FS Enforcement Express
March 2017 Edition
Updates
•17 banks based in the UK or with branches in the UK are facing
questions over their knowledge of the scheme.
UK steps up anti-money laundering crackdown with new
watchdog
•Kirkby said the government are “determined to make Britain the
most difficult place in the world for international crime networks
to channel their finances”.
•Earlier this month, the UK government announced it is setting up
a new anti-money laundering watchdog, the Office for
Professional Body Anti-Money Laundering Supervision, OPBAS.
Financial Conduct Authority relaunches probe into Barclays’
cash call
•OPBAS will sit within the existing Financial Conduct Authority
(FCA), and be operational by the beginning of 2018. The new
body will be funded through a fee paid for by the professional
bodies’ anti-money laundering supervisors.
•It is intended that the new office will counter the often
conflicting guidance currently put out by the 25 different
organisations that supervise various sectors which are at risk of
being used to facilitate money laundering and terrorist financing.
The Treasury is concerned that loopholes within the current
conflicting guidance creates inconsistencies that can then be
exploited by criminals, and hence the creation of OPBAS is
intended to enhance consistency.
•Simon Kirby, the economic secretary to the Treasury said that the
new office “will bring the UK’s anti-money laundering regime into
line with the latest international standards, and ensure
consistently high standards of supervision across all sectors,
sending a strong message that money laundering and terrorist
financing should not and will not be tolerated”.
UK to investigate any UK banking involvement in
“Laundromat” case
•The FCA is re-examining Barclays’ October 2008 fundraising,
which occurred during the height of the financial crisis, when the
bank looked to Qatari and Abu Dhabi senior royals and sovereign
wealth funds for a £7.3bn boost in attempts to avoid coming
under UK government control.
•According to people familiar with the situation, the FCA has
launched a series of interviews in recent weeks in connection with
this matter.
•In 2013 the FCA came to an early determination that the bank
had failed to disclose arrangements and fees it paid to Qatari
investors at the time, and concluded that it would fine Barclays
£50m, a sum Barclays has stated it wishes to contest.
•The FCA halted its probe into Barclays in 2013, however, pending
a parallel criminal investigation by the Serious Fraud Office.
•Since then, however, 100,000 pieces of documentary evidence
which Barclays had previously claimed were covered by legal
professional privilege have been released by the bank to the SFO.
•If the FCA wishes to change its conclusions from the early
determination stage, it must first argue its case in front of the
Regulatory Decisions Committee.
•Simon Kirby, the economic secretary to the Treasury, said the FCA
and National Crime Agency will examine allegations made in the
Guardian newspaper that British high street banks processed
nearly $740m from money laundering operation “Global
Laundromat” run by suspected Russian criminals.
•The data is understood to be part of evidence gathered by police
in Latvia and Moldova during their three year investigation into
money-laundering.
Continued on next page >
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•The Guardian newspaper reportedly reviewed documents
containing details of about 70,000 banking transactions,
including 1,920 that went through UK banks, which appear to
show that at least $20bn was moved out of Russia during a four
year period between 2010 and 2014.
FS Enforcement Express
March 2017 Edition
Serious Fraud Office needs funding boost, warns OECD
FCA v Macris
•In their review into how the UK fights bribery, the OECD group
has called on the UK government to boost the funding of the SFO
in order to ensure its independence.
•The Supreme Court has ruled that the FCA did not improperly
identify a manager at an investment bank in its final notice
imposing a fine on that bank for losses incurred in a particular
part of the business. The Court held that the use of the words
“CIO London Management” by the FCA in its notice was not
sufficiently precise to identify Achilles Macris – the head of the
bank’s chief investment office in London at the relevant time.
•The OECD was particularly critical of the use of blockbuster funding,
whereby the SFO can apply for extra funding from the Treasury if an
investigation is particularly costly. The OECD said that this type of
funding created a perception of, if not an actual, conflict of interest
between the government and the independent prosecutor.
•The review also highlighted concerns that Brexit could impact
bribery enforcement in the UK, due to the uncertainty
surrounding the future applicability of EU rules regarding money
laundering and sanctions, and international co-operation, which
is currently facilitated through EU mechanisms such as Europol
and Eurojust.
•Whilst the review praised the UK for improving its fight against
bribery, it further concluded that communications between
economic crime agencies requires improvement, and also found
that the regime in Scotland should be strengthened.
•The SFO declined to comment on the report.
•For the full article, click here.
Cases
Tesco to pay redress for Market Abuse
•The FCA have issued a final notice on Tesco plc and Tesco Stores
Limited, ordering them to pay compensation as a result of its
inaccurate trading update published in August 2014, which gave a
false or misleading impression of the value of publicly traded
Tesco shares and bonds.
•The FCA does not suggest that the board of Tesco plc knew or
could reasonably have been expected to know that the
information in the statement was false/misleading, but
concluded that this knowledge was present at a sufficiently high
level below the board to constitute market abuse.
•By way of background, when the FCA publishes a disciplinary
notice against an authorised firm, if the notice identifies an
individual and is prejudicial towards them, that individual must
be given a copy of the notice and must have the opportunity to
make representations to the regulator, known as “third party
rights”.
•In September 2013, the FCA served a final notice on JP Morgan
for losses incurred in a particular part of its business. In the
notice, references were made to “CIO London Management”,
which Mr Macris, who was head of the bank’s Chief Investment
Office (CIO), alleged was sufficient for him to be identified.
Although Macris was not the only manager employed by the
bank’s CIO, he argued that those who were “active in the relevant
markets” would have known that the description applied to him.
Macris had also been named in a report by a US Senate
committee dealing with the same losses, which was available on
the internet at the relevant time. The Upper Tribunal and Court of
Appeal ruled that these references were sufficient for Mr Macris
to be identified.
•The Supreme Court, however, disagreed and Lord Sumption ruled
that “In my opinion, a person is identified in a notice under
section 393 if he is identified by name or by a synonym for him,
such as his office or job title. In the case of a synonym, it must be
apparent from the notice itself that it could apply to only one
person and that person must be identifiable from information
which is either in the notice or publicly available elsewhere.”
•Lord Sumption added that resort to publicly available information
elsewhere is only permissible where it enables one to interpret,
rather than supplement, the language of the notice.
•Tesco plc and Tesco Stores Limited must now pay restitution to
investors who suffered loss as a result of the creation of the false
market, when they bought securities at a higher price than they
would have paid had there not been a false market between 29
August and 22 September 2014.
•This decision means that whilst the FCA will not be forced to
overhaul its investigation process, it will have to ensure it does
not identify individuals in its enforcement notices if it wishes to
avoid granting these third party rights, and ultimately
lengthening the lifespans of investigation.
•An £85m compensation scheme will be established for
shareholders and bondholders who purchased shares during the
above dates. Under the compensation scheme, Tesco will pay
each purchaser of Tesco shares and bonds who makes a claim an
amount equal to the inflated amount for each share or bond.
•For the full article, click here.
•This is the first time the FCA has used its powers to require a
listed company to pay compensation for market abuse.
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Continued on next page >
FS Enforcement Express
March 2017 Edition
Dutch prosecutors investigate ING’s role in Uzbekistan case
•Dutch prosecutors are investigating ING’s role in money
laundering and corruption in Uzbekistan.
•The spokeswoman for the Dutch financial crimes prosecutor said:
“The bank is suspected of having failed to report, or report in a
timely fashion, irregular transactions. The subject of the
investigation is, among others, unusual payments by VimpelCom
to the company of an Uzbek government official”.
•ING’s annual report, published last week, confirmed this, and
declared that “ING Bank is the subject of criminal investigations
by Dutch authorities regarding various requirements related to the
on-boarding of clients, money laundering and corrupt practices”.
•ING’s involvement in the case was disclosed publicly in
documents filed in the U.S, which showed that of the $800
million in bribes paid to shell companies owned by a high-ranking
official in Uzbekistan related to late President Islam Karimov,
$184 million originated from ING Bank.
Top Ten Takeaways from Kweku Adoboli’s story
On 28 March 2017, Kweku Adoboli, former UBS trader, convicted and
sentenced to seven years imprisonment following two convictions
for fraud which had resulted in over £1.5bn losses for UBS in
secretive, off-the book and fictitious trades, shared his story at an
event hosted by the Fraud Advisory Panel, recounting his experience
from UBS, the impact of the criminal trial and the lessons that can
be learnt from his experience. Below are ten top takeaways from his
story – from what led to his actions and what he’s learned since
regarding regulation of the financial services industry.
1. Cultural systemic failures where you’re held personally
accountable. Mr Adoboli started his talk by reflecting on the
initial shock of being held personally accountable for activity
which was systemic and widespread in the institution. He
explained the very personal impact of being the subject of a
criminal trial and many of the headlines that followed.
2. Through the crisis, the sense of community was lost
through human fear. Mr Adoboli recounted how human
relationships suffered after the financial crisis. The pressures
that were mounting from the top to perform meant there was
a significant failure in trust and it became impossible to work
collaboratively with colleagues.
3. The “umbrella” was the product designed to stop rainy days
and designed to protect the bank from any losses....so we
justified it to ourselves and persuaded ourselves that it was
acceptable and the right thing to do. Mr Adoboli explained
how the ‘halo effect’ of the umbrella meant that individuals
justified their actions and meant that the bank had survived the
crisis and they had managed to deliver to their clients.
4. A hierarchical society. Mr Adoboli explained that when the
bank was in an “existential crisis”, individuals would go to their
bosses for assistance, only to be told to ‘sort it’. Individuals
stopped asking for help.
5. It was the responsibility of lead risk takers to push
boundaries... to then achieve the unrealistic goals. Mr
Abodoli spoke about the pressure individuals were under to
achieve, even if it meant crossing moral boundaries.
6. Only when you’ve pushed hard enough will you get a slap
on the wrist. Mr Adoboli explained how making morally sound
decisions became increasingly difficult under pressure to
achieve and the tone from top condoning their actions, in the
name of ‘profitability’ and ‘goal achievement’. He explained
that it was only the negative outcome which led to the
conduct being condemned and ultimately punished.
7. Focus from institutions on cutting costs and maintaining
profitability... The pressure of rewarding people just for
profits ... leads to cultural and systemic failures. Mr Adoboli
explained that there was now an increasing need to talk about
the entire industry and the purpose of roles in the banking
sector. He suggested less focus on measurable metrics such as
profit and financial targets.
8. If you focus on catching people then one creates a system
to avoid getting caught... it doesn’t work. Mr Abodoli opined
that any regulation or prosecution which solely focuses on
‘catching people’ creates an environment that leads to the very
behaviour that it is designed to eradicate. Instead, Mr Abodoli
suggested building systems to protect individuals, to
performance manage and to help individuals under pressure.
9. Need to emulate human relationships. Mr Abodli suggested
that compliance and risk should sit together with the trading
floor – the “risk takers” to build trust.
10. It is a blame culture... it stops us from learning for systemic
change. There was a disproportionate focus on ‘one bad apple’
or ‘one rogue employee’ which impedes institutional and
cultural change.
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FS Enforcement Express
March 2017 Edition
The summing up
Tune in to listen to our latest Summing Up. Under discussion:
•Ben Morgan’s (Joint Head of Bribery and Corruption at the
SFO) recent speech on Deferred Prosecution Agreements
•The SFO’s announcement that it has opened an investigation
into an alleged fraudulent investment scheme marketed by
Ethical Forestry Limited and associated companies
•News that the Cabinet Office is carrying out an audit of all the
government agencies that have a financial crime specialism,
including the FCA, NCA, SFO and HMRC
•The FCA’s recent consultation paper on changes to implement
the new Prospectus Regulation
•A reminder of the need for regulated firms to vary their
permissions to comply with MiFID II.
Contacts
Michael Ruck
Senior Associate
Litigation & Regulatory
T: +44 (0)20 7490 6970
M: +44 (0)7769 932740
E: [email protected]
Elena Elia
Associate
Litigation & Regulatory
T: +44 (0)20 7490 6411
M: +44 (0)7825 657822
E: [email protected]
Events
You are warmly invited to the following conferences being held
at Pinsent Masons London office:
•Future of Money Conference – 26 April 2017
•Insurance and Wealth Management Conference – 6 June 2017.
This note does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered.
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