FINANCIAL CRIME DIGEST
May 2015
MAKE INFORMED DECISIONS
FINANCIAL CRIME DIGEST
Welcome to the May 2015 Financial Crime Digest,
covering updates from April 2015.
This month, we cover a number of updates from the
FCA, including guidance on market abuse regulations,
further clarification on the FCA’s approach to derisking, and guidance on financial crime systems and
controls. We also cover updates on the fourth Money
Laundering Directive and the Wire Transfer Regulation,
as well as a recent Supreme Court ruling on the
meaning of “criminal property” under the Proceeds of
Crime Act 2002. In addition, we provide a round-up of
recent press and media coverage of
anti-money laundering, sanctions,
bribery & corruption, fraud, and insider
trading issues.
TECHNICAL AND REGULATORY UPDATES
FCA publishes one-minute guide on Market Abuse Regulation
The FCA has published a one-minute guide on the Market Abuse
Regulation (596/2014/EU) (MAR), which will repeal and replace the
current Market Abuse Directive (2003/6/EC) and its implementing
legislation from 3 July 2016. The one-minute guide contains
information on the objective of the regulation, its application and
key requirements.
MAR aims to strengthen the existing UK market abuse framework
by extending its scope to new markets, new platforms, and new
behaviours. It contains prohibitions for insider dealing and market
manipulation, and provisions to prevent and detect these.
The one-minute guide is HERE.
1
www.aperio-intelligence.com
FINANCIAL CRIME DIGEST
TECHNICAL AND REGULATORY UPDATES
European Commission publishes communication to Parliament concerning the Council’s
position on MLD4
In the communication, the Commission recognises that the Council’s position reflects the political
agreement that was reached between the European Parliament and the Council on 16 December 2014,
which represents a delicate but acceptable balance, as part of the overall compromise, regarding:
The provisions related to beneficial ownership
The provisions related to the level of
information: This information will be held in a
administrative pecuniary sanctions applicable
central register in each Member State, which
to financial institutions and to non-financial
constitutes an enhancement of transparency in
institutions: in the case of financial institutions,
line with the Commission's broader policies.
as regards legal persons, the level of maximum
However, as regards the specific provisions on
pecuniary sanctions shall be at least EUR 5
the access to this information, the Commission
million or 10% of the total annual turnover, and,
considers that the notion of “legitimate interest"
as regards natural persons, the maximum of
must be construed and understood in the light
pecuniary sanctions is to be of a least EUR 5
of the requirements flowing from Articles 7 and
million; in the case of non-financial institutions,
8 of the Charter of Fundamental Rights, in full
the maximum pecuniary sanctions is at least
respect of the rules on protection of personal
twice the amount of the benefit derived from the
data and the right to privacy.
breach, or at least EUR 1 million; and
The use of delegated acts, and not
implementing acts, to identify third-country
jurisdictions which have strategic deficiencies in
The Commission supports the results of inter-
their AML/CTF regimes.
institutional negotiations and can therefore
accept the Council’s position at first reading.
The procedure files for MLD4 and the Wire
Transfer Regulation have been updated and
now indicate a vote in plenary on 20 May 2015.
The European Parliament has published a draft
legislative proposal to approve the Council’s
position on MLD4, at second reading.
The communication from the Commission on
MLD4 is HERE
The procedure ﬁle on MLD4 is HERE
The draft recommendation for MLD4 is HERE
2
www.aperio-intelligence.com
FINANCIAL CRIME DIGEST
TECHNICAL AND REGULATORY UPDATES
European Commission publishes
communication to Parliament concerning the
Council’s position on Wire Transfer Regulation
Similar to its communication on MLD4, the
Commission in this communication recognises that
the Council’s position reflects the political
agreement that was reached between the European
Parliament and the Council on 16 December 2014.
The Commission states that the proposed Funds
Transfers Regulation lays down rules for payment
service providers to send information not only on the
payer, but also on the payee, throughout the payment
chain, for the purposes of prevention, investigation,
and detection of money laundering and terrorist
financing - and is, to a large extent, based on the new
Recommendation 16 on wire transfers adopted by
the Financial Action Task Force (FATF). It aims to
ensure that this international standard is transposed
uniformly throughout the Union and, in particular,
that there is no discrimination between situations
involving national payments within a Member State
and cross-border payments between Member States.
The Commission supports the results of interinstitutional negotiations and can therefore accept
the Council’s position at first reading.
The European Parliament has published a draft
legislative proposal to approve the Council’s position
on the Wire Transfer Regulation, at second reading.
The communication from the Commission on the
Wire Transfer Regulation is HERE
The procedure file on the Wire Transfer Regulation is
HERE
The draft recommendation on the Wire Transfer
Regulation is HERE
3
www.aperio-intelligence.com
FINANCIAL CRIME DIGEST
TECHNICAL AND REGULATORY UPDATES
FCA Final Guidance FG15/7 - guidance on
Derisking: FCA sets out its expectations
ﬁnancial crime systems and controls (and
feedback on GC14/7)
The FCA has released a statement regarding its
expectations of banks in relation to “derisking”.
The FCA in GC14/7 proposed including in its
It has stated that effective risk management need
Financial Crime Guide examples of good practice
not result in wholesale derisking, and that it
from the FCA’s thematic review of smaller banks’
expects banks to take an effective risk-based
AML and sanctions systems and controls, and the
approach. A risk-based approach does not require
anti-bribery and corruption systems and controls
banks to deal generically with whole categories of
in small commercial insurance intermediaries.
customers or potential customers. Instead, the
FCA expects banks to recognise that the risk
The FCA has now published a summary of the
feedback received, along with the Financial Crime
Guide (Amendment No. 3) Instrument 2015
associated with different individual business
relationships within a single broad category
varies, and to manage that risk appropriately.
(FCA2015/16), which contains some changes
from what was proposed. The instrument came
The FCA also states that it will consider “whether
into force on 27 April 2015. The FCA is in the
firms’ derisking strategies give rise to consumer
course of amending the Financial Crime Guide as
protection and/or competition issues”. It
provided in the instrument.
encourages banks to consider the FCA’s Financial
Crime Guidance, and also makes reference to its
Section 3 of Annexure A notes the new text that
has been added with regards to Source of Wealth,
approach to enforcement of breaches of AML
obligations.
Source of Funds and Enhanced Due Diligence.
The webpage is HERE.
The legal instrument is HERE
The feedback summary is HERE.
4
www.aperio-intelligence.com
FINANCIAL CRIME DIGEST
TECHNICAL AND REGULATORY UPDATES
Recent case - R v GH, [2015] UKSC 24:
Supreme Court case on the meaning of
“criminal property” for the purposes of
section 238(1) of the Proceeds of Crime
Act 2002
The Supreme Court held that:
l “Criminal property” in sections 327-329 of
POCA refers to property which already has the
quality of being “criminal property” (as defined
in section 340 of POCA) by reason of prior
The Supreme Court has allowed the prosecutor’s
criminal conduct, distinct from the conduct
appeal in a case concerning Section 238(1) of the
alleged to constitute the commission of the
Proceeds of Crime Act 2002 (entering into or
money laundering offence itself;
becoming concerned in an arrangement which he
knows or suspects would facilitate the retention,
use, or control of criminal property). The
judgement also has consequences for sections
327 and 329 of the legislation.
A fraudster, “B”, established four “ghost” websites,
falsely pretending to offer cut-price motor
insurance. In order to carry out this plan, he
recruited associates to open bank accounts for
channelling the proceeds. “H” was one such
associate, who opened two bank accounts.
Members of the public paid money into the bank
accounts for a non-existent motor insurance. The
prosecution alleged that “H” must have known, or
at least suspected, that “B” had a criminal
intention. The judge had ruled that “H” had no
case to answer on the grounds that at the time
l The Court of Appeal was correct to hold that it
does not matter whether criminal property
existed when the arrangement was first made;
l The character of the money paid by victims
into the accounts – although lawful at the
moment of payment – changed on being paid
into the bank accounts. The money became
criminal property in the hands of “B” by reason
of the fraud perpetrated on the victims. As
such, it is legitimate to regard “H” as entering
into or becoming concerned in an arrangement
to retain criminal property for the benefit of
another. Consequently, the ruling that “H” had
no case to answer was erroneous.
l The same reasoning applies to sections 327
and 329 of the Proceeds of Crime Act.
“H” entered into the arrangement, no criminal
property existed.
The judgment is HERE
The press release is HERE
5
www.aperio-intelligence.com
FINANCIAL CRIME DIGEST
TECHNICAL AND REGULATORY UPDATES
Transaction reporting failures - FCA ﬁnes
Merrill Lynch International GBP 13.2 million
The FCA has fined Merrill Lynch International GBP
13,285,900 for transaction reporting breaches
between November 2007 and November 2014.
The FCA final notice describes 11 different
breaches, and states that the firm reported a
number of less serious breaches that have also
been taken into account. The FCA finds the
breaches particularly serious in light of the fact
that the firm had previously received a private
warning in 2002 and a fine of GBP 150,000 in 2006
for failures in transaction reporting compliance.
The fine is the highest imposed by the FCA for
transaction reporting failures to date. The
LIBOR and EURIBOR - FCA ﬁnes Deutsche
Bank GBP 227 million
Regulator states that it has increased the penalty
per line of incorrect or non-reported data from
The FCA has fined Deutsche Bank AG GBP
GBP 1.00 to GBP 1.50 because it felt that the past
226,800,000 following its London Interbank
fines had not been high enough to achieve
Offered Rate (LIBOR) and Euro Interbank Offered
“credible deterrence”. The firm received an early
Rate (EURIBOR) investigations. The firm qualified
settlement discount of 30%, without which the
for an early settlement discount of 30%, without
fine would have been GBP 18,979,876.
which the fine would have been GBP 324 million.
The final notice is HERE
The FCA notes that serious misconduct by
The press release is HERE
Deutsche Bank led to breaches of Principles 5, 3
and 11 of the Authority’s Principles for
Businesses: first, through Deutsche Bank’s
attempted manipulation of LIBOR rates and
improper influence over LIBOR submissions;
second, through its systems and controls failings;
and third, through serious deficiencies in the way
Deutsche Bank dealt with the Authority in relation
to LIBOR matters. The direct involvement of
managers and senior managers in many aspects
of Deutsche Bank’s misconduct aggravated the
seriousness of the breaches.
The final notice is HERE
The press release is HERE
6
www.aperio-intelligence.com
FINANCIAL CRIME DIGEST
PRESS AND MEDIA: MONEY LAUNDERING
A Spanish investigative magistrate has opened a probe into possible money laundering at Banco de Madrid, a
unit of Banca Privada d’Andorra, which is accused by U.S. authorities of having assisted groups from China,
Russia and Venezuela to launder money. The National Court said that Judge Fernando Andreu had opened an
investigation into the bank and its seven directors following a complaint by a client stating that the bank made
itself available for clients to launder money, and minimised internal controls.
The former head of the International Monetary
Fund, Rodrigo Rato, was detained by customs
agents in Madrid in connection with possible
money laundering offences after he took
advantage of a tax amnesty in 2012 to repatriate
funds previously held offshore. His arrest follows
a wave of corruption allegations involving senior
Spanish politicians.
Panama’s national legislature has
approved a proposed law to
significantly tighten supervision of
more than a dozen non-financial
sectors involved in receiving the
proceeds from the sale of
narcotics, terrorism and
corruption. The Financial Action
Task Force last year placed
Panama on its “grey list” of
jurisdictions with major
deficiencies in tackling money
laundering and terrorist financing.
7
www.aperio-intelligence.com
FINANCIAL CRIME DIGEST
PRESS AND MEDIA: MONEY LAUNDERING
The Financial Action Task Force has issued
Switzerland’s Money Laundering Reporting Ofﬁce
Mutual Evaluation Reports of Australia and
(MROS) said it had received a record number of
Belgium. FATF found that Australia has a mature
suspicious activity reports in 2014. 1,753 reports
regime for combating money laundering and
were filed in 2014, a 24% increase on 2013 - and
terrorist financing, but certain key areas remain
the highest number recorded since MROS was
unaddressed. In relation to Belgium, FATF found it
founded in 1998. The office forwarded 72% of
also had a well-established regime for combatting
suspicious activity reports to prosecutors.
money laundering and terrorist financing, but
some elements are not in line with the 2012 FATF
Recommendations.
The U.S. Appeals Court has ruled by a narrow
Crédit Agricole must pay USD 9.8 million to a
margin that the European Union can pursue a
wealthy Greek family after losing a long-running
lawsuit against R.J. Reynolds, part of the U.S.
court battle involving allegations it failed to ask
tobacco company, for allegedly running a global
enough questions about a suspicious transaction
money laundering scheme that involved drug and
nearly 15 years ago. Under a UK Privy Council
cigarette smuggling. The European Union
decision in the case of Crédit Agricole
accuses R.J. Reynolds of having directed a
Corporation and Investment Bank (Appellant) v
decade-long scheme from the United States
Papadimitriou (Respondent) (Gibraltar), the court
involving the smuggling of illegal narcotics into
found that the use of a complex network of legal
Europe by Colombian and Russian organised
entities including companies in Panama, a
crime groups, laundering the proceeds of sale of
Liechtenstein trust, and a BVI company should
these drugs, and the use of these proceeds by
have alerted the bank to the risk of money
importers to buy R.J. Reynolds cigarettes. The
laundering. As a result, the bank should have
European Union claims that R.J. Reynolds
made enquiries about the underlying legal
violated the Racketeer Influenced and Corrupt
purpose of the arrangement, not just the source
Organizations Act, a U.S. anti-racketeering law.
of funds.
The lawsuit began in 2002.
8
www.aperio-intelligence.com
FINANCIAL CRIME DIGEST
PRESS AND MEDIA: BRIBERY & CORRUPTION
The SEC charged FLIR Systems, a large imaging
United Technologies Corp. said it received a
technology company, with violating the FCPA by
second subpoena from U.S. authorities seeking
financing a “world tour” of personal travel for
information about potential foreign bribery
Middle East government officials who were
violations. The subpoena from the U.S. Securities
influential in decisions to buy FLIR products.
and Exchange Commission seeks information
FLIR, which made more than USD 7 million in
relating to potential payments by an agent in
profits from the sales, agreed to pay USD 9.5
China that may have violated the U.S. Foreign
million to settle the charges.
Corrupt Practices Act.
A judge in Austria has refused an extradition
request from the U.S. for Dmitry Firtash, a
Ukrainian billionaire oligarch who is closely
associated with former Ukrainian president, Viktor
Yanukovych. Fitash made his fortune in the
notoriously corrupt Ukrainian gas industry and
has been charged by prosecutors in Chicago with
racketeering and other crimes. Firtash and his
associates are accused of having paid USD 18.5
million in bribes to officials in India to secure a
titanium-mining deal that never materialised.
Sinopec president Wang
Tianpu was the latest oil
executive to be caught up in
China’s widening corruption
probe. Tianpu was detained
by Communist party officials
on 27 April for suspected
“serious violations of
discipline and law”, and has
been detained by
Communist party officials as
China’s corruption probe
widens further.
9
www.aperio-intelligence.com
FINANCIAL CRIME DIGEST
PRESS AND MEDIA: SANCTIONS
The U.S. has removed a prominent businessman from its Myanmar sanctions list, in spite of doubts about
reforms in the Southeast Asian country. Win Aung, the head of Myanmar's chamber of commerce, whose
Dagon International construction firm won contracts to help build the country's capital of Naypyitaw, was
removed from the Specially Designated Nationals (SDN) and Blocked Persons list, the U.S. State
Department said in a statement.
Iranian President Hassan
The European Union has re-imposed sanctions on Bank Tajerat, an
Rouhani has said on state
Iranian bank, and 32 Iranian shipping companies, using new legal
television that Iran would not
grounds, after the measures were struck down by a European court.
accept a comprehensive
The move came days after Iran and six major powers reached a
nuclear deal with the major
framework agreement to end a long-running dispute over Iran's
powers unless all sanctions
nuclear programme. The EU's move is a signal that the 28-nation
imposed on Tehran were
bloc will keep up sanctions pressure on Iran until a final nuclear deal
lifted. Iran wants sanctions
is sealed.
that include nuclear-related
UN resolutions, as well as
U.S. and EU nuclear-related
economic sanctions, to be
lifted immediately. The U.S.
says sanctions against Iran
will be removed gradually.
Meanwhile, Russia has said
that it will go ahead with the
sale of S-300 missile
equipment to Iran in defiance
of UN sanctions. Russia had
originally blocked the sale in
2010 following imposition of
U.S. President Barack Obama has
ordered the creation of a programme
that would allow the government to
impose sanctions on foreign hackers.
Mr Obama said cyber-threats are "one of
the most serious economic and national
security challenges" that the U.S. faces.
The U.S. did not announce any specific
new sanctions, only the authority to
impose them in the future if it is
deemed necessary.
UN sanctions.
The U.S. Treasury announced in a statement that the Kodo-kai, a
major second-tier affiliate of the Yamaguchi-gumi, the largest of
Japan’s Yakuza crime syndicate, has been added to the United
States’ sanctions list. The sanctions freeze all U.S.-based assets
belonging to the 4,000 member Kodo-kai, and prohibit United States
persons or entities from dealing with the organisation and its
chairman, Teruaki Takeuchi.
10
www.aperio-intelligence.com
FINANCIAL CRIME DIGEST
PRESS AND MEDIA: SANCTIONS
The U.S. Treasury and Saudi Arabia have
The General Court of the European Union has
imposed sanctions on a charity fund alleged to
upheld the EU sanctions on Zimbabwe, saying
provide financing to "terrorist" groups including
the EU fairly targeted people and companies
Al-Qaeda, the Taliban, and Lashkar-e-Taiba. The
linked to the government there. The court’s
sanctions aim to disrupt the financing and
decision comes after many of the EU’s sanctions
operations of Al-Furqan Foundation Welfare
against Zimbabwe have been removed. Only
Trust, a charity group based in Peshawar,
President Robert Mugabe, his wife, and one
Pakistan. The Treasury said Al-Furqan is the
defence company remain subject to the asset
successor to the Pakistan branches of the
freeze and travel ban. An EU arms embargo also
Afghan Support Committee and Revival of
remains in effect. The sanctions challenge was
Islamic Heritage Society. Both were designated
lodged in 2012 by Zimbabwe’s Attorney-General
as global terrorist entities and listed on the
Johannes Tomana and 109 other individuals,
United Nations' Al-Qaeda sanctions list in 2002.
many of them senior-ranking government, police
and army officials.
11
www.aperio-intelligence.com
FINANCIAL CRIME DIGEST
PRESS AND MEDIA: FRAUD
An Indian court has sentenced the former head of
Satyam Computers and nine others to seven
years in prison in one of the country's biggest ever
corporate scandals. B Ramalinga Raju, who
founded the software services giant, denied
charges of conspiracy, cheating and forgery, but
admitted to accounting malpractices. Raju was
also fined USD 800,000. The collapse of Satyam
Computers in 2009 cost shareholders more than
USD 2 billion and rocked India's IT industry.
The heiress of the fashion and perfume house
Nina Ricci was sentenced to a year in prison and
ordered to pay heavy fines and back taxes for
having hidden millions of euros in HSBC bank
accounts in Switzerland. It was the first case
involving a famous name in the so-called Swiss
Leaks scandal.
U.S. authorities have arrested a former
investment adviser for JPMorgan Chase, Michael
Oppenheim, on charges he stole some USD 20
million from clients and put most of the money
into losing investments. Oppenheim faces federal
criminal charges of embezzlement and fraud in
the alleged scheme. The former New York Citybased investment adviser and broker advised 500
clients of the largest U.S. bank by assets, most of
whom were high net worth, according to a
Securities and Exchange Commission complaint
filing parallel fraud charges.
12
www.aperio-intelligence.com
FINANCIAL CRIME DIGEST
PRESS AND MEDIA: INSIDER TRADING
The U.S. Supreme Court has denied a legal
The Financial Conduct Authority has charged
submission by attorneys for Rajat Gupta, the
three individuals, Manjeet Singh Mohal, Reshim
former Goldman Sachs director and managing
Birk, and Pal Singh Sappal in relation to insider
partner of McKinsey & Co., in his bid to have the
dealing by dealing in securities. The FCA states
court review his 2012 conviction on insider
that the offences relate to trading in multinational
trading charges. Gupta will continue to serve his
IT firm Logica PLC shares in May and June 2012.
two-year prison term. He was found guilty of
illegally feeding non-public tips about Goldman
Sachs to Raj Rajaratnam, the co-founder of the
The Monetary Authority of Singapore has handed
Galleon Group hedge fund. Rajaratnam is serving
down its largest ever penalty for insider trading
an 11-year prison term for his role at the centre of
against the brother of a prominent businessman.
a broad insider trading scheme.
Lim Oon Cheng will pay a civil penalty of SGD
9.597 million for breaches of the Securities and
Futures Act. The amount includes a separate
The Securities and Exchange Commission has
penalty of SGD 50,000 for false trading. His niece,
filed fraud charges against Ifty Ahmed, a general
Lim Huey Yih, will have to pay SGD 2.241 million.
partner with venture capital firm Oak Investment
Lim Oon Cheng is reported to be the brother of
Partners, accusing him of participating in an
Lim Oon Kuin, founder of oil trading firm Hin
insider trading scheme that netted him USD 1.1
Leong Group, who was ranked No. 14 on Forbes'
million. Also charged was Amit Kanodia, a long-
list of Singapore's 50 richest people last year. Lim
time associate of Ahmed, who is described by the
Oon Cheng, who admitted insider trading, bought
SEC as “an entrepreneur and private equity
2.27 million shares in Singapore Petroleum
investor.” The SEC alleges that, by April 2013,
Company and 101,000 shares in Keppel
India-based Apollo Tyres was engaged in serious
Corporation between 15 May and 22 May 2009.
negotiations to acquire Cooper Tire, of Findlay,
He did so while in possession of price-sensitive
Ohio. Although the acquisition was never
and non-public information relating to the
completed, the complaint alleges that Cooper
acquisition of SPC shares by PetroChina
Tire’s stock price jumped 41 percent when the
International (Singapore) from Keppel, and
acquisition was announced in June 2013. The
PetroChina's mandatory general offer for
SEC alleges that Kanodia tipped Ahmed and
SPC shares.
another friend prior to the acquisition
announcement after learning of the deal from his
wife, then the general counsel at Apollo, who was
intimately involved in Apollo’s efforts to acquire
Cooper Tire.
13
www.aperio-intelligence.com
ABOUT APERIO INTELLIGENCE
We are a corporate intelligence advisory firm based in the
City of London. We specialise in: conducting enhanced
due diligence on high risk customers; integrity due
diligence on critical acquisitions and investments; market
entry and political risk analysis; and investigations.
Our clients include some of the world’s leading regulated
financial institutions. Our team has decades of collective
experience in gathering and assessing intelligence to help
clients to make more informed decisions.
For further information, please contact:
Adrian Ford - 020 7073 0432
Greg Brown - 020 7073 0433
Aperio Intelligence Limited
125 Old Broad Street
London EC2N 1AR
t: +44 (0)20 7073 0430
e: [email protected]
www.aperio-intelligence.com
Registered Address: Carlton House, 101 New London Road, Chelmsford, Essex CM2 0PP. Registered in England & Wales: 09164101
VAT: GB 195 2320 10
© Aperio Intelligence Limited 2015. All rights reserved. Aperio Intelligence and the Aperio logo are registered trademarks of Aperio Intelligence Limited.