FINANCIAL CRIME DIGEST May 2015

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FINANCIAL CRIME DIGESTMay 2015

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FINANCIAL CRIME DIGEST

FCA publishes one-minute guide on Market Abuse Regulation

The FCA has published a one-minute guide on the Market Abuse

Regulation (596/2014/EU) (MAR), which will repeal and replace the

current Market Abuse Directive (2003/6/EC) and its implementing

legislation from 3 July 2016. The one-minute guide contains

information on the objective of the regulation, its application and

key requirements.

MAR aims to strengthen the existing UK market abuse framework

by extending its scope to new markets, new platforms, and new

behaviours. It contains prohibitions for insider dealing and market

manipulation, and provisions to prevent and detect these.

The one-minute guide is HERE.

Welcome to the May 2015 Financial Crime Digest,covering updates from April 2015.

This month, we cover a number of updates from theFCA, including guidance on market abuse regulations,further clarification on the FCAs approach to de-risking, and guidance on financial crime systems andcontrols. We also cover updates on the fourth MoneyLaundering Directive and the Wire Transfer Regulation,as well as a recent Supreme Court ruling on themeaning of criminal property under the Proceeds ofCrime Act 2002. In addition, we provide a round-up ofrecent press and media coverage of anti-money laundering, sanctions, bribery & corruption, fraud, and insider trading issues.

TECHNICAL AND REGULATORY UPDATES

1




2

European Commission publishes communication to Parliament concerning the Councils position on MLD4

In the communication, the Commission recognises that the Councils position reflects the political

agreement that was reached between the European Parliament and the Council on 16 December 2014,

which represents a delicate but acceptable balance, as part of the overall compromise, regarding:

The provisions related to beneficial ownership

information: This information will be held in a

central register in each Member State, which

constitutes an enhancement of transparency in

line with the Commission's broader policies.

However, as regards the specific provisions on

the access to this information, the Commission

considers that the notion of legitimate interest"

must be construed and understood in the light

of the requirements flowing from Articles 7 and

8 of the Charter of Fundamental Rights, in full

respect of the rules on protection of personal

data and the right to privacy.

The provisions related to the level of

administrative pecuniary sanctions applicable

to financial institutions and to non-financial

institutions: in the case of financial institutions,

as regards legal persons, the level of maximum

pecuniary sanctions shall be at least EUR 5

million or 10% of the total annual turnover, and,

as regards natural persons, the maximum of

pecuniary sanctions is to be of a least EUR 5

million; in the case of non-financial institutions,

the maximum pecuniary sanctions is at least

twice the amount of the benefit derived from the

breach, or at least EUR 1 million; and

The use of delegated acts, and not

implementing acts, to identify third-country

jurisdictions which have strategic deficiencies in

their AML/CTF regimes.The Commission supports the results of inter-

institutional negotiations and can therefore

accept the Councils position at first reading.

The procedure files for MLD4 and the Wire

Transfer Regulation have been updated and

now indicate a vote in plenary on 20 May 2015.

The European Parliament has published a draft

legislative proposal to approve the Councils

position on MLD4, at second reading.

The communication from the Commission on

MLD4 is HERE

The procedure le on MLD4 is HERE

The draft recommendation for MLD4 is HERE




3

European Commission publishescommunication to Parliament concerning theCouncils position on Wire Transfer Regulation

Similar to its communication on MLD4, the

Commission in this communication recognises that

the Councils position reflects the political

agreement that was reached between the European

Parliament and the Council on 16 December 2014.

The Commission states that the proposed Funds

Transfers Regulation lays down rules for payment

service providers to send information not only on the

payer, but also on the payee, throughout the payment

chain, for the purposes of prevention, investigation,

and detection of money laundering and terrorist

financing - and is, to a large extent, based on the new

Recommendation 16 on wire transfers adopted by

the Financial Action Task Force (FATF). It aims to

ensure that this international standard is transposed

uniformly throughout the Union and, in particular,

that there is no discrimination between situations

involving national payments within a Member State

and cross-border payments between Member States.

The Commission supports the results of inter-

institutional negotiations and can therefore accept

the Councils position at first reading.

The European Parliament has published a draft

legislative proposal to approve the Councils position

on the Wire Transfer Regulation, at second reading.

The communication from the Commission on the

Wire Transfer Regulation is HERE

The procedure file on the Wire Transfer Regulation is

HERE

The draft recommendation on the Wire Transfer

Regulation is HERE




4

FCA Final Guidance FG15/7 - guidance onnancial crime systems and controls (andfeedback on GC14/7)

The FCA in GC14/7 proposed including in its

Financial Crime Guide examples of good practice

from the FCAs thematic review of smaller banks

AML and sanctions systems and controls, and the

anti-bribery and corruption systems and controls

in small commercial insurance intermediaries.

The FCA has now published a summary of the

feedback received, along with the Financial Crime

Guide (Amendment No. 3) Instrument 2015

(FCA2015/16), which contains some changes

from what was proposed. The instrument came

into force on 27 April 2015. The FCA is in the

course of amending the Financial Crime Guide as

provided in the instrument.

Section 3 of Annexure A notes the new text that

has been added with regards to Source of Wealth,

Source of Funds and Enhanced Due Diligence.

The legal instrument is HERE

The feedback summary is HERE.

Derisking: FCA sets out its expectations

The FCA has released a statement regarding its

expectations of banks in relation to derisking.

It has stated that effective risk management need

not result in wholesale derisking, and that it

expects banks to take an effective risk-based

approach. A risk-based approach does not require

banks to deal generically with whole categories of

customers or potential customers. Instead, the

FCA expects banks to recognise that the risk

associated with different individual business

relationships within a single broad category

varies, and to manage that risk appropriately.

The FCA also states that it will consider whether

firms derisking strategies give rise to consumer

protection and/or competition issues. It

encourages banks to consider the FCAs Financial

Crime Guidance, and also makes reference to its

approach to enforcement of breaches of AML

obligations.

The webpage is HERE.




5

Recent case - R v GH, [2015] UKSC 24:Supreme Court case on the meaning ofcriminal property for the purposes ofsection 238(1) of the Proceeds of Crime Act 2002

The Supreme Court has allowed the prosecutors

appeal in a case concerning Section 238(1) of the

Proceeds of Crime Act 2002 (entering into or

becoming concerned in an arrangement which he

knows or suspects would facilitate the retention,

use, or control of criminal property). The

judgement also has consequences for sections

327 and 329 of the legislation.

A fraudster, B, established four ghost websites,

falsely pretending to offer cut-price motor

insurance. In order to carry out this plan, he

recruited associates to open bank accounts for

channelling the proceeds. H was one such

associate, who opened two bank accounts.

Members of the public paid money into the bank

accounts for a non-existent motor insurance. The

prosecution alleged that H must have known, or

at least suspected, that B had a criminal

intention. The judge had ruled that H had no

case to answer on the grounds that at the time

H entered into the arrangement, no criminal

property existed.

The Supreme Court held that:

l Criminal property in sections 327-329 of

POCA refers to property which already has the

quality of being criminal property (as defined

in section 340 of POCA) by reason of prior

criminal conduct, distinct from the conduct

alleged to constitute the commission of the

money laundering offence itself;

l The Court of Appeal was correct to hold that it

does not matter whether criminal property

existed when the arrangement was first made;

l The character of the money paid by victims

into the accounts although lawful at the

moment of payment changed on being paid

into the bank accounts. The money became

criminal property in the hands of B by reason

of the fraud perpetrated on the victims. As

such, it is legitimate to regard H as entering

into or becoming concerned in an arrangement

to retain criminal property for the benefit of

another. Consequently, the ruling that H had

no case to answer was erroneous.

l The same reasoning applies to sections 327

and 329 of the Proceeds of Crime Act.

The judgment is HERE

The press release is HERE



6


Transaction reporting failures - FCA nesMerrill Lynch International GBP 13.2 million

The FCA has fined Merrill Lynch International GBP

13,285,900 for transaction reporting breaches

between November 2007 and November 2014.

The FCA final notice describes 11 different

breaches, and states that the firm reported a

number of less serious breaches that have also

been taken into account. The FCA finds the

breaches particularly serious in light of the fact

that the firm had previously received a private

warning in 2002 and a fine of GBP 150,000 in 2006

for failures in transaction reporting compliance.

The fine is the highest imposed by the FCA for

transaction reporting failures to date. The

Regulator states that it has increased the penalty

per line of incorrect or non-reported data from

GBP 1.00 to GBP 1.50 because it felt that the past

fines had not been high enough to achieve

credible deterrence. The firm received an early

settlement discount of 30%, without which the

fine would have been GBP 18,979,876.

The final notice is HERE


LIBOR and EURIBOR - FCA nes DeutscheBank GBP 227 million

The FCA has fined Deutsche Bank AG GBP

226,800,000 following its London Interbank

Offered Rate (LIBOR) and Euro Interbank Offered

Rate (EURIBOR) investigations. The firm qualified

for an early settlement discount of 30%, without

which the fine would have been GBP 324 million.

The FCA notes that serious misconduct by

Deutsche Bank led to breaches of Principles 5, 3

and 11 of the Authoritys Principles for

Businesses: first, through Deutsche Banks

attempted manipulation of LIBOR rates and

improper influence over LIBOR submissions;

second, through its systems and controls failings;

and third, through serious deficiencies in the way

Deutsche Bank dealt with the Authority in relation

to LIBOR matters. The direct involvement of

managers and senior managers in many aspects

of Deutsche Banks misconduct aggravated the

seriousness of the breaches.

The final notice is HERE




7

PRESS AND MEDIA: MONEY LAUNDERING

A Spanish investigative magistrate has opened a probe into possible money laundering at Banco de Madrid, a

unit of Banca Privada dAndorra, which is accused by U.S. authorities of having assisted groups from China,

Russia and Venezuela to launder money. The National Court said that Judge Fernando Andreu had opened an

investigation into the bank and its seven directors following a complaint by a client stating that the bank made

itself available for clients to launder money, and minimised internal controls.

Panamas national legislature has

approved a proposed law to

significantly tighten supervision of

more than a dozen non-financial

sectors involved in receiving the

proceeds from the sale of

narcotics, terrorism and

corruption. The Financial Action

Task Force last year placed

Panama on its grey list of

jurisdictions with major

deficiencies in tackling money

laundering and terrorist financing.

The former head of the International MonetaryFund, Rodrigo Rato, was detained by customsagents in Madrid in connection with possiblemoney laundering offences after he tookadvantage of a tax amnesty in 2012 to repatriatefunds previously held offshore. His arrest followsa wave of corruption allegations involving seniorSpanish politicians.



8

The Financial Action Task Force has issued

Mutual Evaluation Reports of Australia and

Belgium. FATF found that Australia has a mature

regime for combating money laundering and

terrorist financing, but certain key areas remain

unaddressed. In relation to Belgium, FATF found it

also had a well-established regime for combatting

money laundering and terrorist financing, but

some elements are not in line with the 2012 FATF

Recommendations.

Switzerlands Money Laundering Reporting Ofce

(MROS) said it had received a record number of

suspicious activity reports in 2014. 1,753 reports

were filed in 2014, a 24% increase on 2013 - and

the highest number recorded since MROS was

founded in 1998. The office forwarded 72% of

suspicious activity reports to prosecutors.

PRESS AND MEDIA: MONEY LAUNDERING

The U.S. Appeals Court has ruled by a narrow

margin that the European Union can pursue a

lawsuit against R.J. Reynolds, part of the U.S.

tobacco company, for allegedly running a global

money laundering scheme that involved drug and

cigarette smuggling. The European Union

accuses R.J. Reynolds of having directed a

decade-long scheme from the United States

involving the smuggling of illegal narcotics into

Europe by Colombian and Russian organised

crime groups, laundering the proceeds of sale of

these drugs, and the use of these proceeds by

importers to buy R.J. Reynolds cigarettes. The

European Union claims that R.J. Reynolds

violated the Racketeer Influenced and Corrupt

Organizations Act, a U.S. anti-racketeering law.

The lawsuit began in 2002.

Crdit Agricole must pay USD 9.8 million to a

wealthy Greek family after losing a long-running

court battle involving allegations it failed to ask

enough questions about a suspicious transaction

nearly 15 years ago. Under a UK Privy Council

decision in the case of Crdit Agricole

Corporation and Investment Bank (Appellant) v

Papadimitriou (Respondent) (Gibraltar), the court

found that the use of a complex network of legal

entities including companies in Panama, a

Liechtenstein trust, and a BVI company should

have alerted the bank to the risk of money

laundering. As a result, the bank should have

made enquiries about the underlying legal

purpose of the arrangement, not just the source

of funds.



9

PRESS AND MEDIA: BRIBERY & CORRUPTION

The SEC charged FLIR Systems, a large imaging

technology company, with violating the FCPA by

financing a world tour of personal travel for

Middle East government officials who were

influential in decisions to buy FLIR products.

FLIR, which made more than USD 7 million in

profits from the sales, agreed to pay USD 9.5

million to settle the charges.

United Technologies Corp. said it received a

second subpoena from U.S. authorities seeking

information about potential foreign bribery

violations. The subpoena from the U.S. Securities

and Exchange Commission seeks information

relating to potential payments by an agent in

China that may have violated the U.S. Foreign

Corrupt Practices Act.

Sinopec president Wang

Tianpu was the latest oil

executive to be caught up in

Chinas widening corruption

probe. Tianpu was detained

by Communist party officials

on 27 April for suspected

serious violations of

discipline and law, and has

been detained by

Communist party officials as

Chinas corruption probe

widens further.

A judge in Austria has refused an extradition

request from the U.S. for Dmitry Firtash, a

Ukrainian billionaire oligarch who is closely

associated with former Ukrainian president, Viktor

Yanukovych. Fitash made his fortune in the

notoriously corrupt Ukrainian gas industry and

has been charged by prosecutors in Chicago with

racketeering and other crimes. Firtash and his

associates are accused of having paid USD 18.5

million in bribes to officials in India to secure a

titanium-mining deal that never materialised.



10

PRESS AND MEDIA: SANCTIONS

Iranian President Hassan

Rouhani has said on state

television that Iran would not

accept a comprehensive

nuclear deal with the major

powers unless all sanctions

imposed on Tehran were

lifted. Iran wants sanctions

that include nuclear-related

UN resolutions, as well as

U.S. and EU nuclear-related

economic sanctions, to be

lifted immediately. The U.S.

says sanctions against Iran

will be removed gradually.

Meanwhile, Russia has said

that it will go ahead with the

sale of S-300 missile

equipment to Iran in defiance

of UN sanctions. Russia had

originally blocked the sale in

2010 following imposition of

UN sanctions.

The European Union has re-imposed sanctions on Bank Tajerat, an

Iranian bank, and 32 Iranian shipping companies, using new legal

grounds, after the measures were struck down by a European court.

The move came days after Iran and six major powers reached a

framework agreement to end a long-running dispute over Iran's

nuclear programme. The EU's move is a signal that the 28-nation

bloc will keep up sanctions pressure on Iran until a final nuclear deal

is sealed.

The U.S. Treasury announced in a statement that the Kodo-kai, a

major second-tier affiliate of the Yamaguchi-gumi, the largest of

Japans Yakuza crime syndicate, has been added to the United

States sanctions list. The sanctions freeze all U.S.-based assets

belonging to the 4,000 member Kodo-kai, and prohibit United States

persons or entities from dealing with the organisation and its

chairman, Teruaki Takeuchi.

U.S. President Barack Obama has

ordered the creation of a programme

that would allow the government to

impose sanctions on foreign hackers.

Mr Obama said cyber-threats are "one of

the most serious economic and national

security challenges" that the U.S. faces.

The U.S. did not announce any specific

new sanctions, only the authority to

impose them in the future if it is

deemed necessary.

The U.S. has removed a prominent businessman from its Myanmar sanctions list, in spite of doubts about

reforms in the Southeast Asian country. Win Aung, the head of Myanmar's chamber of commerce, whose

Dagon International construction firm won contracts to help build the country's capital of Naypyitaw, was

removed from the Specially Designated Nationals (SDN) and Blocked Persons list, the U.S. State

Department said in a statement.



11

PRESS AND MEDIA: SANCTIONS

The U.S. Treasury and Saudi Arabia have

imposed sanctions on a charity fund alleged to

provide financing to "terrorist" groups including

Al-Qaeda, the Taliban, and Lashkar-e-Taiba. The

sanctions aim to disrupt the financing and

operations of Al-Furqan Foundation Welfare

Trust, a charity group based in Peshawar,

Pakistan. The Treasury said Al-Furqan is the

successor to the Pakistan branches of the

Afghan Support Committee and Revival of

Islamic Heritage Society. Both were designated

as global terrorist entities and listed on the

United Nations' Al-Qaeda sanctions list in 2002.

The General Court of the European Union has

upheld the EU sanctions on Zimbabwe, saying

the EU fairly targeted people and companies

linked to the government there. The courts

decision comes after many of the EUs sanctions

against Zimbabwe have been removed. Only

President Robert Mugabe, his wife, and one

defence company remain subject to the asset

freeze and travel ban. An EU arms embargo also

remains in effect. The sanctions challenge was

lodged in 2012 by Zimbabwes Attorney-General

Johannes Tomana and 109 other individuals,

many of them senior-ranking government, police

and army officials.



12

PRESS AND MEDIA: FRAUD

An Indian court has sentenced the former head of

Satyam Computers and nine others to seven

years in prison in one of the country's biggest ever

corporate scandals. B Ramalinga Raju, who

founded the software services giant, denied

charges of conspiracy, cheating and forgery, but

admitted to accounting malpractices. Raju was

also fined USD 800,000. The collapse of Satyam

Computers in 2009 cost shareholders more than

USD 2 billion and rocked India's IT industry.

The heiress of the fashion and perfume house

Nina Ricci was sentenced to a year in prison and

ordered to pay heavy fines and back taxes for

having hidden millions of euros in HSBC bank

accounts in Switzerland. It was the first case

involving a famous name in the so-called Swiss

Leaks scandal.

U.S. authorities have arrested a former

investment adviser for JPMorgan Chase, Michael

Oppenheim, on charges he stole some USD 20

million from clients and put most of the money

into losing investments. Oppenheim faces federal

criminal charges of embezzlement and fraud in

the alleged scheme. The former New York City-

based investment adviser and broker advised 500

clients of the largest U.S. bank by assets, most of

whom were high net worth, according to a

Securities and Exchange Commission complaint

filing parallel fraud charges.



13

PRESS AND MEDIA: INSIDER TRADING

The U.S. Supreme Court has denied a legal

submission by attorneys for Rajat Gupta, the

former Goldman Sachs director and managing

partner of McKinsey & Co., in his bid to have the

court review his 2012 conviction on insider

trading charges. Gupta will continue to serve his

two-year prison term. He was found guilty of

illegally feeding non-public tips about Goldman

Sachs to Raj Rajaratnam, the co-founder of the

Galleon Group hedge fund. Rajaratnam is serving

an 11-year prison term for his role at the centre of

a broad insider trading scheme.

The Financial Conduct Authority has charged

three individuals, Manjeet Singh Mohal, Reshim

Birk, and Pal Singh Sappal in relation to insider

dealing by dealing in securities. The FCA states

that the offences relate to trading in multinational

IT firm Logica PLC shares in May and June 2012.

The Securities and Exchange Commission has

filed fraud charges against Ifty Ahmed, a general

partner with venture capital firm Oak Investment

Partners, accusing him of participating in an

insider trading scheme that netted him USD 1.1

million. Also charged was Amit Kanodia, a long-

time associate of Ahmed, who is described by the

SEC as an entrepreneur and private equity

investor. The SEC alleges that, by April 2013,

India-based Apollo Tyres was engaged in serious

negotiations to acquire Cooper Tire, of Findlay,

Ohio. Although the acquisition was never

completed, the complaint alleges that Cooper

Tires stock price jumped 41 percent when the

acquisition was announced in June 2013. The

SEC alleges that Kanodia tipped Ahmed and

another friend prior to the acquisition

announcement after learning of the deal from his

wife, then the general counsel at Apollo, who was

intimately involved in Apollos efforts to acquire

Cooper Tire.

The Monetary Authority of Singapore has handed

down its largest ever penalty for insider trading

against the brother of a prominent businessman.

Lim Oon Cheng will pay a civil penalty of SGD

9.597 million for breaches of the Securities and

Futures Act. The amount includes a separate

penalty of SGD 50,000 for false trading. His niece,

Lim Huey Yih, will have to pay SGD 2.241 million.

Lim Oon Cheng is reported to be the brother of

Lim Oon Kuin, founder of oil trading firm Hin

Leong Group, who was ranked No. 14 on Forbes'

list of Singapore's 50 richest people last year. Lim

Oon Cheng, who admitted insider trading, bought

2.27 million shares in Singapore Petroleum

Company and 101,000 shares in Keppel

Corporation between 15 May and 22 May 2009.

He did so while in possession of price-sensitive

and non-public information relating to the

acquisition of SPC shares by PetroChina

International (Singapore) from Keppel, and

PetroChina's mandatory general offer for

SPC shares.

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FINANCIAL CRIME DIGEST May 2015