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Pinsent Masons' International White Collar & Corporate Crime Briefing

October 2019

Welcome to Pinsent Masons' International White Collar & Corporate Crime Briefing - a round-up of white collar & corporate crime legal and business developments with analysis and commentary from the international white collar & corporate crime team at Pinsent Masons.

In this edition we focus on the following topics:

  • UK 
    SFO cooperation guidance
    AML enforcement increase should prompt companies to review policies
    FCA Annual Report
    The FCA's "dual track" approach to enforcement investigations
    Civil law remedies for fraud
    Approval for Joint Money Laundering Steering Group guidance
    Cooperating offenders and the SFO
  • France 
    Two more CJIPs
    Procurement manager sentenced for corruption
    AFA Sanctions Committee decision provides some guidance
  • Germany 
    The draft German Corporate Sanctions Act
  • Spain  
    New policies revealed by PSOE
  • UAE 
    DFSA imposes its largest fines to date on Abraaj
  • Singapore 
    Public service rationale and foreign public officials
  • Pinsent Masons' Annual Business Crime & Compliance Conference, at our London offices on Thursday, November 14th 2019, 12:30-6pm


SFO cooperation guidance

The Serious Fraud Office (SFO) has published its long awaited cooperation guidance (the Guidance). Cooperation with the SFO is both a mitigating factor for the purposes of sentencing should criminal charges and a conviction result and a pre-requisite should a company wish to put itself in a position to secure a deferred prosecution agreement (DPA) where appropriate. The Guidance codifies and clarifies the SFO's expectations in this regard and significantly raises the bar on what will be expected to be considered cooperative.

Companies will be expected to:

  • identify suspected wrongdoing and criminal conduct together with the people responsible;
  • report this to the SFO within a reasonable time of the suspicions coming to light; and
  • preserve available evidence and provide it promptly to the SFO in an evidentially sound format.

The standards expected in relation to the preservation of evidence are onerous.

  • The SFO expects all electronic, hard copy and accounting evidence to be preserved - including passwords, recovery keys and old systems.
  • An audit trail for the acquisition and handling of all electronic and documentary evidence must also be maintained, with a relevant person prepared to provide a witness statement identified.

Companies are advised not to interview witnesses or suspects as part of their own internal investigations, or to take disciplinary action, without first consulting the SFO.

  • Care must be taken to ensure that a potential witness's recollection is not tainted - for example, by sharing with them another person's account or showing the witness documents that they have not previously seen.
  • Witness accounts collated as part of an internal investigation are expected to be handed to the SFO as a mark of cooperation. If the company does not provide these witness accounts, perhaps because they are privileged, it will not be able to benefit from that element of cooperation in determining whether a DPA is in the public interest.

Cooperating companies must promptly provide a schedule of documents withheld on the basis of legal privilege, together with an explanation for asserting privilege.

  • The company will be expected to provide certification from an independent lawyer that the material in question is privileged.

There will be circumstances in which full adherence to the guidance and the SFO's expectations is not realistic but, if that arises, it should be an informed decision. In light of the guidance, companies should urgently review their existing protocols and practices for conducting internal and disciplinary investigations into matters which have a financial crime element to ensure there are no inadvertent breaches of the guidance.

AML enforcement increase should prompt companies to review policies

  • Companies should review and update their anti-money laundering (AML) policies as the UK government and regulators continue to increase the penalties for non-compliance.
  • A UK authority's issue of its highest ever fine for money laundering offences is evidence that the UK government and regulators are determined to clamp down on money laundering offences;
    • Her Majesty's Revenue and Customs (HMRC) largest fine yet was imposed on west London money transmitter Touma Foreign Exchange, which was fined £7.8 million for failings under the Money Laundering Regulations. It was found to have had failings in risk assessments and associated record-keeping; policies, controls and procedures; fundamental customer due diligence measures, and adequate staff training;
    • Director Hassanien Touma has been banned from acting for any business governed by anti-money laundering regulations after failing to pass a vetting test to ensure he was fit to carry out the role of an officer in a money services business.
  • Disrupting money laundering is a priority for the UK government as it responds to a report last December by intergovernmental body the Financial Action Task Force (FATF) which called for more action on money laundering by the UK's statutory and professional supervisors.
  • Since then, there has been a strengthening of controls on money laundering both by the three statutory supervisors - HMRC, the Gambling Commission and the Financial Conduct Authority (FCA) - as well as by the 22 accountancy and legal supervisory bodies.
  • Clamp downs will be helped by improvements in information sharing, for example via the proposed reforms to the suspicious activity reports (SARs) regime and greater use of Unexplained Wealth Orders, leading to better detection rates, with law enforcement encouraged to use all the tools at its disposal to ensure deterrence, supporting the current trend for increasingly hefty fines for the most serious failings.
  • Companies can reduce the risk they are exposed to by
    • reviewing and updating compliance policies;
    • making sure that compliance activity is properly resourced and fully supported from the very top of the organisation, with adequate staff training;
    • at a minimum, carrying out and documenting the results of risk assessments and ensuring policies are relevant to the risk, supported and enforced and include fundamental customer due diligence measures.

FCA Annual Report

The FCA published its Annual Report 2018/19 (the Annual Report) in July, summarising its work over the year to March 2019 and addressing its key cross-sector priorities. These priorities include ensuring that firms have appropriate culture and governance structures (continuing the regulator's focus on individual accountability as the Senior Managers & Certification Regime is soon to be rolled out to solo-regulated firms), and that the threats posed by financial crime, particularly fraud, scams and money laundering, are sufficiently mitigated.

Alongside the Annual Report, the FCA published its Enforcement Annual Performance Report (the Enforcement Report), providing a more detailed look at the regulator's enforcement activities over the past year. Highlights include:

  • The FCA reported that it had opened 343 cases in 2018/19, up from a figure of 302 for the previous year. In all, open enforcement cases grew by 31% (496 to 650), indicating a substantial increase in the regulator's workload. It remains to be seen how the FCA's budgeted running costs for the forthcoming year, which represent a 2.7% increase on last year, will impact on its ability to sustain this trend.
  • Financial penalties also increased markedly, with £227.3 million in fines imposed compared with £69.9m for 2017/2018. A significant proportion of this year's amount was accounted for by the £76 million fine against Stewart Ford, founder of failed investment company Keydata, which was the largest penalty ever imposed by the FCA on an individual.
  • The time taken to conclude enforcement cases fell from an average of 19.1 months in 2017/18 to 17.5 months in 2018/19. This includes closed with no further action. The average settled case, however, still hovers around the 30 month mark.
  • Market abuse, retail misconduct, financial crime and culture and governance account for the majority of enforcement investigations.
  • The FCA also confirmed that its Unauthorised Business Department had its busiest year on record, with 16,600 reports received from the public regarding potential unauthorised activities. The regulator has put this increase down to a corresponding increase in fraudulent online trading platforms, in respect of which the FCA has also published a significant number of consumer warnings.

Double trouble: some thoughts on the FCA's "dual track" approach to enforcement investigations

The FCA has given notice of its intention to up its game in enforcing the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR2017), notably including criminal prosecutions and in its Annual Report published in July this "dual track" approach for AML investigations was confirmed.

This approach, where alleged misconduct is investigated from both a civil/regulatory and criminal angle, has been used by the FCA for some time in relation to market misconduct, juggling insider dealing offences under Part 5 of the Criminal Justice Act 1993 and market manipulation under Sections 89-91 of the Financial Services Act 2012, with market abuse breaches under Section 118 of the Financial Services and Markets Act 2000 (FSMA) and, since 3 July 2016, the Market Abuse Regulation (EU 596/2014).

The approach enables the regulator to "fully understand what happened, what action to take and which tools to use", but poses a number of potentially thorny challenges in AML investigations:

  • The FCA has wide-ranging powers under the Financial Services & Markets Act 2000 (FSMA) to compel evidence from a firm when investigating a breach of AML systems and controls requirements, contrary to SYSC 6.3 (a purely regulatory action);
  • where criminal offences under the MLR2017 are also in the frame, exercising this statutory power to compel documents and oral testimony creates a problem for the FCA: compelled evidence is not admissible in criminal proceedings (unless the proceedings are for failing to answer questions without reasonable excuse or lying to the regulator). Subjects of investigations may also be reluctant to answer questions under caution, legitimately exercising their right to silence.
  • This difficulty is not seen in market abuse cases where civil market abuse actions are characterised as criminal for the purposes of European Convention of Human Rights protections, attracting the right to a fair trial under Article 6 (which includes the privilege against self-incrimination), with a consequent parity of protections.

    Although the regulator has stated its commitment to prosecute where it finds "strong evidence of egregiously poor systems and controls and what looks like actual money-laundering", with the FCA's fining powers under its regulatory regime so extensive, and the standard of proof required lower than for criminal actions, it remains to be seen whether the increased focus on "dual track" AML investigations will actually result in prosecutions.

Civil law remedies for fraud

According to the latest estimates, the UK's private sector suffers a yearly loss of over £140 billion from fraud. In recent years, a range of steps have been taken to implement a more robust anti-fraud strategy for law enforcement authorities. However, businesses which have been a victim of fraud should not forget the 'self-help' remedies available to them under the civil law. Civil proceedings focus completely on financial recovery for the victim, require no law enforcement assistance, allow the victim to possibly obtain disclosure orders and freezing orders to protect the stolen assets and provide the victim with control of the investigation. In particular:

  • Unexplained Wealth Orders (UWOs) and Account Freezing Orders (AFOs) were introduced to assist law enforcement agencies in combatting fraud, the most prevalent crime in the UK.
  • These tools hold the potential to be powerful weapons in the anti-fraud armoury. Cases of fraud are time-consuming to prosecute, however, compared with other offences. A mere 3% of frauds reported to the police resulted in criminal charges or summons in 2017/18.
  • UWOs and AFOs are beginning to scratch the surface and help tackle the fraud epidemic. That said, their combined use has only touched assets worth less than 1% of the £140 billion annual UK private sector fraud figure.
  • Businesses which have been the victim of fraud should look holistically at their options, including those offered by the civil law.
  • For example, freezing orders are a civil remedy in the purest sense that stops parties from disposing of or dealing with their assets until a judgment can be enforced. They protect the pool of assets that may represent the proceeds of a fraud and enhance the prospects of recovery of the victim's money. Freezing orders can be made on application in the County Court or the High Court without notice if there is a real risk of the respondent's assets being dissipated. Orders can be made both domestically and worldwide.
  • Whilst freezing orders are costly, they can be a strategically valuable tool that businesses should consider in order to maximise recovery of assets.
  • Time is of the essence when dealing with fraud. Reducing the window of opportunity for fraudsters to benefit from the fruits of their crimes is crucial to successful recovery. UWOs and AFOs rely on the enforcement agencies as the middle man to identify the criminal activity and make the application to court on behalf of the victim. In the vast majority of UWOs made, interim freezing orders have been made in tandem to avoid frustration of the recovery of assets. Freezing orders remove this reliance on enforcement agencies to investigate and make an application to court. Furthermore, respondents to freezing orders may be prepared to provide security or make payments into court to have the injunction discharged or even settle the claim, further benefitting the victim business.
  • They can operate as a "white knight" saving valuable time, cutting out the middle man and putting matters back into the hands of the victim.

Approval for Joint Money Laundering Steering Group guidance

  • The Treasury has approved revised guidance (the revised Guidance) issued by the Joint Money Laundering Steering Group (JMLSG), which has a particular focus on credit unions, asset finance and brokerage services to funds.
  • The finalisation and publication of the revised Guidance is expected to coincide with the implementation date of the Fifth Anti - Money Laundering Directive (5MLD) on 10 January 2020.
  • The revised Guidance was written with the provisions of the MLR 2017 in mind. It seeks to also take into account the draft Risk Factor Guidelines published by the European Supervisory Agencies in October 2015, which have not yet been published in final form.
  • The expected level of customer due diligence ("CDD") is a primary focus of the revised Guidance, specifically in respect of brokerage services to funds. The revised Guidance provides organisations with an example assurance letter for the purposes of providing additional support for CDD including processes for the identification and risk-based verification of all investors into a fund including, where appropriate, identifying and taking reasonable, risk-based measures to verify the investors' beneficial owner(s).
  • The application of a risk based approach features in the revised Guidance for credit unions, noting necessary steps as being to (i) identify the money laundering and terrorist financing risks that are relevant to the firm; (ii) assess the risks presented by the credit union’s particular members; products; delivery channels; and geographical areas of operation (iii) design and implement controls to manage and mitigate these assessed risks; (iv) monitor and improve the effective operation of these controls; and (v) record appropriately what has been done and why.
  • The revised Guidance notes that it is the responsibility of the credit union’s senior management to keep this strategy under regular review, adding that credit unions may consider it appropriate to have a standing item covering money laundering on the agenda of their monthly meeting to ensure procedures are being regularly reviewed.
  • For the providers of asset finance the revised Guidance recommends that they should undertake a specific risk assessment of the suitability of the asset for the customer, the bona fides of the vendor of the asset (i.e. Is it a properly established business? Does its location make sense given the customer’s location?), whether the business is related in any way to the customer (e.g. common directors, same address, etc.) as an indicator that the asset-sale-purchase may not be genuine giving rise to potential ‘fund-raising’ and possible money-laundering ‘fraud’.
  • Further, in the case of ‘sale and leaseback’, asset finance providers are advised to obtain original underlying invoices from bona fide suppliers to customers and confirm that the invoices have been paid. By marking original invoices as being financed by them before returning to the customer, asset finance providers can seek to assure the bona fides of the transaction and avoid ‘double financing’ and handling the proceeds of crime.

Cooperating offenders and the SFO

Lisa Osofsky, the Director of the Serious Fraud Office ("SFO"), has stated that her agency would make more regular and effective use of cooperating offenders to testify against defendants in return for immunity from prosecution. What are the relevant provisions and are there any barriers to the extension of their use?

  • The Serious Organised Crime and Police Act 2005 ("the 2005 Act") (sections 71 and 73) contains provisions relating to offenders willing to assist in the investigation or prosecution of others.
  • In appropriate cases, specified prosecutors (including the SFO and FCA) may (following consultation with the Attorney General) offer cooperating offenders:
    • full immunity from prosecution for a specified offence;
    • a "restricted use undertaking", which prohibits information obtained following the undertaking being used against that person. This form of undertaking does not prevent a witness being prosecuted where other evidence is available which justifies a prosecution;
    • a reduction on their sentence for assistance provided to an investigator or prosecutor.
  • The criteria to be considered in determining whether it is appropriate to grant immunity to a witness was set out by the Attorney General in November 1981. They are whether:
    • in the interest of justice, it is of more value to have a suspected person as a witness for the Crown rather than as a possible defendant;
    • in the interests of public safety and security, the obtaining of information about the extent and nature of criminal activities is of greater importance than the possible conviction of an individual;
    • it is very unlikely that any information could be obtained without an offer of immunity and whether it is also very unlikely that any prosecution could be launched against the person to whom the immunity is offered.
  • Current prosecutorial guidance cautions that "only in the most exceptional cases will it be appropriate to offer full immunity".
  • Offenders who are to give evidence for the prosecution and who wish to benefit from immunity or a restricted use undertaking are expected to fully admit to their criminality.
  • Concerns about the reliability and credibility of witnesses impact on the use of immunity notices by prosecutors; assessments of a potential cooperating witnesses suitability to give evidence (known as "cleansing"), can go only so far and an offer of immunity can be a calculated gamble which could derail a prosecution if a defendant, who is likely to know the witness far better than the prosecution do, alleges criminal conduct in cross-examination which has not been identified during cleansing.
  • Executives at large companies involved in SFO investigations/prosecutions are much less likely to have previous convictions or involvement with law enforcement agencies than witnesses or defendants in organised crime prosecutions, the area where immunity is most often utilised. The risk of cases unravelling on the basis of undisclosed previous conduct will therefore be much lower, a factor in support of more frequent use of immunity notices in SFO prosecutions.
  • The greatest barrier to the more frequent use of immunity for cooperating offenders is cultural rather than legal or procedural. Agreeing a "deal" with an offender is an anathema to most prosecutors and an effective arrow to be fired by defendants into the prosecution's case.
  • Contrast the position in the United States where immunity from prosecution and plea deals are more commonplace and are an important part of an American prosecutor's tool box, often used in the fight against white collar crime (eg the recent conviction of Paul Manafort).
  • More frequent use of the powers contained in sections 71 to 73 of the Act may lead juries and the wider public in the UK to becoming more familiar with "deals" with offenders and accepting of the fact that they are sometimes the price of justice.

There is only one way to tell and under her leadership, Lisa Osofsky has indicated that the SFO is willing to find out.


Two more CJIPs

A Convention judiciaire d'intérêt public (CJIP) is the French equivalent of DPA in England and Wales. Two CJIPs have recently been concluded with the French Financial Prosecution Office:

  • In June 2019, French asset management company Carmignac Gastion agreed to pay a €30 million fine to authorities to settle an investigation into allegations of tax evasion. The payment of €30 million as part of the CJIP is in addition to a €21 million tax adjustment already paid by the company;
  • On 10 February 2017, the Regional Director of Public Finance of Paris filed a complaint against the management of the company, claiming an undue reduction in tax returns for the 2010 and 2011 financial years.
  • The allegations related to the payment of dividends, instead of salaries, to certain executives through a Luxembourg based company, which issued invoices for services (which appeared afterwards not to have been performed) and as a result there was a lower tax liability;
  • The CJIP is the first to cover the offence of tax fraud committed by a corporate body, which was only last year added to the criminal offences which can be the subject of a CJIP;
  • Of particular interest is the fact that the fine levied was substantially increased because there had been no self report by the company – recent guidelines on CJIPs issued by the French anti- corruption agency, AFA, and the French Financial Prosecution Office emphasise the need for cooperation, of which self reporting is a factor.
  • In September 2019 a CJIP was concluded between the French (“Google France”) and Irish (“Google Ireland”) arms of Google and the French Financial Prosecution Office;
  • This not only put an end to the criminal proceedings for tax fraud against Google, and to the litigation with the French tax authorities concerning adjustments for the periods from 2005 to 2018, but also resulted in an unprecedented fine of €500 million in addition to a €465 million tax payment;
  • In setting the fine, the French Financial Prosecution Office took into account several mitigating factors, including Google France's settlement with the French tax administration as well as the cooperation shown by both Google France and Google Ireland during the criminal investigation – the amount at stake in relation to the allegations of tax evasion was, however, considered an aggravating factor.

Procurement manager sentenced for corruption

  • The September 2019 imprisonment for five years of an EDF procurement manager convicted of corruption is a stark reminder of the consequences for individuals convicted of corruption offences.
  • CJIPs are not available to individuals, who may still be prosecuted despite their company either having agreed a CJIP or escaped charge altogether.
  • In this case the procurement manager was estimated to have earned around €1 million through his acts of bribery over a ten year period.
  • In addition to the custodial sentence, the procurement manager was fined €100 000.

AFA Sanctions Committee decision provides some guidance

  • In June 2019, the Sanctions Committee of the AFA considered the first case of a company accused of failing to have in place an effective anti-corruption compliance policy.
  • After hearing argument, the Sanctions Committee dismissed all claims raised by the AFA, ruling that, at the date of the hearing, the defendant company, Sonepar, had implemented a system of detection and prevention of corruption which complied with the Sapin II obligations.
  • The Sanctions Committee ruled that potential breaches are to be assessed at the time when it examines the case – allowing the opportunity for remedial works to be implemented by a company should an AFA inspection suggest deficiencies, before being judged by the Sanctions Committee.
  • The AFA had argued that Sonepar had failed in the implementation of five requirements of an effective compliance programme;
  • In response, Sonegar maintained that whilst it had not strictly followed the methodology suggested by AFA's recommendations published in December 2017, it had nevertheless complied with it.
  • The Sanctions Committee considered the steps taken by Sonepar in detail and in its final ruling stated that no breaches were found regarding these five requirements.
  • In so doing it held that the AFA's guidance on the measures which should be put in place to meet the new compliance requirements are advisory and not mandatory and that a defendant can demonstrate that it has complied with the law by using its own methodology.
  • Measures implemented are likely to be scrutinised in detail, however, when determining compliance.


The draft German Corporate Sanctions Act

The draft German Corporate Sanctions Act (the draft Bill), published in August 2019, will fundamentally change the compliance landscape and defence strategies for all companies with subsidiaries, headquarter functions or business operations based in Germany, in particular significantly increasing enforcement action against corporations and raising the bar for internal investigations;

The draft Bill aims to address international criticism that the current corporate sanctions regime in Germany is inadequate and ineffective:

  • currently, German law does not recognise the concept of corporate criminal liability with the result that corporations involved in misconduct there cannot be charged in criminal proceedings;
  • instead, regulatory fines may be imposed under the German Administrative Offences Act (Ordnungswidrigkeitengesetz) for (i) misconduct by leading personnel in connection with business operations, or (ii) failure to implement adequate control measures to prevent misconduct by employees;
  • enforcement action is discretionary (known as the "opportunity principle") and in practice depends on whether the respective local enforcement authorities have the resources, time, expertise and interest in pursuing the matter;

The draft Bill is intended to make good on the coalition government's commitment in March 2018 to do more to hold corporates to account for their misconduct, abolishing the opportunity principle, raising the upper limit for corporate fines and incentivising the implementation of corporate compliance measures, cooperation and disclosure. It also expands the extra-territorial reach of German sanction laws:

  • Corporations will be sanctioned if either a manager has committed a corporate offence (Verbandsstraftat), or someone has committed a corporate offence in the exercise of the corporation's affairs and its managers could have prevented the offence or made it significantly more difficult by taking appropriate precautionary measures;
      - the failure to take appropriate precautionary measures will no longer require managers' negligence or intention. Notably, whilst the draft Bill does not expressly require compliance measures to be put in place, the intention is clear.
  • Interestingly, the type or level of seriousness of corporate offences that will result in investigations and potential sanctions against the corporation are neither defined nor limited.
  • Thus, in contrast to international anti-bribery laws such as the US Foreign and Corrupt Practices Act or the UK Bribery Act, the law in Germany as currently proposed is much broader in scope: any misconduct that is penalized by any criminal law will qualify, as long as (any) obligations of the corporation were violated or the corporation was enriched (or costs were saved) by the misconduct (provided that was intended by the individual perpetrator);

Three types of corporate sanctions are proposed:

  • a monetary penalty (Verbandsgeldsanktion)
  • a warning with deferment of monetary penalty (in whole or part) (Verwarnung mit Verbandsgeldsanktionenvorbehalt) and,
  • if serious offences have been committed persistently and there is a risk of repetition, the liquidation of the company (Verbandsauflösung);

Fines are to be linked to turnover:

  • for corporations with an average worldwide group annual turnover of more than €100 million over the last 3 years prior to the sanction, the fine can amount to up to 10 per cent of the average annual turnover for intentional misconduct;
  • for corporations not reaching this turnover threshold, the maximum fine will remain at €10 million;
  • forfeiture orders may also be imposed on the corporation to recover profits gained through the illicit conduct;
  • when determining an appropriate sanction, courts have to consider the corporation's efforts to uncover the offence and to compensate damages as well as precautionary measures taken to prevent and detect future offences;

A warning with deferment of financial penalty may be combined by the court with the imposition of obligations (Auflagen) and instructions (Weisungen):

  • obligations can include the payment of compensation;
  • the court may also instruct the company to take certain precautionary measures to prevent corporate misconduct – authorised evidence that such steps have been taken may also be required;
  • the enforcement of a fine may be deferred (with or without obligations and / or instructions) for a period between one and five years;

In certain circumstances, the court may order publication of the sentence against a company.

In relation to procedure, corporations will have the same status as other accused persons within the meaning of the German Code of Criminal Procedure (Strafprozessordnung).

Managers of the company will have the right to refuse to testify (Aussageverweigerungsrecht) in sanction proceedings initiated against the corporation:

  • the timing of any such testimony is crucial in determining whether there is this right to silence – it is available only to legal representatives at the time of testifying and is not available, for example, to someone who has resigned or been dismissed by that point

Sanction proceedings may be discontinued or suspended in certain circumstances including:

  • where the matter deemed insignificant;
  • where obligations and instructions are imposed (see above) or
  • in the event of serious consequences for the company eg where the company suffered substantial damage as a result of the corporate offence;
  • in addition, prosecution may also be temporarily suspended if it is expected that a sanction for the offence in question will be imposed on the corporation abroad.

Although not an express requirement, the draft Bill incentivises the implementation of compliance measures:

  • where compliance measures are in place, but are nevertheless insufficient to provide a full defence to an allegation, the court may still limit any sanction to a warning with deferment of monetary penalty, rather than imposing a monetary penalty directly;
  • the existence of precautionary measures may be taken into account as a mitigating factor in determining the level of any fine;

The draft Bill gives little by way of guidance on what will be considered to amount to appropriate precautionary measures except to provide that such measures will be expected to go beyond the previous requirements of "supervisory measures" aimed at preventing criminal or administrative offences in terms of the German Administrative Offences Act. Interestingly no reference is made to recognised national or international compliance management standards.

Corporates will be expected to take into account the type, size and structure of the corporation and the risks involved in its business operations and the areas in which it operates in determining the compliance measures to be implemented.

In practical terms, in the absence of express guidance from the legislature, guidance on what will amount to appropriate procedures is likely to evolve in case law over time.

Internal investigations may be carried out both by the corporation itself or by third parties.

Internal investigations followed by full disclosure (including the final report and all relevant documents) to the investigating authority may lead to a 50% reduction of the maximum sanction provided:

  • the disclosure in effect clarifies the misconduct and contributes to the investigating authority's investigation;
  • the internal investigation was impartial (it cannot be conducted by defence counsel for the corporation or by an accused individual) and conducted in accordance with the requirements of a fair trial;
  • the corporation or the third party cooperated continuously and without restriction with the investigating/prosecuting authorities;

The draft Bill clarifies that (only) correspondence and other work products that are created within the relationship between defence counsel and the accused corporation are exempt from seizure. Other information sitting with the corporation, its in-house lawyers or external lawyers instructed to investigate the conduct will generally be subject to seizure.

The draft Bill is scheduled to come into force two years after publication once passed, in order to give corporations the opportunity to review compliance measures and adjust and expand these if necessary. Unless a corporation already has in place effective compliance management measures adequately addressing all legal risks that might result in corporate offences, a two-year time period may be challenging, particularly for those corporations with complex structures operating in several jurisdictions;

Corporations should take the opportunity now to update and document their compliance risk assessment and compliance measures in preparation.


Spain’s PSOE party, which won the most seats in the spring general election but fell short of a majority, has unveiled a raft of new policies intended to bolster its efforts to form a government and avoid another election.

The proposals, which are in outline only at this stage, include measures relating to anti-corruption and transparency, including:

  • the development of a new national anti-corruption plan, which will involve review of the existing Criminal Code and the introduction of new classifications of offences;
  • an expansion of the State Security Forces and Corps workforce to help fight against corruption and economic crimes;
  • increased transparency of political lobbyists, who will be required to register interviews etc on a mandatory public register;
  • the introduction of a “whistleblowing statute” giving certain rights and protections to whistleblowers. There are few such protections in place currently, although as a member of the EU Spain will require to put in place measures to at least meet the requirements of the EU whistleblowing directive approved earlier this year. That requires protections and safe reporting channels.

The adoption of the anti-corruption measures proposed by the PSOE party will depend on the outcome of the upcoming Spanish elections, to be held on the 10th of November. Spain is gearing up for its fourth election in four years after almost six months of failed political negotiations. Opinion polls suggest that the Socialist Party are likely win the election, but the political scenario remains quite unpredictable so it is not possible at this stage to know which initiatives will in fact succeed.


A new era of enforcement: DFSA imposes its largest fines to date on Abraaj

  • Demonstrating serious commitment to improving financial integrity and corporate governance standards in the United Arab Emirates, the Dubai Financial Services Authority (DFSA) has recently imposed fines totalling of $315 million on two companies within the Abraaj group, until recently the Middle East's most influential private equity firm.
  • Founded in 2002 by Pakistani businessman Aarif Naqvi, the Abraaj group achieved unprecedented success and focused its efforts on investing in emerging markets. Before its sudden collapse, the group attracted large and reputable institutional investors.
  • The two companies at the centre of the DFSA investigation are Abraaj Investment Management Limited (AIML) and Abraaj Capital Limited (ACLD), both are now in provisional liquidation.
  • The Abraaj companies were found by the DFSA to have "actively misled and deceived" both investors and the regulator and to have ridden "roughshod over their compliance function". Misconduct and deceit were said to have been "pervasive and persistent."
  • ACLD was fined just under $15.3 million, while AIML was fined $299.3 million – the largest fines imposed to date.
  • In its Decisions, the DFSA reached the following conclusions:
    • AIML was found to be carrying out unauthorised financial services activities, including fund management, both within and from the DIFC, of actively misleading and deceiving its investors and misusing their money to meet its own cash shortfalls and other operating expenses. The company also concealed its activities by providing misleading financial information to investors, and making false statements about its use of investors' money.
    • ACLD was knowingly involved in AIML's unauthorised activity, while also failing to maintain adequate capital resources and deceiving the regulator about its compliance with the capital adequacy rules. The company also breached the DIFC's Regulatory Law by failing to observe minimum standards of integrity and fair dealing; failing to ensure its affairs were managed effectively and responsibly; and failing to deal with the DFSA in an open and cooperative manner.
  • In determining the level of fines that were appropriate, the DFSA wanted not only to penalise the Abraaj companies but also deter other companies from committing similar breaches.
  • The DFSA also took into account the impact of the Abraaj companies' conduct on Dubai's standing and reputation.
  • The DFSA was particularly concerned in its findings that certain issues had been brought to the attention of senior management as early as 2009 by the Compliance function. However, the appropriate steps were not, in the DFSA's view, taken at the time.
  • Investigations into individuals and entities connected with the case continue, with a parallel investigation ongoing in the US.

The rise and fall of Abraaj will inevitably pave the way for an improved compliance landscape in the UAE, particularly given the extent of financial penalties imposed and the reputational damage involved. Organisations and businesses operating in the UAE will be encouraged to commit further resources to ensuring: (a) effective corporate governance, integrity and transparency; and (b) top-level commitment to compliance and genuine risk management processes.


Public service rationale and foreign public officials

  • The High Court in Singapore ( PP v Tan Kok Ming Michael and other appeals [2019] SGHC 207) has recently considered whether the sentencing principle known as the "public service rationale" is applicable in a corruption case where the recipient or intended recipient of a bribe is a foreign public official, and if not, whether it should be extended to cover such a scenario;
  • the public service rationale (also known as the public sector rationale) was developed by case law as an aggravating factor in sentencing.
  • it was argued (amongst other things) that the public service rationale is not engaged where the recipient or intended recipient of a bribe is a foreign public official, because the legislative intent and the common law objective of the public service rationale only sought to protect the interests of Singapore’s public sector and not the interests of foreign governments. The bribery of a foreign public official can be recognised as a separate aggravating factor;
  • the court held that the corruption of foreign public officials does not, and should not, fall within the ambit of the public service rationale, which was developed for the protection of Singapore's public administration;
  • however, the court did agree that the corruption of foreign public officials should be recognised as a distinct aggravating factor;
  • Although distinct aggravating factors, the two should share the same starting point of a custodial sentence.

Pinsent Masons' Annual Business Crime & Compliance Conference, November 14th 2019

Our White Collar Crime, Investigations and Compliance team is hosting its annual Business Crime & Compliance Conference at our London offices on Thursday, November 14th 2019 (12:30-6pm) – by complimentary invitation - at which we will explore UK and overseas policy developments in tackling economic crime, the role of business in tackling the economic crime threat and the challenges and strategies for businesses in developing compliance and integrity programmes.

We would be delighted if you would join us at our Conference.

For full event details and to register: here.

For more information or team contacts, visit our Corporate Crime page.