Policy and practice
Hong Kong: Further enforcement of AML law
As we reported in the July 2014 issue of the Financial Crime Update, money laundering risks in the financial industry have been a major regulatory focus in Hong Kong. The Securities and Futures Commission (“SFC”) has confirmed this during the first supervisory briefing which it hosted on 2 September 2014 and which was attended by over 200 senior executives from investment banks and regulatory practice advisers. The SFC emphasised that anti-money laundering (“AML”) has been one of the three areas of focus in recent inspections conducted by the SFC (the other two being electronic trading and internal controls). Market participants were reminded to comply with the AML requirements and to focus on the key areas including money laundering risk assessment, customer due diligence, identification and reporting of suspicious transactions and management accountability. The SFC warned that failure to do so could result in supervisory interventions as well as criminal sanctions.
The prospect of criminal penalties for breaching Hong Kong’s AML law (and the reach of the AML law beyond the financial industry) was demonstrated in a recent prosecution of a partner of a law firm and his accomplice. The lawyer and the wife of a former director of listed company Natural Dairy (NZ) Holdings (“Natural Dairy”) were found guilty of dealing with property known or reasonably believed to represent proceeds of crime and were sentenced to six years and six and a half years’ imprisonment respectively. The court heard that following a capital raising exercise by Natural Dairy to fund certain overseas acquisitions, part of the funds raised were remitted back to the former director of Natural Dairy, who then transferred the funds to the lawyer. Despite knowing the former director’s background and the ongoing Stock Exchange investigation of alleged fraud in relation to the acquisitions, the lawyer made a “u-turn” transaction by forwarding the funds to the former director’s wife.
UK: Companies looking for a DPA should be prepared to waive privilege
The extent to which legal privilege over information may be claimed by a company seeking a deferred prosecution agreement or, indeed, any other company self-reporting wrongdoing to the SFO in the hope of obtaining a lighter penalty, was considered in detail by Alun Milford, General Counsel at the SFO, in a speech at the Cambridge Symposium on Economic Crime on 2 September 2014. Mr Milford made it clear that cooperation with the investigating authorities will be vital for any such company – this has been the SFO's approach for some time - and set out clearly the extent to which asserting a claim to privilege over documents and information may be seen as a failure to cooperate with the SFO.
Mr Milford confirmed that the SFO has no interest in seeing the advice given by lawyers to their clients - what would be covered by legal advice privilege. However, he said that the SFO are "very interested" in what third parties might tell the company about the events under investigation. In particular, he noted that witnesses were often interviewed as part of the initial internal investigation into wrongdoing and the SFO would want to see notes of those interviews prior to interviewing them or calling them as witnesses itself.
He summarised the position as follows:
“1. [The SFO] will view as uncooperative false or exaggerated claims of privilege, and we are prepared to litigate over them: to do otherwise would be to fail in our duty to investigate crime.
2. If a company's assertion of privilege is well-made out, then we will not hold that against the company: to do otherwise would be inconsistent with the substantive protection privilege offers.
3. By the same token if, notwithstanding the existence of a well-made out claim to privilege, a company gives up the witness accounts we seek, then we will view that as a significant mark of co-operation: here again, to do otherwise would be inconsistent with the substantive protection privilege offers."
The extent to which a company would be expected to cooperate with the SFO was also discussed by David Green, Director of the SFO. Speaking at the same symposium, Mr Green reinforced the view that the SFO will expect extensive cooperation from any company considering self reporting, particularly if that company is hoping to enter into a deferred prosecution agreement (“DPA”). Cooperation would be likely to include waiving privilege, claims to which could amount to "a strategy of deliberate obstruction", said Mr Green. He added that the SFO had investigations on foot that might suitable for the DPA but emphasised that the DPA process would not be embarked upon unless the SFO received "maximum cooperation" from the corporate defendant.
The text of Alun Milford's speech is also available on the SFO website, here.
The text of David Green's speech is available on the SFO website, here.
UK: Sentencing guidelines for corporate offences come into effect
The Sentencing Council’s definitive guideline for financial offences (the “Guideline”) committed by corporate offenders, came into effect on 1 October 2014. The Guideline, which applies to all corporate offenders sentenced on or after that date, contains sentencing rules applicable on conviction for offences of fraud, bribery and money laundering, including offences under various tax statutes and that of common law conspiracy. It deals with matters of compensation, confiscation and the calculation of penal fines, which take into account both the culpability of the offender and the harm caused by the offending conduct. Other factors may increase or decrease the seriousness of the offence or reflect mitigation.
Linklaters has published a client note on the new Guideline giving fuller details of how potential fines will be calculated, available here.
UK: SFO’s future under consideration
Home Secretary Theresa May is reported to be considering plans to abolish the SFO, sending its investigation team to join the National Crime Agency and assigning its prosecutors to the UK’s Crown Prosecution Service. Mrs May tried three years ago to disband the SFO but was defeated at that time by other members of the cabinet, including former attorney general Dominic Grieve QC and former justice secretary Kenneth Clarke. Both have since left the cabinet.
The plan is opposed by many commentators and lawyers in the field, who argue that having investigators and prosecutors working together strengthens their position. The SFO has been trying to rebuild its reputation as a hard hitting counter-fraud agency under director David Green and has recently announced progress in several high profile investigations.
A Home Office spokesperson said: "The government is reviewing the overall co-ordination and effectiveness of the UK's enforcement response to cases of bribery and corruption. This work is ongoing and ministers will consider the findings in due course."