Post on 20-Oct-2021
CPD Day 2016
Session 01 - FINcarceration? Gatekeepers under pressure in the fight against financial crime
Speakers: Joanna Pearson, Partner, SingaporeTom Fyfe, Partner, Hong KongKane Mak, Supervising Associate, Hong Kong
19 October 2016
© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
1 / B_LIVE_APAC1:2168437v1
Introduction
Global Financial Crime trends
Focus on AML, including de-risking
Regulators and customers – protecting information vs. transparency
Meeting global standards in local markets
© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
2 / B_LIVE_APAC1:2168437v1
Global Financial Crime Trends
Political agenda
The role of “Gatekeepers”
Collaboration
• Terrorism• Corruption on a global scale• Panama Papers
• High regulatory expectations• Sanctions for failing to prevent• Criminal liability
• Law enforcement/private sector cooperation (but challenges)
• Regulator/law enforcement cooperation
© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
3 / B_LIVE_APAC1:2168437v1
Criminalising corporate failure
Going beyond regulation: criminalising corporate failure
Failing to prevent concept – Corporate offence for failing to prevent bribery (s.7 Bribery Act 2010)– Defence: “adequate procedures” designed to prevent bribery– Criminal liability and extraterritorial reach
Standard Bank Deferred Prosecution Agreement – First ever DPA by the UK’s Serious Fraud Office– Financial penalties and other costs of US$32m+ (cf. transaction fees of
US$8.4 million)– Adequate procedures not found
“Cooperation, cooperation, cooperation”
© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
4 / B_LIVE_APAC1:2168437v1
Copycat corporate criminal offences on their way?
Failure to prevent the facilitation of tax evasion
Failure to prevent economic crime (fraud, money laundering etc)
“Reasonable Procedures”– Proportionate procedures– Top-level commitment– Risk assessment– Due diligence– Communication– Monitoring and review
A step too far?
© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
5 / B_LIVE_APAC1:2168437v1
Global trends:Focus on AMLincluding de-risking
© Simmons & Simmons LLP 2014. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
6 / L_LIVE_APAC1:2166937
Enforcement Trends
Increasing focus on AML-related enforcement
Increasing regulatory scrutiny on internal policies and practices
Increasing fines and disciplinary penalties for controls failures and misconduct
Threat of criminal sanctions
© Simmons & Simmons LLP 2014. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
7 / L_LIVE_APAC1:2166937
Recent AML enforcement actions
UK / FCA:
– Sonali Bank (fine) & Sonali Bank’s former MLRO: fine and ban
“Mr [X] did not have sufficient senior management support and was overworked”.
“Mr [X] failed to take any of the potential steps open to an MLRO”
Singapore regulatory (and criminal) action in context of 1MDB Fund scandal
– BSI Bank: revocation of licence and fine
– Falcon Private Bank: revocation of licence and fine
Regulatory (and criminal) action by Swiss authorities
Hong Kong:
– State Bank of India: fine and public reprimand by HKMA
© Simmons & Simmons LLP 2014. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
8 / L_LIVE_APAC1:2166937
Lessons from AML enforcement actions
Inadequate scrutiny of suspicious customer transactions
Failure to file suspicious transaction reports
Poor conduct by senior management and ineffective oversight
Failures to tighten controls despite repeated warnings
Circumventing ordinary policies or processes to get the deal done
Poor or no record-keeping
Inadequate internal resources
Poor awareness of risks and methods / lack of training
© Simmons & Simmons LLP 2014. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
9 / L_LIVE_APAC1:2166937
Is “De-risking” risk free?
Conflicting messages?
HKMA Circular (8 September 2016)– “AIs are not required to implement
over stringent CDD processes with a view to eliminating, ex-ante, all risks”
SFC Notice (21 September 2016)– “expected to enhance their AML
internal controls immediately… had ample time to develop their internal controls…”
What does this mean for you?
© Simmons & Simmons LLP 2014. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
10 / L_LIVE_APAC1:2166937
Risk-based approach to determine “reasonable measures”
Considering the “risk-based” approach
Factors for risk classification
Risk classification factors include:– Product/service risk– Delivery/distribution channel risk– Customer risk – Country risk
No one-size-fits-all approach
Class-based / checklist type de-risking discouraged– Against principles of financial inclusion– Attracts regulatory scrutiny and adverse public sentiments
© Simmons & Simmons LLP 2014. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
11 / L_LIVE_APAC1:2166937
Polling question (1)
The HKMA Circular mentions that they do not expect a “zero failure” regime. In your day to day dealings with the HKMA, is this reflected in their practice?
1. Yes, they do not expect the system to catch all money-laundering / terrorist financing activities
2. No, in practice they do expect a “zero failure” system
© Simmons & Simmons LLP 2014. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
12 / L_LIVE_APAC1:2166937
Criminalisation in Hong Kong
Penalties and Mitigation of Risk
Criminal offences under AMLO– E.g. “Knowingly causes or permits”
Preference for disciplinary actions may change
Adequate systems and controls?– Difficult to request overseas information – Other secrecy or confidentiality restrictions
© Simmons & Simmons LLP 2014. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
13 / L_LIVE_APAC1:2166937
AMLO - A balancing exercise
Takeaway points
Do what is right, not what seems to be expected
Avoid obvious de-risking exercises and class-based / checklist approach
Interpret and apply the SFC and HKMA anti-money laundering guidelines
Put in place RBA procedures and provide sufficient staff training
Document your risk assessment process
Escalate when having difficulty in applying RBA
Engage regulators where tension between global policies and guidelines
If ineffective - will we be expecting prosecutions and new criminal offences?
© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
14 / B_LIVE_APAC1:2168437v1
Regulators and Customers
Finding the right balance
© Simmons & Simmons LLP 2014. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
15 / L_LIVE_APAC1:2166937
Polling question (2)
In your AML training, do you use case study / factual scenarios to illustrate the AML procedures that should be followed?
1. Yes2. No
Of the ‘yes’ voters, how many of the case studies portrayed a scenario of money-laundering, versus an innocent, bona fide transaction?
1. All were examples of attempts at money-laundering2. There were few examples of bona fide transactions3. There was a fair balance between the two
© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
16 / L_LIVE_APAC1:2166937
Objectives and obligations
The bank mandate– to repay on demand
Client confidentiality
Banking secrecy
Personal data privacy
Consumer and investor protection
Financial inclusion
Secrecy obligations to the regulator
Restrict organised crime
Defeat terrorism
Transparency
Information sharing
Deputising law enforcement
© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
17 / L_LIVE_APAC1:2166937
Best intentions and consequences
… and the law
Regulatory squeeze– Major fines– Monitors
De-risking / ‘caution culture’– Responsibility evasion
Financial exclusion
Business impact
Compliance cost / admin burden
Conflicting regulator messages
© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
18 / L_LIVE_APAC1:2166937
Dealing with the regulator
Domestic
Require proper notices– Be careful of “informal” enquiries
Search warrants– Deputising execution– Keep a detailed record
Notifying all your regulators– nb.SFC secrecy obligation – ‘Tipping off’
Remember your RBA
© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
19 / L_LIVE_APAC1:2166937
Dealing with the regulator (cont)
Cross-border
How / where / on whom is the info production notice enforceable?
Branches – Where is the data?– Who has right of access?
Be aware of data privacy / banking secrecy laws– Does the exception extend to foreign
regulatory / law enforcement?– RBA 2.0
Have an effective PICS to cover foreign regulators / law enforcement
© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
20 / L_LIVE_APAC1:2166937
… and the customer?
How much can I let them know?
‘Tipping off’ offence– ‘… if, knowing or suspecting that a disclosure has been made [to the relevant
authority of suspicion of proceeds of an indictable offence], he discloses to any other person any matter which is likely to prejudice any investigation which might be conducted following that first-mentioned disclosure’
Defence:– ‘that he did not know or suspect that the disclosure concerned was likely to be
prejudicial [to such an investigation] or– that he had lawful authority or reasonable excuse for making that disclosure.’
Paper trail your decisions
“No-consent” letters
Statutory secrecy obligations
© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
21 / L_LIVE_APAC1:2166937
Losing perspective
… and missing the objective
Customer comes last
Terrorism and organised crime
Stovepiping of information
Deputised but handicapped
Call for better information sharing– Entity to entity– FI to FI– Govt to FI– Cross-border
© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
22 / L_LIVE_APAC1:2166937
Until then ….
In Asia
Retail and corporate banking– new guidance?
Continued regulatory focus on AML/CFT controls in the region– Put some fresh thought into them– Keep under review / test them– Engage with the HKMA
Brokerages to remain a key focus for the SFC– Client identity: check your client agreements
Balancing secrecy & disclosure obligations during investigations
Be willing to defend and challenge
© Simmons & Simmons LLP 2014. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
Contact us
T +65 6831 5607E:joanna.pearson@simmons-simmons.com
Tom Fyfe, Partner, Dispute Resolution Group, Hong Kong
Tom is the firm’s Asia Head of Dispute Resolution. He has 15 years ofexperience of commercial litigation, contentious regulatory and arbitration inChina, England and Australia, during which time he has advised clients innumerous high value and business-critical disputes. Tom has particularexperience in disputes relating to financial products and services, fraud andbreach of trust claims, accountants’ liability and disputes arising out ofmergers, acquisitions and joint ventures. He regularly advises banks,financial intermediaries and individuals in connection with regulatoryinvestigations into market misconduct, rate manipulation and tradingirregularities.
T +852 2583 8318E: Tom.fyfe@simmons-simmons.com
Joanna Pearson, Partner, Dispute Resolution Group, Singapore
Joanna is a partner specialising in disputes and investigations in the financialinstitutions, wealth and asset management sectors. She has advisedinvestment banks, asset managers and other major financial institutions inrelation to a wide range of issues, including: regulatory and internalinvestigations; structured products and derivatives disputes; portfolio mis-management claims; contractual interpretation; jurisdiction; and hedge funddisputes.
© Simmons & Simmons LLP 2014. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
Contact us
T +852 2583 8247E: kane.mak@simmons-simmons.com
Kane Mak, Supervising Associate, Dispute Resolution Group, Hong Kong
Kane has experience handling criminal and regulatory investigations, andwhite-collar defence work. He regularly advises corporations on their ‘dawnraids’ and compliance policies. He is also a member of the Law Society ofHong Kong’s Criminal Law and Procedure Committee, and of the firm's crime,fraud & investigations group.
© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
0 / B_LIVE_EMEA1:1716992v1
simmons-simmons.com elexica.com
This document is for general guidance only. It does not contain definitive advice. SIMMONS & SIMMONS and S&S are registered trade marks of Simmons & Simmons LLP. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated practices. Accordingly, references to Simmons & Simmons mean Simmons & Simmons LLP and the other partnerships and other entities or practices authorised to use the name “Simmons & Simmons” or one or more of those practices as the context requires. The word “partner” refers to a member of Simmons & Simmons LLP or an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Simmons & Simmons LLP’s affiliated practices. For further information on the international entities and practices, refer to simmons-simmons.com/legalresp. Simmons & Simmons LLP is a limited liability partnership registered in England & Wales with number OC352713 and with its registered office at CityPoint, One Ropemaker Street, London EC2Y 9SS. It is authorised and regulated by the Solicitors Regulation Authority. A list of members and other partners together with their professional qualifications is available for inspection at the above address.