews in adversarial circumstances where there are no lawyers and no documents to prepare. It can be a disaster for a company.
  • Travel risk for defendants was discussed. Advice was to contact the relevant prosecutor and flag with them the potential investigation and the desire for them to continue the ability to travel and face arrest.
  • Counsel must take a careful view of their client’s nationality and assess the countries in which he or she might reside. If for instance, they are a citizen of a country that does not extradite its own nationals it may be advisable to take residence there.

Corporate criminal offence - failure to prevent tax evasion

  • Tax is an issue that has moved into the boardroom – companies need to think about what their attitude to tax is, if and how they use offshore jurisdictions etc.
  • Following the implementation of the Criminal Finances Bill (CFB) 2016, HMRC and the FCA now have civil recovery powers – the power to seize property and/or assets. Interestingly, these kinds of powers are falling out of favour with the SFO.
  • The new offence of failure to prevent the criminal facilitation of tax evasion was introduced under the CFB – this applies to both UK and foreign tax evasion offences, and to corporate entities anywhere in the world, provided that the facilitation or part of it has taken place in the UK. This will only be an offence if it’s recognised as such as in the UK and in the relevant foreign jurisdiction.
  • Any associated person can be held liable – no contract is required between the company and the individual but it’s a question of behaviour.
  • The statutory defence to this offence is for the company to prove that reasonable procedures were in place to prevent the facilitation;
  • This 'reasonable procedures’ requirement raises the question of how far companies need to go to comply – it’s not enough to insert the word 'tax’ in those procedures but there needs to be a proactive process.
  • Steps to take include risk assessment, checking the proportionality of risk-based procedures, top-level commitment, due diligence, communications and training (both in the company, and with agents and subsidiaries), and ongoing monitoring and review;
  • Official figures from the National Audit Office show HMRC has been increasingly been prosecuting tax evasion: in 2006/7, there were 256 convictions but in 2014 there were 1,258;
  • What kind of taxes are most likely to lead to convictions? 37% of these were for VAT evasion (similar levels for tobacco duty evasion), 22% for income tax, 2.3% for money laundering. Evasion of corporate tax contributed to negligible amounts.  

Sanctions and anti-money laundering

  • Russia and Iran have seen sanctions imposed against them in recent years, because of heightened risks of money-laundering – this is especially relevant when to it comes to politically exposed persons and businesses in the financial services and retail sectors.
  • While both the EU and the US have imposed sanctions, their approaches diverge, and there have been calls for coordination.
  • When it comes to Iran, there has been little or no use of 'general licence H’ by banks – this allows subsidiaries of US parents to engage in certain activities not permissible to the US parent because of sanctions against a country.
  • But in spite of sanctions, including the 2015 JCPOA with Iran, a lot of EU clients that had operations in Iran before the sanctions kicked in are already back (snapback), and this poses practical compliance challenges. In the US, 183 NYSE-listed companies filed with the SEC that they were doing business in Iran.
  • The UK has agreed to implement the fourth Anti-Money Laundering Directive (4AMLD) in spite of Brexit, in part because of political reasons. But there isn’t a great disconnect between 4AMLD and current UK regulations anyway as both approaches are risk-based.
  • There is a clash of cultures between demands for privacy (GDPR etc) and enhanced due diligence requirements (Patriot Act in the US for instance) – though ironically, both these requirements emanate from the same authorities.