Included in this issue: Speech by FCA Director of Enforcement and Market Oversight: Practical implications of US law on EU practice; Proceedings commenced against two former Och-Ziff executives and more...


General

Speech by FCA Director of Enforcement and Market Oversight: Practical implications of US law on EU practice

On 19 January 2017, Mark Steward delivered a speech at the Practising Law Institute's annual seminar on securities regulation in Europe.

In this speech Mr Steward touched on subjects such as financial penalties, the relatively new senior manager's regime and ways in which firms and individuals can reach a resolution on cases quickly.

The clear message from the speech is that there is not a move towards light touch regulation (notwithstanding the recent reduction in the aggregate level of fines). In fact, Mr Steward stated that "… investigations need to be more thorough with stronger disciplines…" However, it was recognised that consideration was ongoing to look at further ways to incentivise firms and individuals to resolve matters fairly and quickly but "without losing the rigour of a formal disciplinary process".

FCA, 26 January 2017

Microsoft scores landmark win

Microsoft Corp has successfully won a decision in the US courts that means that it and other companies will not be forced by the US government to provide it with emails stored on its servers held outside of the US. 

Microsoft is understood to be the first company to challenge a domestic search warrant that sought data that was held outside of the US. 

Reuters, 24 January 2017

SFO speech on fighting fraud

In a recent speech given at the Fighting Fraud and Eliminating Error Conference, Hannah von Dadelszen, Joint Head of Fraud, defended the SFO's recent conviction record. 

SFO, 19 January 2017

Criminal Finances Bill

One of the key proposals in the Criminal Finances Bill is to allow Law Enforcement Agencies (LEAs) to access funds thought to be linked with criminal activity, and free up the growing stock of funds from frozen accounts which are linked with criminal activity and are currently inaccessible. The government is currently considering this proposal, which updates current laws that prohibit money from being seized from accounts unless there has been a conviction; and/or, unless the account holds amounts of £10,000 or more. 

It is understood an initial evaluation of the impact of this new proposal was not fit for purpose. The Government has, therefore, commenced a fresh evaluation with an updated impact assessment for the Bill. 

Gov.uk, 17 November 2016 

Gov.uk, 10 January 2017

Bribery and Corruption

Proceedings commenced against two former Och-Ziff executives 

The US Securities and Exchange Commission has commenced proceedings against Michael Cohen, head of Och-Ziff's European Office, and Vanja Baros, a former executive of the company. 

The allegations against the individuals are that, in breach of the Foreign Corrupt Practices Act, they caused Och-Ziff to pay bribes to officials in Libya, Chad, Niger, Guinea and the Democratic Republic of Congo to secure investment from the Libyan Investment Authority sovereign wealth fund, an investment in a Libyan real estate development project and to secure a mining transaction. 

Reuters, 26 January 2017

Transparency International publishes its 2016 Corruption Index

The UK, Germany and Luxembourg has been ranked 10th in Transparency International's (TI) 2016 Corruption Index.

While the UK ranking remains unchanged from last year, TI has stated that the UK government "should follow through on commitments made" in 2016 if it is going to remain within the top ten jurisdictions seen as the least corrupt. 

TI ranked Denmark and New Zealand as the best performing countries. Somalia was ranked as the worst performer in the index. 

Transparency International, 25 January 2017

Court of Appeal upholds SFO property freezing order

The SFO has successfully resisted an appeal of a freezing order imposed by it. The SFO froze the proceeds that Mrs Saleh received from the sale of her shares in a Canadian oil and gas company. The SFO's case was that the acquisition of the shares had been one of a series of corrupt transactions involving her and others at the Canadian embassy. 

Mrs Saleh unsuccessfully appealed to the High Court on the basis that the matter had already been settled by an earlier Canadian court order in which the Canadian court accepted Mrs Saleh to be innocent of complicity in any indictable offence, which meant that the shares were neither crime related proceeds nor offence related property. 

The Court of Appeal agreed with the High Court's decision to uphold the freezing order and held that to set it aside would be inconsistent with the POCA statutory regime.

SFO, 23 January 2017

SEC fines BlackRock for removing whistle-blower incentives

The US Securities and Exchange Commission (SEC) has settled with the New York based asset management company, BlackRock Inc, in respect of allegations that it  

In respect of the settlement, BlackRock has agreed to pay $340,000 to the SEC on the basis that it neither admits nor denies the allegation. BlackRock has further agreed to introduce compulsory annual training summarising employees' rights under the SEC whistleblowing program.

SEC, 17 January 2017

SEC Charges Orthofix for Accounting Failures and FCPA Violations 

The US Securities and Exchange Commission (SEC) announced that Orthofix, a medical device company based in Texas, has agreed to a $14 million penalty to settle charges of accounting failures and improper inducements made to state employed doctors in Brazil in order to boost sales.

The first charge admitted by Orthofix was that they improperly recorded revenue by inputting positive balances into their accounts as soon as products were shipped despite various contingencies, procedural approvals and time extensions before payment was likely to be received. As a result the company materially misstated a number of financial statements between 2011 and April 2013.

Orthofix itself has agreed to pay a fine of $8.25 million in reference to these accounting failures and four former executives of the firm have agreed, personally, to pay a combined sum of $120,000.

In a separate order the SEC also charged the company with breaches of the Foreign Corrupt Practices Act (FCPA) for failing to "detect and prevent" its Brazilian subsidiary from making "improper payments in Brazil that were intended to boost sales". This was after the Brazilian arm of the firm offered high discounts and improper inducements to state doctors in order to give preference to Orthofix's products. In respect of the FCPA charges, Orthofix paid $6 million in disgorgement and penalties in settlement.

SEC, 18 January 2017

Money Laundering

Western Union settles with US Justice Department and Federal Trade Commission

The Western Union Company (Western Union) has settled with US authorities for $586 million in respect of breaches of money laundering and consumer fraud laws. It is understood that the fine is the largest imposed on a money service business. 

Under the terms of the settlement, Western Union admitted to breaches including "wilfully failing to maintain an effective anti-money laundering (AML) program and aiding and abetting wire fraud." It is understood that the authorities found hundreds of millions of dollars were transferred to China in avoidance of the US Bank Secrecy Act. The US authorities stated that the company's "…failure to comply with anti-money laundering laws provided fraudsters and other criminals with a means to transfer criminal proceeds and victimize innocent people." 

It is further understood that Western Union has agreed to implement an anti-fraud program in addition to enhancing its compliance obligations. 

Reuters, 20 January 2017

Review commences for Money Laundering in Scottish Limited Partnerships

The UK's Department for Business, Energy and Industrial Strategy (BEIS) has announced a review into the use of Scottish Limited Partnerships (SLPs). The review comes after concerns were raised that SLPs are being used to mask international criminal activity such as money laundering. 

The legal status of these partnerships make them attractive to international crime organisations as they protect partners from the same scrutiny as other business vehicles such as limited companies. They also provide partners with the freedom to handle money. 

It is reported that the number of SLPs has trebled in the last six years. This has led the UK government to reconsider its previous decision to reject calls for an investigation.

BBC, 16 January 2017

Fraud

Morgan Stanley and Citigroup settle charges relating to Foreign Exchange Trading Program

Morgan Stanley Smith Barney (Morgan Stanley) and Citigroup Global Markets, which at the relevant time had a 49% interest in Morgan Stanley, agreed to pay more than $2.96 million to settle charges that they made false and misleading statements about a foreign exchange trading program they sold to investors. The terms of the settlement are such that neither Morgan Stanley nor Citigroup admitted or denied the charges.

According to the SEC, the written and verbal representation made to customers were based on out of date performance and risk metrics. Morgan Stanley also failed to adequately disclose the increased leverage and mark-ups investors would face, which led to them suffering significant losses. 

SEC, 24 January 2016

New York businesswoman pleads guilty to $23 million fraud

Haena Pak, entered a guilty plea in Manhattan federal court for defrauding investors out of more than $23 million. Ms. Park held herself out as a successful foreign exchange trader with annual returns of up to 48.9 percent despite the fact that she was exceptionally unsuccessful in her trading- losing £19.5 million of the $20 million she traded. 

In order to cover up her failure, Park repaid early investors using $3 million secured from later investor and fabricated account statements in order to show her investors that they were making a profit almost every month. 

Ms Park could face a term of up to 10 years in prison when US District Judge Ronnie Abrams hands down the sentence on 28 April 2017.

Reuters, 13 January 2017

7 year sentence for Head of Wells Fargo fraud ring

Seventy year old Ronan Charles Reed has been sentenced to 7 years in prison for orchestrating a fraudulent scheme on the customers of Wells Fargo. Mr Reed obtained personal information of customers of Wells Fargo from Wells Fargo employees, including birthdates, account and social security details. Mr Reed then organised for people to impersonate customers of the bank and use these details to secure cash withdrawals of $580,332 from 75 different accounts. 

After pleading guilty to bank fraud and identity theft, Mr Reed received a restitution order, in addition to his custodial sentence. It is understood that Wells Fargo employees identified as being implicated in the scheme await sentencing.

Reuters, 13 January 2017

Financial Regulation

Inside traders sentenced

Two men who recently pleaded guilty to insider dealing in a trial brought by the FCA, were sentenced last week for their participation in the scheme.

Manjeet Mohal, formerly employed by Logica, received a suspended sentence of two years and 180 hours of community service for using inside information to obtain beneficial terms during takeover negotiations between Logica and another firm.

The second man, Reshim Birk who was a neighbour of Mr Mohal, received a suspended sentence of 16 months imprisonment and 200 hours of community service for using the inside information to obtain shares in Logica before the takeover was made public.

In addition, a confiscation order of £162,876.69 was made against Mr Birk and both defendants were ordered to pay costs of £42,593.35 to the FCA.

FCA, 13 January 2017

Sanctions

Department for International Trade publishes new guidance on export control

The Export Control Organisation has updated and reissued its guidance on export controls. The revised guidance streamlines and consolidates previous guidance issued by the Export Control Organisation.

For more information see:

Gov,uk, 11 January 2017

Health and Safety

KFC employees suffer serious burns

KFC have been fined £950,000 after two employees suffered serious burns in two separate incidents at branches in Stockton.

In the incident which occurred in July 2014, a 16 year old employee at the Teesside Park restaurant suffered serious burns to his hands and arms after he was asked to remove hot gravy from a microwave without protective gloves.

In the second incident in December 2015, an employee, who was also not wearing protective gloves, removed hot gravy from a microwave which spilled onto her body causing serious burns.

Kentucky Fried Chicken (Great Britain) Limited pleaded guilty to two offences under the Health and Safety at Work Act 1974 and were fined £950,000 and ordered to pay £18,700 in costs.

SHP, 24 January 2017

Jaguar Land Rover fined £900,000

Car manufacturer Jaguar Land Rover has been fined following an incident in which a worker lost his leg.

The worker was crossing a production line by passing between two vehicles when another employee collided with a car further down the line causing a four car shunt. The worker became trapped between the two vehicles and his injuries resulted in the amputation of his right leg.

Jaguar Land Rover were found guilty of breaching Section 2 of the Health and Safety at Work etc. Act 1974 and fined £900,000 and ordered to pay costs of £49,800.

HSE, 18 January 2017

Key contacts

Nichola Peters

Nichola Peters

Partner, Head of Global Investigations/Inquiries
London

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