European White Collar Crime Report Views on the Key Developments Across Europe

European White Collar Crime Report Views on the key developments across Europe

Q4 2017

allenovery.com 2 European White Collar Crime Report | Q4 2017

Europe at a glance

The investigation and prosecution of white collar crime continued this quarter with action being taken across Europe for a range of offences. In previous editions, we have commented on the increasing use of Deferred Prosecution Agreements. This quarter, Allen & Overy acted on the first French style Deferred Prosecution Agreement (see Settlement section). We are seeing the ability of European authorities to combat economic crime being strengthened with the introduction of a number of new bodies, most notably the European Public Prosecutor’s Office (EPPO), which is due to become operational some time in 2020-21. The UK has also announced the creation of a National Economic Crime Centre and the UK’s new anti-money laundering supervisor, OPBAS, will become operational in mid-January 2018. Cross-border enforcement regarding the proceeds of crime is also set to be reinforced now that the EU Council has reached agreement on the introduction of harmonised freezing orders. A wave of new guidance has been introduced across Europe covering various topics, including anti-money laundering, information sharing, counter terrorist financing and in France, corrupt practices. Across the EU, the Fourth Money Laundering Directive (MLD4) remains to be implemented across all jurisdictions, despite the EU having now reached political agreement on the Fifth Money Laundering Directive (MLD5).

UK Supreme Court refines the criminal law test for dishonesty in landmark decision; Three former senior employees of Rolls Royce plead guilty to bribery and corruption offences; SFO charges two SBM executives in Unaoil corruption scandal; Former law firm partner acquitted of conspiracy to commit money laundering; NCA announces convictions arising out of its investigation into the laundering of the proceeds of cybercrime; HMRC brings into force new strict liability offshore tax offences; Changes to the UK Suspicious Activity Reporting regime come into force; UK Government announces new National Economic Crime Centre; Continued progress of the Sanctions and Anti-Money Laundering Bill through Parliament; HMRC publishes updated money laundering supervision enforcement measures; Revised versions of JMLSG AML and CTF guidance published; OPBAS, the UK’s new money laundering supervisor to come into effect in January; Attorney General announces the launch of a campaign to recruit the next director of the Serious Fraud Office.

FRANCE First French style Deferred Prosecution Agreement entered into; Supreme Court permits parallel administrative and criminal prosecutions arising from the same facts; Major media company accused of market abuse in relation to its communications on indebtedness; Anti-Corruption Agency publishes guidelines on best practices to prevent and detect corrupt practices and conducts first inspections into compliance with Sapin II Law; Harsh penalties and damages imposed in a tax-related money laundering case; Contents

Anti-money Prosecutor laundering Market Bribery and Taxation attitudes and and proceeds offences corruption Page 8 resources of crime Page 10 Page 14 Page 16 Page 4

Certain developments concerning active matters involving clients of Allen & Overy may not be included in this report.

Criminal complaint filed in France against a major cement producer on grounds of potential international corruption offences and for aiding and abetting a crime against humanity; Supreme Court clarifies the criteria for excluding unfairly obtained evidence in criminal proceedings; Member of Parliament referred to trial in tax-related matter, notwithstanding prior acceptance of a guilty plea by the Public Prosecutor.

SPAIN Draft proposal to implement MLD4 announced.

GERMANY “Cum-ex” criminal charges raised by prosecutor’s office in Frankfurt; Government expresses interest in “Paradise Papers”; German stock exchange CEO steps down after proceedings relating to insider trading; Criminal Law provisions of second statute to amend the EU Financial Market Regulations came into force on 3 January 2018 in Germany; Premises of major wholesale company searched in connection with suspicion of insider trading; Major aerospace company faces embezzlement charges; Investigations commence into suspected bribery concerning the construction of gas pipeline from Russia to Germany; Sanctioning proceedings against car manufacturer in connection with diesel emissions scandal; Election of president of German Association of Savings Banks postponed after tax penalty order; Swap speculation by city officials results in suspended sentence.ITALY

BELGIUM FSMA publishes guidelines to ensure the observance of the new legal obligation, which came into force on 3 January 2018, to set up appropriate internal procedures for whistle-blowing; Government proposes remedial bill for judicial authorisation of criminal settlements.

NETHERLANDS Dutch court acquits defendants in major rail sector fraud and bribery case; Draft legislation to implement MLD4 introduced to Parliament.

POLAND President signs legislation for combatting VAT fraud; Supreme Court overrules findings that several banks colluded to fix the level of interchange fees in Poland; the Central Anti-Corruption Bureau investigates banking fraud regarding SK Bank totalling over PLN1.6 billion (c. GBP340 million); Draft Act on Transparency in the Public Sector to impose fines of up to PLN10m plus a five-year ban on participating in public tenders for companies failing to apply effective internal anti-corruption policies.

CZECH REPUBLIC Criminal prosecution of newly elected Czech Prime Minister temporarily stayed; Officials raid law firm offices to collect evidence as part of tax evasion investigation. Settlement and recent Looking ahead EU-WIDE Basel Institute of Governance publishes its annual money laundering index; verdicts Page 22 EU publishes “blacklist” of non-cooperative tax jurisdictions and accompanying Page 20 “grey list” of jurisdictions with potentially deficient standards; Creation of the European Public Prosecutor’s Office continues; Financial Action Task Force publishes updated AML guidance notes on financial inclusion and private sector information sharing; EU political agreement reached on Fifth Money Laundering Directive (MLD5); EU Council reaches agreement on harmonised freezing orders.

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Anti-money laundering and proceeds of crime

– Changes to the UK Suspicious Activity Reporting (SAR) The fraud centred around a scheme in which Scourfield, regime come into force. On 31 October 2017, changes to HBOS’ Lead Director of Impaired Assets, encouraged the UK SAR regime contained in the Criminal Finances Act struggling businesses to appoint consultants Quayside 2017 came into force. These changes extend the so-called Corporate Services (QCS). Together, Scourfield and QCS ‘moratorium period’ (ie the period in which a regulated firm conspired to lend additional money from the bank to these is prohibited from dealing in property after it has filed a SAR businesses, which was then siphoned off through high fees and the National Crime Agency (NCA) has declined consent charged by QCS. QCS also sought to asset strip these to deal) from 31 days to six months. The moratorium period businesses to bankruptcy and then sell them at low prices may be extended in one-month increments, subject to court to companies linked to QCS’ directors. approval. In addition, provisions relating to information Hawes had been accused of conspiracy to conceal or transfer sharing have also come into force. These allow regulated criminal property (contrary to section 327 of the Proceeds of firms to share information on potential concerns – either at Crime Act 2002). He was alleged to have assisted his the request of the regulator or, subject to approval, on their co-conspirators by dissipating funds through a firm client own initiative. For more information on these changes please account and through use of a wide-ranging power of attorney. see Allen & Overy’s publication The Criminal Finance Act: a guide for financial services firms(for more information). – UK NCA announces convictions arising out of its investigation into the laundering of the proceeds of – Financial Action Task Force (FATF) and HM Treasury cybercrime. On 2 November 2017, five individuals were publish updated AML guidance notes on financial jailed for a total of 28 years for being part of a network inclusion and private sector information sharing. responsible for laundering money stolen by Eastern The updated FATF guidance on financial inclusion European cyber criminals. The investigation undertaken by supplements the original 2013 guidance in order to address the NCA showed that the principal architect of the scheme concerns that KYC demands can impede access to regulated was a personal banking manager at a high street bank, financial services for low income or displaced persons. who exploited his position to assist the hackers by setting up The 2017 guidance provides examples of customer due and managing around 400 fake accounts. All five individuals diligence approaches which aid financial inclusion, pleaded guilty to their roles in the conspiracy. including the use of e-verification. The investigation and resulting convictions reflect the NCA’s The FATF guidance on private sector information sharing also broader effort to tackle UK-based money laundering sets out considerations when sharing information relating to networks supporting elite cyber criminals, helped by the FBI potential money laundering concerns both between financial and the National Cyber-Forensics & Training Alliance institutions and companies within the same group structure (NCFTA) in the United States. principles which should guide such disclosures. It also includes country-by-country examples of how regulators have addressed – Continued progress of the UK’s Sanctions and Anti-Money difficulties in legally sharing such information. Laundering Bill through Parliament. The Sanctions and Anti-Money Laundering Bill (the Bill) completed the HM Treasury has also updated its 2013 guidance on money committee stage of House of Lords scrutiny on 12 December laundering and terrorist finance controls in higher risk 2017. The Bill sets out a framework to enable the UK to jurisdictions and to reflect the latest FATF statements. enforce sanctions and to update existing provisions on Its guidance provides jurisdiction-specific advice about anti-money laundering and terrorist financing (in particular, appropriate due diligence measures for firms to consider. the Money Laundering Regulations 2017) after Brexit. – Former law firm partner acquitted of conspiracy to Amongst other things, the Bill would allow ministers to commit money laundering. A former Burges Salmon impose sanctions using secondary legislation that is subject partner of 20 years, Roger Hawes, was found not guilty by a only to a yes-or-no vote by parliament. The Lords’ Constitution jury of conspiracy to commit a UK money laundering offence Committee has stated that it is “not appropriate for ministers in connection with a high profile GBP245m fraud at HBOS to have such broad powers” and that it is “deeply concerned” committed between 2003 and 2008. The acquittal follows the at the possibility of ministers creating criminal offences trial and sentencing of six others, including former HBOS punishable by up to ten years in prison. There will be another senior manager Lynden Scourfield, for their roles in the opportunity to make changes to the Bill at the Report stage, fraud, with sentences totalling nearly 50 years. which is scheduled to commence on 15 January 2018.

– JMLSG revises AML and CTF guidance. On 21 December – EU political agreement reached on Fifth Money 2017, the Joint Money Laundering Steering Group (JMLSG) Laundering Directive (MLD5). On 20 December 2017, published revised versions of its anti-money laundering and it was announced that agreement had been reached between Counter Terrorist Financing (CTF) guidance. The revised the EU Council, European Commission and Parliament guidance was approved by the JMLSG Board on 13 December regarding amendments to the Fourth Money Laundering 2017. The JMLSG confirms that it has made the amendments Directive (MLD4). In brief, the proposed changes focus on: proposed in November 2017, subject to further amendments to enhancing access to beneficial ownership registers (including the guidance in paragraph 6.15 in Part I, which explains what is allowing public access); targeting risks associated with prepaid meant by the phrase “reasonable grounds to know or suspect” cards and virtual currencies (including making the latter subject and a number of minor editorial amendments. The revised to customer due diligence requirements); improving cooperation guidance has been submitted to HM Treasury in the UK for between Member State financial intelligence units and approval. The revised guidance will only take over the ‘legal’ improved checks on high-risk jurisdictions. MLD5 is intended status of the existing guidance once it has been approved by to be a minimum harmonising Directive (ie Member States HM Treasury. Once it has been approved, compliance with the may take a more stringent approach). It will now progress to revised guidance will provide a safe harbour in the event of the EU Council and Parliament for first reading. prosecution under certain parts of the UK AML and CTF – Basel Institute of Governance published its annual money regime. Nevertheless, the JMLSG advises that firms are free to laundering index. According to the Institute, the Basel AML use the revised guidance immediately if they wish to do so. Index remains the only index issued by an independent, – Her Majesty’s Revenue and Customs (HMRC) not-for-profit organisation ranking countries according to their publishes updated guidance on its approach to money risk of money laundering and terrorist financing. The index is laundering enforcement in the UK. On 22 December used by parts of the private sector as an established AML 2017, HMRC published an updated version of its guidance country risk rating tool for compliance purposes, and in the note ‘Money laundering supervision: enforcement measures’, public sector, by NGOs and academia for research and policy reflecting the new Money Laundering Regulations. measures. The 2017 version of the index covers 146 countries. This document provides detailed guidance to assist businesses A total of 14 indicators dealing with AML/CTF regulations, to have written risk assessments, policies, controls and corruption, financial standards, political disclosure and the rule procedures in place to prevent others using them to launder of law are taken into account at different weights and money or finance terrorism. aggregated into one overall risk score. The lower a country’s score and ranking, the lower the risk of money laundering and – Harsh penalties and damages imposed in a tax-related terrorist financing. In the 2017 index, Finland (which is the money laundering case. On 13 September 2017, the 32nd country ranked at number 146) is the lowest risk jurisdiction Chamber of the Paris Criminal Court fined the Turkish bank with a score of 3.04 and Iran (which is ranked at number one) Turkyie Garanti Bankasi (the Bank) EUR8m for laundering is the highest risk jurisdiction with a score of 8.60. The rankings the proceeds of tax evasion. The Bank was convicted of of the jurisdictions covered in this report are outlined below. having transferred over EUR25m in funds relating to a carbon tax fraud. The Court found that the Bank had opened – EU Council reaches agreement on harmonised the account through which these funds passed without freezing orders. Justice ministers at the EU Council have performing all required AML due diligence and took too agreed to a set of draft rules for the mutual recognition of long to freeze the account, even after the Bank had raised freezing and confiscation orders, enabling the EU Council to suspicions over the funds passing through the account. proceed to negotiations with the European Parliament. A key The Court ordered the Bank to pay damages to the French aspect of the agreement is the proposal for a single regulation State of up to EUR25m. The judgment has been appealed. for legislating freezing and confiscation orders, which would be directly applicable in member states and thereby reduce implementation issues. EU lawmakers also aim to standardise the documents and procedures across the bloc to prevent criminals from “forum shopping” and improve speed and efficiency. Basel Institute of Governance Money Laundering Index – Selected European Jurisdictions*

94 95 110 114 118 120 Hungary Italy Netherlands Spain United Kingdom Slovakia

121 123 126 128 129 130 Germany Belgium Czech Republic France Romania Poland

*1 equals lowest ranking; 146 equals highest ranking

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A closer look. OPBAS, the UK’s new anti-money laundering supervisor, becomes operational

A new year, a new role for the Financial Conduct Authority (FCA). decision-making processes. There will be a right of appeal to the On 17 January 2018, the UK’s new Office for Professional Body Upper Tribunal. Anti-Money Laundering Supervision (OPBAS) comes into effect. Confidential information gathered by OPBAS will be subject to OPBAS is intended to be a ‘supervisor of supervisors’ with the aim protections. In line with the FCA’s information gathering powers of ensuring that professional body anti-money laundering more broadly, inappropriate disclosure of an SRO’s confidential supervisors comply with the UK’s anti-money laundering obligations. information is made a criminal offence by the regulations. Why is OPBAS needed? Immediate thoughts for those in the regulated sector The creation of OPBAS follows concerns raised in the UK’s 2015 Firms may justifiably be sceptical whether the creation of a new and 2017 national risk assessments on money laundering and regulatory function within the FCA will indeed reduce regulation terrorist financing. These found inconsistencies in the UK’s and streamline the UK’s anti-money laundering regime (which are professional body supervisory regime. The significant number of the Government’s stated aims following its report on Cutting Red designated ‘self-regulatory organisations’ (SROs) was cited as a Tape: Review of the UK’s AML and CTF regime). particular concern (there are 22 SROs for just the legal and For example, while OPBAS now plays the key role in authorising accountancy sectors). Deficiencies in information sharing between SROs, the statutory power to designate a new SRO (or indeed SROs were also noted. remove an existing SRO for non-compliance) remains with Further, Article 48 of the Fourth Money Laundering Directive HM Treasury. Certain sectors may also face dual supervision – (MLD4) obliges Member States to require that competent eg by HMRC and by an SRO in turn supervised by OPBAS (this authorities effectively monitor and take necessary steps to ensure risk of a two-tier system was noted in the consultation response). compliance with the Directive. The creation of OPBAS, along with Nonetheless, on a positive note, OPBAS cannot use its information the introduction of the Money Laundering Regulations 2017, gathering powers directly against firms in the regulated sector – is intended to give effect to this requirement and to strengthen only SROs. Further, OPBAS will collect and summarise annual the UK’s anti-money laundering supervisory regime. questionnaires from SROs and publish anonymised reports. How will OPBAS work? These reports may be a useful source of information for regulated The Government launched a consultation on 20 July 2017 on the firms themselves. If the experience of the Joint Money Laundering draft regulations that support OPBAS. The response to the Intelligence Taskforce in the financial sector is anything to go by, consultation – along with the finalised regulations – was published there are considerable benefits in improving the collective in December 2017. understanding of money laundering. OPBAS will function as part of the FCA. It will have the authority to Will OPBAS make a material difference to the UK’s anti-money use information gathering powers, request skilled persons reviews laundering regime? There will be an answer in four years: and issue directions to SROs in pursuit of its statutory objectives. HM Treasury must report on its effectiveness by June 2022 (to If an SRO is found to have failed to comply with its obligations align with the first review of the Money Laundering Regulations under the Money Laundering Regulations or provided false or 2017). In the meantime, the granting of further AML supervisory misleading information, then the FCA via OPBAS will have the powers to the FCA all but guarantees money laundering will remain ability to publicly censure it or recommend it be removed as a at the top of the FCA’s agenda for the near future. designated SRO. Such sanctions are subject to the FCA’s usual

ACTIONS

– Note: (i) the criminal exposure in France of a foreign bank processing suspicious transfers; and (ii) the imposition of a significant financial penalty in France for failing to freeze a suspicious account. Ensure that AML/CTF procedures are in place to enable your organisation to freeze accounts promptly on detection of suspicious activity.

– Review the Financial Action Task Force’s latest guidance, particularly if sharing information on suspicious activity either intra-group or between financial institutions and/or between different jurisdictions.

– Ensure that relevant colleagues are aware of the changes to the UK’s Suspicious Activity Reporting regime, in particular, the potential for a significantly longer moratorium period to be imposed on property subject to a SAR.

The below table summarises the status of MLD4’s implementation as at the end of Q4 2017 in various Member States

MLD4 implementation status UK Effective from 26 June 2017. Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

Germany Effective from 26 June 2017. Money Laundering Act (Geldwaeschegesetz).

France Transposed into French law, although not yet fully implemented. Order No. 206-1635 of 1 December 2016 yet to be ratified by French Parliament.

Spain Not yet implemented. The Ministry of Economy, Industry and Competitiveness recently issued a preliminary draft of a proposal to partially amend Law 10/2010 of 28 April on the prevention of money laundering and terrorist financing and Royal Decree 304/2014 of 5 May approving the Regulation of Law 10/2010 in order to implement MLD4. Although the proposal is at an early stage and is still subject to extensive discussions and amendments, it does not contemplate creating a central register of beneficial ownership as required under Article 30 of MLD4. Italy Effective from 4 July 2017. Legislative Decree 90/2017, aimed at amending AML Legislative Decree 231/2007, entered into force on 4 July 2017. Second-level regulations to be implemented by competent supervisory authorities within 12 months. Belgium Effective from 16 October 2017. The Belgian legislator has adopted the Act of 18 September 2017 on the prevention of money laundering and the financing of terrorism and on restricting the use of cash (Wet van 18 september 2017 tot voorkoming van het witwassen van geld en de financiering van terrorisme en tot beperking van het gebruik van contanten; Loi du 18 septembre 2017 relative à la prévention du blanchiment de capitaux et du financement du terrorisme et à la limitation de l’utilisation des espèces). Provisions regarding the functioning of the ultimate beneficial ownership register will be implemented by separate royal decree. Netherlands Not yet implemented. On 13 October 2017, the Dutch Minister for Security and Justice introduced draft implementation legislation (the Act). The proposed Act amends the Act on the Prevention of Money Laundering and Terrorist Financing (Wet ter voorkoming van witwassen en financiering van terrorisme, (Wwft)) to ensure compliance with the requirements of MLD4. The Draft Implementation Act also introduces a sanctions system that is more closely connected to the Dutch Financial Supervision Act (Wet op het financiëel toezicht) (Wft). The Act also raises the maximum fine for breaches of the Wwft (up to 10% of turnover for larger entities) and introduces the possibility of withdrawing an institution’s licence for breaches of the Wwft. Finally, the Act allows regulators to issue public statements or warnings to institutions when they are in breach of the Wft or the Wwft and obliges them to publish each decision on sanctions. Please note, the Act is still before the second chamber of Parliament, during which time amendments may be made to the legislation. Provisions regarding the ultimate beneficial ownership register will be implemented in a separate Act. Czech Republic Effective from 1 January 2017. Amendment no. 368/2016 Coll. to the Act no. 253/2008 Coll. on Selected Measures against Legalisation of Proceeds from Crime and Financing of Terrorism. Slovakia Not yet implemented.

Poland Not yet implemented. The Ministry of Finance has presented a new draft Act on Counteracting the Introduction into Financial Circulation of Property Values Derived from Illegal or Undisclosed Sources and on Counteracting the Financing of Terrorism, which is due to replace the previous act of the same name. As reported in Allen & Overy’s Q2 2017 European White Collar Crime Report. It could take several months of parliamentary work before it is enacted. Romania Not yet implemented. The draft law on prevention and combating money laundering and terrorism financing has been finalised by the Office for Prevention and Combating Money Laundering. As reported in Allen & Overy’s Q2 2017 European White Collar Crime Report, it will now be sent to the competent authorities in order to obtain the necessary endorsements before sending it to Parliament. Hungary Effective from 26 June 2017. Prevention and Combating of Money Laundering and Terrorist Financing Act.

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Taxation

– “Cum-ex” criminal charges brought by prosecutor’s VAT fraud and report any suspicious transactions to the office in Frankfurt. The Attorney General of Frankfurt has National Clearing House. Such reports would then be directed brought charges against individuals who – according to press to the National Tax Administration, which will have the power reports – are the alleged architects of the “cum/ex” trade. to undertake an inspection and decide to block the bank This pattern of share transfers between different tax payers account of an individual suspected of tax fraud for 72 hours, (see Closer Look section in Allen & Overy’s Q3 2017 European with an option to extend for up to three months, pending further White Collar Crime Report) continues to be a topic of much investigation. The act establishing STIR partly entered into interest in Germany as it has been estimated that “cum/ex” force on 13 January 2018 and is to become fully operational on deals might have cost the German tax authorities up to 30 April, while payment splitting is to come into force on 1 July EUR31bn. Although the criminal proceedings have not 2018. The acts are intended to bring in c. PLN130bn commenced, defence lawyers have already announced their (c. GBP340m) to the state budget over the next decade. intention to challenge the impartiality of the prosecutor in – HMRC brings into force new strict liability offshore the case. According to the defence lawyers, the prosecutor tax offences.The UK’s HMRC brought into force new strict worked as an associate in the tax department of a law firm liability criminal offences relating to offshore tax evasion with that advised on “cum/ex” trades before joining public service. effect from 3 November 2017. The offences apply where a – German government expresses interest in “Paradise taxpayer: (i) fails to notify HMRC about offshore income Papers”. After a German newspaper reported on and/or capital gains; or (ii) provides HMRC with inaccurate 5 November 2017 that a vast number of companies and information about such income or gains. An additional order high-profile individuals might have been involved in alleged introduced at the same time specifies that the criminal tax evasion practices with the help of an offshore law firm, offences only apply where the amount in question is over the German government called for the surrender of the GBP25,000. corresponding data, a set of 13.4 million confidential – EU publishes “blacklist” of non-cooperative tax electronic documents also known as the “Paradise Papers”. jurisdictions. On 5 December 2017, the European It remains unclear whether these documents originate Commission published a list of jurisdictions deemed from a leak at or a cyber attack on the offshore law firm. non-cooperative in tax matters. The jurisdictions include The documents are currently in the possession of the Panama, Barbados and the UAE. A further “grey list” International Consortium of Investigative Journalists. (akin to a watchlist) of countries which includes countries According to journalists who have initially reviewed the potentially deficient but which have committed to making documents, they show that several hundred companies and improvements in their tax standards was also published. This individuals have business ties to the offshore law firm. list includes jurisdictions such as Jersey, Hong Kong and – President of Poland signs two acts for combating VAT Switzerland. Eight Caribbean jurisdictions affected by recent fraud. In late December 2017, the President of Poland signed hurricanes were omitted from this year’s list. two acts for combating VAT fraud. The acts introduce two key When preparing the blacklist, the EU examined: (i) the mechanisms: payment splitting and a dedicated IT system jurisdiction’s transparency and compliance with international (STIR) to detect VAT fraud. Payment splitting gives a information sharing standards; (ii) whether the jurisdiction has purchaser of goods or services in a B2B transaction an a ‘harmful’ tax regime; and (iii) whether the jurisdiction had option, and various incentives to choose that option, to pay implemented Organisation for Economic Cooperation and the amount of any given transaction into two separate bank Development (OECD) minimum standards to control the accounts (one for the VAT component of a transaction and shifting of profits by multinationals to low tax jurisdictions. the other for the VAT exclusive amount) so that VAT accounting can be more easily monitored. Listed countries currently face few consequences. Finance Accordingly, banks are obliged to set up special VAT ministers are set to discuss countermeasures next year. In the accounts for their clients registered as VAT payers. meantime, Member States have been left to decide what action Regarding STIR, banks will be obliged to transfer daily to take. A table detailing the “blacklist” and “grey list” transaction statements and information on newly opened jurisdictions can be found on the next page. accounts to the IT system, which will filter transactions for

– President of German Association of Savings Banks 2012 to 2014 too late, but denied the allegations of tax charged with tax evasion. The public prosecutor’s office in evasion as he claimed to have settled all tax bills, including Munich formally charged the former president of the German interest for late filing. His scheduled re-election for another Association of Savings Banks for tax evasion. It was reported term was postponed and he has resigned from his position. that he admitted to having filed his tax returns for the years

EU “blacklist” of non-cooperative tax jurisdictions and “grey list” of jurisdictions with potentially deficient tax standards

“Blacklist” jurisdictions “Grey list” jurisdictions

American Samoa Albania Hong Kong SAR Peru

Bahrain Andorra Isle of Man Qatar

Barbados Armenia Jamaica San Marino

Grenada Aruba Jersey Serbia

Guam Belize Jordan Seychelles

North Korea Bermuda Labuan Island Swaziland

Macao SAR Bosnia and Herzegovina Lichtenstein Switzerland

Marshall Islands Botswana Malaysia Taiwan

Mongolia Cayman Islands Maldives Thailand

Namibia Cabo Verde Mauritius Turkey

Palau Cook Islands Montenegro Uruguay

Panama Curaçao Morocco Vanuatu

Saint Lucia Faroe Islands Saint Vincent and the Grenadines Vietnam

Samoa Fiji Nauru

Trinidad and Tobago Former Yugoslav Republic of Macedonia New Caledonia

Tunisia Greenland Niue

United Arab Emirates Guernsey Oman

ACTIONS

– Ensure procedures are in place to comply with the UK’s new offshore tax evasion offences if your organisation has significant offshore income or capital gains and pays UK tax.

– Examine your dealings with the countries specified in the EU’s “blacklist” and “grey list” of non- cooperative or potentially deficient tax jurisdictions and consider whether any further action (eg enhanced due diligence) is necessary in relation to customers based in those jurisdictions.

– Consider whether you operate in any of the jurisdictions featured on the EU’s “blacklist” or “grey list” and whether any steps could be taken to better demonstrate compliance in tax-related matters.

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Market offences

– UK Supreme Court clarifies criminal test for dishonesty The FSMA has published guidelines to facilitate compliance in landmark decision. (See Closer Look section.) with this new legal obligation which entered into force on 3 January 2018. According to these guidelines internal – French Supreme Court permits parallel administrative procedures should: (i) provide for the protection of the and criminal prosecutions arising from the same facts. employees reporting infringements so as to encourage On 13 September 2017, the French Supreme Court ruled that whistle-blowing; (ii) be well-known by employees; (iii) provide the ne bis in idem principle, which prohibits double jeopardy for reporting channels that are proportionate to the size and by preventing an accused from being tried twice on the same complexity of the institution; (iv) comply with privacy laws; facts, only applies to charges falling within the jurisdiction of and (v) ensure that reports are dealt with and measures are the French Criminal Courts and does not prohibit the parallel taken to address reported infringements. In order to prove this is pursuit of administrative and criminal penalties arising from the case, the FSMA recommends holding a register of all reports the same facts. The Court relied on the French reservation to indicating what action has been taken in relation to them. Article 4 of Protocol 7 to the European Convention on Human Rights to confirm that individuals already tried by a – Polish Supreme Court overrules findings that several Financial Markets’ Regulator may still be convicted by a banks colluded to fix the level of interchange fees Criminal Court for the same conduct. It is notable that in the in Poland. 2014 Grande Stevens case, the ECHR invalidated an identical In a judgment dated 25 October 2017, the Supreme Court reservation made by Italy. The French law nº 2016-819 of annulled judgments of the lower courts which approved the June 2016 now also prevents parallel administrative and Polish competition watchdog’s findings that several Polish criminal proceedings from being pursued in relation to the banks had colluded to set the level of interchange fees in same instance of potential market abuse. While the facts Poland. This judgment is a significant relief for the Polish underlying the September 2017 decision predate the banks, some of which have already faced notices of claims enactment of the 2016 law, the recent decision creates from various merchants totalling hundreds of millions PLN. uncertainty and may well be examined by the ECHR. The dispute dates back to 2006, when the President of the – Major media company accused of market abuse in Office of Competition and Consumer Protection (UOKIK) relation to its communications on indebtedness. concluded that the MasterCard and Visa credit card networks Following a significant drop in the share price of a major in Poland constituted agreements restricting competition by telecom and media company listed on the Paris stock setting the levels on interchange fees. In the judicial review exchange, approximately 50 shareholders filed a criminal proceedings that followed, the banks argued that, amongst complaint against the parent company. The complaint alleges other things, the regulator’s conclusions were not supported that the company disseminated false or misleading information by sufficient evidence. These efforts were unsuccessful and to the markets, by understating its debt levels between 2015 the findings and fines imposed by the regulator were upheld. and 2017 and by wrongly claiming it had absolute control After ten years of legal battles, the Supreme Court found that over its indebtedness. the banks were correct in complaining about the standard of evidence applied by the lower courts and their reliance on the – The Belgian regulator of the financial sector (FSMA) competition watchdog’s findings, and thus annulled the lower publishes guidelines on the new obligation regarding courts’ decisions. To succeed in litigation against the banks, appropriate internal procedures for whistle-blowing. the merchants will not currently be able to rely on the UOKIK As reported in Allen & Overy’s Q3 2017 European White Collar decision, and will need to adduce their own evidence to establish Crime Report (p. 12), Article 69 of the Belgian Act of 31 July that the banks’ setting of interchange fees was unlawful. 2017 requires all institutions and persons registered with the FSMA, or the National Bank of Belgium to the extent their activities are also regulated by the FSMA, to set up appropriate internal procedures for the reporting of infringements against the financial legislation which the FSMA is responsible for enforcing.

– CEO of German stock exchange steps down after – Premises of major wholesale company searched in proceedings relating to insider trading. The former CEO connection with suspicion of insider trading. The public of the German stock exchange had bought stock of the prosecutor’s office in Düsseldorf searched the premises of a German stock exchange in December 2015 – approximately major wholesale company in Germany as part of its investigation two months before the planned merger with the London into allegations of insider trading and market manipulation by Stock Exchange became public knowledge. The prosecutor’s the chairman of the supervisory board and a member of the office in Frankfurt had pressed charges for insider trading, but management board. It was reported that the investigation was willing to accept a deal with the German stock exchange centres on the purchase of shares by the two officers, to close the proceedings after the CEO agreed to personally shortly before the major wholesale company announced its pay a EUR500,000 fine. However, the judge of the Frankfurt plans to split into two businesses in March 2016. Press reports district court did not accept the proposed settlement and the indicate that the prosecutor will press charges soon. proceedings therefore remain pending. In the meantime, the German stock exchange has appointed a new CEO to take over from January 2018 (please see the Closer Look section in the Settlement section for further details). – Criminal provisions of second statute to amend the EU Financial Market Regulations (2. FiMaMoG) entered into force on 3 January 2018. In Germany the new law aims to harmonise certain criminal provisions within the EU and provides for stricter punishment of market manipulation. Notably, the scope of market manipulation has been broadened by expanding the instruments which are caught by the offences and treating attempted manipulation as a punishable offence. Under the new law, the manipulation of not only financial instruments, but also emission rights or currencies is a criminal offence.

allenovery.com 12 European White Collar Crime Report | Q4 2017

A closer look. UK Supreme Court clarifies criminal law test for dishonesty

In a landmark case (Ivey v Genting Casinos [2017] UKSC 67), The Supreme Court declined to define cheating precisely. It held the UK Supreme Court has re-defined the test for dishonesty that cheating was a clearly understood concept which did not under criminal law. This is significant for both organisations and need to be conflated with dishonesty. On that basis alone, the their employees. The court removed the long-standing second Supreme Court found that Mr Ivey had indeed cheated and was limb of the test for criminal dishonesty which was subjective – not entitled to his winnings. did s/he know s/he was acting dishonestly (as set out in R v Ghosh) However, no doubt seeing a generational opportunity to refine the leaving only the objective first limb – was s/he dishonest by criminal test for dishonesty, the Supreme Court went much further. reasonable standards – which is the same as the civil test for dishonesty. The removal of the subjective element may be relevant The new correct test for dishonesty – removing the in both corporate and individual cases, albeit in practice, in many subjective element cases the credibility of a defendant saying they did not believe what they were doing was dishonest is seriously undermined when The five Justices unanimously held thatR v Ghosh was an a jury believes that objectively they were dishonest. incorrect interpretation of the law. The correct test was that at civil law (as set out in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC The appellant, Mr Ivey, was a professional gambler. In August 378). This test is solely an objective one: was the accused 2012, he enjoyed an enormously profitable two days at dishonest by the standards of an ordinary, reasonable individual Genting’s casino playing Punto Banco – a type of Baccarat. (having the same knowledge as the accused)? Whether or not the By ‘edge sorting’, a technique which helps a gambler recognise accused viewed their actions as dishonest by those standards (ie specific cards in a pack, Mr Ivey won GBP7.7m. Genting, however, the subjective limb of the test in R v Ghosh) is irrelevant. refused to pay out. It took the view that applying such a technique to a game of luck was tantamount to cheating. In making its decision, the Supreme Court was influenced by three main factors. Cheating – The test in R v Ghosh was complex, combining both subjective It was common ground between the parties that the contract for and objective elements. This could be puzzling and difficult for betting between Mr Ivey and Genting contained an implied term juries to apply. that neither party would cheat. There was no dispute that Mr Ivey had used edge sorting to gain an advantage against the casino. – There was no logical or principled basis to have different He viewed it as a perfectly legitimate technique and was open definitions of dishonesty in civil and criminal proceedings. about having done so. – R v Ghosh had the unintended consequence that the more The case therefore centred on whether Mr Ivey’s actions, given his warped a defendant’s standard of honesty, the less likely they mental state, could amount to cheating. The meaning of cheating were to be found criminally responsible for (objectively) was taken to be the same under the implied term as for the dishonest behaviour. It is a crucial function of the criminal law to criminal offence of cheating under s42 Gambling Act 2005. For this establish acceptable standards of behaviour notwithstanding an reason, the criminal law test for dishonesty came to be considered individual’s mistake of fact as to societal standards of honesty. in a civil trial. The Supreme Court was at pains to emphasise that the removal of The original Ghosh criminal test for dishonesty the subjective limb does not mean that an individual’s state of mind is disregarded entirely when considering dishonesty. A dishonest Mr Ivey argued that cheating necessarily involves dishonesty. Since state of mind requires a subjective mental state. When considering R v Ghosh [1982] QB 1053, “dishonesty” has been defined by dishonesty, the first step remains to determine what an individual reference to a two-stage test namely: subjectively knew or believed about the facts affecting the activity in which they were engaging. – the conduct in question must be dishonest by the standards of ordinary, reasonable and honest individuals (an objective limb); and However, once that state of mind is established, the applicable standard of behaviour is now to be judged solely on an objective – the accused must have realised their conduct was dishonest by basis: if an ordinary, reasonable and honest person would regard those standards (a subjective limb). the accused’s conduct as dishonest, it is irrelevant that the Mr Ivey maintained that he genuinely had not believed edge sorting accused would not have judged their own conduct as dishonest. was dishonest by ordinary standards.

The practical implications In practice, dishonesty has been assessed on a daily basis by the law should excuse those who make a mistake about what many juries without undue difficulty. That is unsurprising: a thief contemporary standards of honesty are, whether in the context of would struggle to argue they did not know stealing was dishonest insurance claims, high finance, market manipulation or tax evasion”. by ordinary standards. The added complexity of the subjective Ghosh test may have been However, dishonesty is a crucial element of many complex part of the difficulty in prosecuting complex economic crimes. economic crime cases. In the white collar crime context, this includes This change to the criminal test for dishonesty is potentially offences under the Fraud Act 2006 and conspiracy to defraud and significant for both companies and their employees. It puts even certain predicate offences underlying ‘failure to prevent’ corporate more of an onus on businesses to operate in a way that reduces criminal offences (eg the new failure to prevent the facilitation of tax the risk of their employees or agents being involved in what the evasion offences requiring the prosecution to first establish world at large may view as dishonest. This requires clear dishonesty as part of the underlying facilitation of tax evasion). risk-based prevention policies and maintaining a keen eye on the The impact of applying a purely objective test in more complex public (and not just market) barometer of what constitutes cases was spelt out by Lord Hughes: “There is no reason why dishonest conduct.

ACTIONS

– Review the Belgian FSMA’s guidelines and consider whether your whistle-blowing procedures are compliant with the new Belgian legislation which came into force on 3 January 2018.

– Note that the second statute to amend the Financial Market Regulations (2.FiMaMoG) came into force on 3 January 2018 in Germany and consider whether it captures any new financial instruments or activities that you carry out.

– Ensure that you are familiar with the new English criminal test for dishonesty. The Supreme Court’s clarification that there is a single, unitary test for dishonesty across both the civil and criminal spheres will offer welcome clarification to any body or entity exercising regulatory or disciplinary power (including the Financial Conduct Authority and those responsible under the Senior Managers and Certification Regime) where the issue of an individual’s honesty is called into question.

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Bribery and corruption

– World Bank reaches debarment agreement with – French Anti-Corruption Agency publishes its guidelines Oberthur for corrupt practices. On 30 November 2017, on best practices to prevent and detect corrupt practices the World Bank announced it had debarred French company and conducts first inspections into compliance with Oberthur Technologies SA from any World Bank funded Sapin II Law. On 21 December 2017, the French contracts for 2.5 years as part of a Negotiated Resolution Anti-Corruption Agency created by the Sapin II Law (the Agreement. Oberthur engaged in corrupt practices and Agency) released its recommendations on how large French collusion to win a national ID card contract in Bangladesh. firms and groups caught by the new duty to prevent and In concluding the agreement, the World Bank noted detect corrupt practices should comply with their obligations Oberthur’s extensive cooperation and admission of to, amongst other things, implement an appropriate anti- wrong-doing. bribery and corruption programme. The Agency’s guidelines reflect the 450 contributions on draft recommendations – Three former senior employees of Rolls Royce plead made by professional organisations, law firms, audit firms, guilty to bribery and corruption offences. university lecturers and anti-corruption NGOs during the Following parallel investigations by the US Department of public consultation launched by the Agency from 15 October Justice and the UK’s Serious Fraud Office (SFO), until 15 December 2017. on 8 November it was announced that three senior former employees of Rolls Royce’s Energy division have pleaded On 11 October 2017, the Head of the Agency indicated that guilty in a US court to conspiracy to violate the US Foreign he had executed the first investigation orders enabling the Corrupt Practices Act. One further individual who acted as a Agency’s investigators to conduct onsite inspections and consultant for Rolls Royce in Kazakhstan also pleaded guilty. assess the compliance programmes of a number of The convictions follow Rolls Royce’s Deferred Prosecution organisations in accordance with the requirements of the Agreement in the UK which was concluded in January 2017. Sapin II Law. These inspections may result in disciplinary The individuals were alleged to have paid bribes to foreign proceedings being opened, should the organisations be officials for the benefit of a US-based Rolls Royce subsidiary, referred to the Enforcement Committee of the Agency. including to secure a contract to supply equipment and – Criminal complaint filed in France against a major services for a gas pipeline in Central Asia. cement producer on grounds of potential international – UK SFO charges two SBM executives in Unaoil corruption offences and for aiding and abetting a crime corruption scandal. On 16 November 2017, as part of its against humanity. On 25 September 2017, a group of investigation into Unaoil, the SFO charged two Unaoil anti-corruption NGOs filed a complaint against a major employees with conspiracy to make corrupt payments to cement producer alleging that some of its representatives had secure the award of Iraqi oil contracts to Unaoil’s client, bribed and contributed to the financing of armed groups in SBM Offshore. On 30 November 2017, the SFO charged two Syria, including ISIS, thereby aiding and abetting crimes further individuals who were employees of SBM Offshore for against humanity. In 2016, the French Ministry of Economy, conduct arising out of the same allegations of corruption. NGOs and former employees of the group had already filed All individuals have been charged with conspiracy to commit a criminal complaint on similar grounds, alleging that the offences contrary to section 1 of the Prevention of group had paid jihadist groups in order to continue operating Corruption Act 1906 (the pre-Bribery Act offence). a cement plant in Northern Syria. The SFO’s investigation continues.

Bribery and corruption

– Dutch court acquits defendants in major rail sector – Major aerospace company faces German embezzlement fraud and bribery case. On 21 December, the Den Bosch charges. According to press reports, the public prosecutor’s first instance court issued its ruling in the case against the office in Munich intends to file charges against 16 individuals Dutch National Railways (Nederlandse Spoorwegen) (NS), in connection with the sale of civil and military aircraft in its former director, four former senior managers and a Indonesia, Kazakhstan and China in recent years. The public former manager of Arriva, a competitor of NS. The charges prosecutor’s office believes that employees of the aerospace related to alleged collusion around the procurement of public company boosted sales with the help of external consultants transport in the southern province of Limburg (worth around and a system of slush funds and bribes. These dealings as well EUR2bn). They included forgery, complicity in corporate as other alleged misconduct led to multiple proceedings in espionage and commercial bribery. The suspects were cleared several jurisdictions including, inter alia, the UK and France, of all charges. Amongst other things, the court rejected the and may also trigger an investigation by the U.S. Department prosecutor’s assertion that passive commercial bribery can of Justice. extend to acts subsequent to the termination of the – Investigations commence into suspected bribery employment of the person who is allegedly being bribed. concerning the construction of gas pipeline from Russia The Dutch Public Prosecutor’s Office has appealed the verdict. to Germany. The public prosecutor’s office in Mannheim is – Polish draft Act on Transparency in the Public Sector – carrying out investigations into suspected bribery in connection up to PLN10m fine and a five-year ban on participating with the construction of a pipeline that pumps gas from in public tenders for companies that fail to apply Russia to Germany. It was reported in the press that the effective internal anti-corruption policies. The Polish public prosecutor’s office is reviewing payments of around Government is preparing a draft Act on Transparency in the EUR8m that were allegedly made by the management of the Public Sector (Draft Act) which will require medium and German RMA Group to companies in the Caribbean which large companies to introduce effective internal anti-corruption may be related to the construction deal. policies aimed at preventing bribery and collusion in tenders. – UK’s Attorney General announces the launch of a Failing to comply with this requirement may result in a fine campaign to recruit the next director of the Serious of up to PLN10m (c. GBP20m) and a five-year ban on Fraud Office.The successful candidate would succeed participating in public tenders. The Draft Act proposes the David Green QC when his tenure ends in April 2018 (the job introduction of reporting obligations and legal protection for advert is available on the Civil Service Jobs website and closes whistle-blowers. It also imposes additional reporting obligations at 9am on 5 February 2018). for a wide range of entities, including companies in which a public entity holds at least 10% of the share capital, and introduces new rules on avoiding conflicts of interest. Board members of state-owned or controlled companies may expect significant information disclosure obligations, for example, they may be required to make asset declarations. The Draft Act is subject to government consultation and parliamentary debate and is expected to come into force in early 2018.

ACTIONS

– Review the guidelines published by the French Anti-Corruption Agency and for those falling under the scope of France’s Sapin II Law, ensure internal compliance procedures are adequate, including by running a gap analysis.

– Assess whether any of your organisation’s activities could be caught by the Polish draft Transparency in the Public Sector Act and consider whether to make submissions to the Government’s consultation.

allenovery.com 16 European White Collar Crime Report | Q4 2017

Prosecutor attitudes and resources

– UK Government announces new National Economic – Criminal prosecution of newly elected Czech Prime Crime Centre. (See Closer Look section.) Minister temporarily stayed. The newly elected Prime Minister of the Czech Republic, Andrej Babiš, has been – Supreme Court clarifies the criteria for excluding facing criminal charges for subsidy fraud. Prior to the general unfairly obtained evidence in criminal proceedings. election, the Chamber of Deputies had voted to “hand him The authors of a controversial book concerning a publicly over” (which would waive his immunity and allow the known French official had allegedly offered (to a representative prosecution to continue). As soon as the general election of the official) to cease publication in exchange for money. took place, the handover was no longer valid as the newly To prove blackmail and extortion, the representative recorded elected Chamber of Deputies must now vote again. conversations with the authors without their knowledge. The criminal prosecution has been stayed due to his The representative also provided the authors with money, immunity pending a renewed vote. whilst police officers with whom he had previously coordinated monitored the premises. French criminal law – Czech General Inspection of Security Corps (GISC) imposes a duty on public authorities to collect evidence in a raided law offices to collect evidence. On 11 December loyal manner. The authors challenged the admissibility of the 2017, the GISC raided several law offices in Prague to collect audio recordings on the grounds that police officers had been evidence on suspicion of a number of offences including tax involved in the unfair collection of the audio. On 10 November evasion. Following the raids, a criminal prosecution was 2017, the French Supreme Court found that the audio initiated and ten persons including three policemen, recordings obtained by the representative were admissible one former policeman and an attorney have been charged. before a Criminal Court, since the police officers had not performed any ‘positive act’ to collect this evidence and merely had a passive role (falling short of real participation) in the gathering of the evidence.

Prosecutor attitudes and resources

– The Polish Central Anti-Corruption Bureau investigates – Proceedings commenced against car manufacturer in banking fraud regarding SK Bank totalling over connection with diesel emissions scandal. PLN1.6bn (c. GBP340m). On 14 November 2017, After proceedings against members of the board of a major the Central Anti-Corruption Bureau detained 77 people and car manufacturer had already been initiated in connection charged them with various banking and accounting offences with diesel emissions, the public prosecutor’s office in Munich against SK Bank. The detainees include management board has now officially initiated proceedings against the manufacturer members and employees of SK Bank and employees of itself. Whilst a company cannot be criminally prosecuted construction companies which received financing from SK under German law, administrative fines of up to EUR10m or Bank. The Central Anti-Corruption Bureau’s dawn raid the amount of any benefit from the wrongdoing, if higher, followed SK Bank’s bankruptcy (the first bankruptcy of a can be imposed on a company, as well as the seizure of Polish bank in 15 years) and reports that SK Bank had profits made from the illegal conduct. underestimated the credit risk of borrowers and overvalued the real estate security they provided. The bankruptcy occurred despite the Polish Financial Supervision Authority (Komisja Nadzoru Finansowego) and the National Bank of Poland implementing various remedial measures to prevent SK Bank from collapsing. The collapse of SK Bank also had an impact on the wider financial sector as other banks were required to make significant contributions to the Bank Guarantee Fund, to finance the Fund’s payments of guaranteed deposits to SK Bank’s clients.

allenovery.com 18 European White Collar Crime Report | Q4 2017

A closer look. Creation of the European Public Prosecutor’s Office (EPPO) continues

As reported in Allen & Overy’s Q3 2017 European White Collar located in another participating Member State or determining the crime Report, p. 19, the European Council enacted the “Council Member State where the case will be pursued (in principle, Regulation (EU) 2017/1939 implementing enhanced cooperation ‘the Member State where the focus of the criminal activity is’ on the establishment of the European Public Prosecutor’s Office” according to the EPPO Regulation. The EPPO may also conclude on 12 October 2017 (the EPPO Regulation). The European Public working agreements with non-participating Member States, as well Prosecutor’s Office (the EPPO) is expected to become operational as with States outside the EU. sometime in 2020-2021. The EPPO will have a hybrid organisational structure. There will be The EPPO’s subject-matter jurisdiction is limited to criminal a centralised body – called the ‘Central Office’ – based in offences against the EU’s financial interests. The most notable Luxembourg, and European Delegated Prosecutors (EDPs) offences include EU subsidy fraud, EU public procurement fraud, based in the participating Member States (a minimum of two per active or passive corruption of public agents when such corruption Member State). The EDPs will act both as national prosecutors affects the EU’s financial interests, or cross-border VAT fraud (when and members of the EPPO, and will therefore be allowed to take all the total loss is at least EUR10m). The EPPO will have priority to measures available under their national law to prosecute offences prosecute such offences, but national authorities will retain against the EU’s financial interests. The EDPs will be in charge of jurisdiction over these offences in certain conditions, depending, the investigations, carry out the investigative measures available for instance, on the extent of harm caused by the offence or the under their national law and, if appropriate, bring legal proceedings level of the penalty it attracts under national law. The EPPO’s and make pleadings in court. The Central Office will consist of subject-matter jurisdiction will extend to related offences, several departments, including the Permanent Chambers which ie criminal offences that are inextricably linked to the offences will play a significant role in the operational management of the which fall under the EPPO’s competence. This means that the EPPO’s cases. The Permanent Chambers will supervise the EDPs’ EPPO will potentially have jurisdiction over offences other than work and will take key strategic decisions, including: the those against the Union’s financial interests. appointment of the lead EDP in cross-border cases (which will in practice determine where the case will be pursued); the decision to The EPPO will investigate and prosecute offences occurring within close a case; decisions to bring charges when an investigation is the territory of the 20 participating Member States. The EPPO completed; and the power to approve an out-of-court settlement. Regulation contains rules governing cross-border cases, such as the execution of investigative measures by members of the EPPO

A closer look. UK Government announces National Economic Crime Centre

On 11 December 2017, the UK Government announced the The ACS also sets out the UK’s approach to addressing creation of a new National Economic Crime Centre (NECC) corruption, both domestically and internationally, for the period up as part of the Government’s Anti-Corruption Strategy (ACS). to 2022. The strategy outlines six priorities: reduce the insider The Home Secretary, Amber Rudd’s, announcement confirmed threat in high-risk domestic sectors; strengthen the integrity of the that the NECC will be multi-agency, and there will also be a UK as a centre of global finance; promote integrity across the codification, through new legislation and regulatory responses, public and private sectors; reduce corruption in public of the UK’s approach to economic crime in an attempt to ensure procurement and grants; improve the business environment the UK maintains its “reputation as a world-leading place to globally; and work with other countries to combat corruption. do business”. In addition to the six priorities, the ACS also notes the The NECC will sit within the National Crime Agency (NCA) and Government’s intention to have the remainder of the Criminal will be tasked with coordinating law enforcement responses to Finances Act 2017 (including Unexplained Wealth Orders) in force address the threat of economic crime. The Government’s focus by April 2018 (see our guide on the Criminal Finances Act for upon economic crime will also be sharpened, with a ministerial more information). rebranding to incorporate economic crime within the Minister of The introduction of a clear strategy framework and the NECC State for Security’s responsibilities. A new Ministerial Economic certainly brings medium-term stability in the area of economic Crime Strategic Board will be introduced, chaired by the Home crime enforcement. However, it remains to be seen whether the Secretary, and will be charged with ensuring the UK delivers its introduction of another agency will materially improve the UK’s strategy on economic crime. ability to effectively combat economic crime. The introduction of the NECC has also addressed the future of the SFO which, contrary to the abolition outlined in the UK Conservative Party’s 2017 manifesto, will continue to exist alongside the NCA/NECC. Nevertheless, the SFO may find itself receiving more direction from the NCA, which has had its power to require the SFO to initiate economic crime investigations codified.

ACTIONS

– If potentially subject to its jurisdiction, continue to track the establishment of the European Public Prosecutor’s Office.

– Continue to monitor the implementation of the UK Criminal Finances Act 2017 over the course of Q1 2018.

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Settlement and recent verdicts

– The Swiss subsidiary of a major UK investment bank settlement were unconstitutional because of a lack of judicial executed the first French style DPA to settle long-standing scrutiny of the substance of the proposed settlement. investigation into potential money laundering offences. The Remedial Bill most notably provides for a proportionality (See Closer Look section.) test to be applied, whereby the approving judge must assess whether the terms of the settlement are proportionate to the – French Member of Parliament referred to trial in a seriousness of the alleged facts and the offender’s behaviour. tax-related matter, notwithstanding a guilty plea If the Remedial Bill is enacted, the draft settlement submitted previously accepted by the Public Prosecutor. A French to the approving judge must demonstrate that the proposed MP who was the target of a criminal investigation for failing to settlement complies with the proportionality test. Only criminal declare to the French tax authorities assets he had owned with a settlements where an investigating magistrate has been Swiss bank admitted to the facts and pleaded guilty to the appointed or the case has been sent to trial will be subject to laundering of tax evasion proceeds (through a French guilty plea judicial approval. The Remedial Bill is expected to be enacted referred to as “Comparution sur reconnaissance préalable de this winter. culpabilité”). However, the deal he had reached with the Public Prosecutor – Swap speculation by German city officials results in was not approved by the President of the Criminal Court, suspended sentence. Criminal proceedings concerning who considered that penalties imposed by the deal (ie an unauthorised interest rate bets by officials of the German city eight-month suspended prison sentence and a fine of of Pforzheim have been concluded. Two former officials of EUR200,000) were not appropriate given the seriousness of Pforzheim, the mayor and the treasurer, were accused of the misconduct. The MP has been referred to trial before the embezzlement. Using interest rate swap agreements, they were Paris Criminal Court. found to have placed bets on the development of short-term and long-term interest rates, resulting in a financial loss of – Government proposes remedial bill for judicial EUR58m for the city. The verdict was reached in late November. authorisation of criminal settlements. As referenced in Suspended sentences of 20 months and 24 months respectively Allen & Overy’s Q3 2017 European White Collar Crime Report, were imposed. the Belgian government proposed a remedial bill on 6 November 2017 (the Remedial Bill). This follows the Constitutional Court’s decision that certain provisions in the Belgian Code of Criminal Procedure relating to criminal

ACTIONS

– If engaging in settlement discussions in criminal proceedings in Germany, bear in mind the German court’s latest decision and the importance of judicial approval of any settlement agreement.

– Continue to monitor the progress of the Belgian Remedial Bill in relation to criminal settlements.

A closer look. First French style Deferred Prosecution Agreement

Allen & Overy Paris represented the Swiss subsidiary of a major 14 November 2017 after a public hearing. It acknowledges the financial institution headquartered in the UK (the Bank) in criminal dismissal of the laundering of tax evasion proceeds and illicit proceedings that saw the Bank negotiate with the National banking solicitation charges brought against the Bank, upon Financial Prosecutor’s Office parquet( national financier) to reach fulfilment of its obligations under the CJIP. By paying to the French the first French style Deferred Prosecution Agreement Convention( Treasury the sum of EUR300m, the Bank definitively brought to an Judiciaire d’Intérêt Public) (CJIP) blessed by a French Court. end to the criminal investigation it had been subject to for a number of years. The possibility of reaching a settlement without any admission of guilt or criminal liability, unprecedented under French law, was This first CJIP is a milestone. It should serve as a benchmark for a introduced by law n° 2016-1691 of 9 December 2016, relating to variety of groups under investigation for corruption, influence Transparency, Fight Against Corruption, and Economic peddling, laundering the proceeds of tax evasion and related Modernization), the so-called “Sapin II Law” (for information please criminal offences (infractions connexes). If a potential target of see the “A closer look” section in Allen & Overy’s Q2 2017 prosecution in France, corporates will need to re-consider and European White Collar Crime Report, Bribery and corruption). assess their opportunity to settle with the National Financial Prosecutor by potentially admitting to “the facts” and accepting The Order validating the CJIP was issued by the President of the their “legal qualification” in order to avoid a trial and possible Paris Court (Tribunal de Grande Instance de Paris) on criminal conviction.

A closer look. Settlement agreements within criminal proceedings in Germany

Unlike the adversarial procedure in common law jurisdictions, – should include a confession of guilt by the accused, ie the the German trial structure is inquisitorial in nature. The judge is accused confessing facts from which guilt can be concluded; and responsible for independently obtaining evidence and investigating – must not contain the verdict of guilt nor measures of rehabilitation the facts of the case. Any agreement or settlement between the and prevention. parties requires more extensive participation of the judiciary than is typical in common law jurisdictions. Section 257c gives the judge a central role in the negotiation of the agreement. The Judge prepares a draft of the agreement, and may Settlement agreements have only been recognised under German indicate an upper and lower limit of the sentence, taking into law since 2009 (Section 257c of the German Code of Criminal account all the circumstances of the case. Because of the central Procedure (StPO)). Prior to the implementation of Section 257c, role of the court, it is possible that even a joint proposal by the such agreements could not be concluded officially and did not prosecution and the accused might not ultimately lead to a valid have any legal basis. This gave rise to considerable uncertainty for agreement under Section 257c if it is rejected by the court the accused and was subject to extensive criticism by legal (as happened in the insider trading proceedings against the former commentators. Now, Section 257c expressly authorises a judge CEO of the German stock exchange – see page 11). to reach an agreement with the parties about the further course and outcome of the case. Yet, an agreement does not release The settlement agreement becomes effective if and when both the the judge from his or her duty to establish the truth. defence and the prosecution consent to the court’s proposal. Hence, an agreement: The Code of Criminal Procedure also provides for circumstances under which the court can later withdraw from the agreement, – can only affect the legal consequences of the case (such as the such as if the defendant’s conduct does not fulfil the expectations sentencing term and potential accompanying orders), as well as on which the court had based its proposal, or if the court has procedural conduct of the parties (for resigning from further overlooked a factual or legal aspect of the case. If the agreement motions to take evidence or a challenge for bias); fails, the court will declare the defendant’s confession inadmissible as evidence. However, since there is no recusal of judges in Germany, the same court will decide on the verdict and sentence (if any) in subsequent proceedings.

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Looking ahead

Developments in Q4 2017 and beyond

Date Event

BELGIUM 3 January 2018 Entry into force of the obligation for entities supervised by the Financial Services and Markets Authority to implement whistle-blowing procedures, as provided for by the Act of 31 July 2017. Q1 2018 Belgian remedial bill on criminal settlements expected to be enacted. 2018 Belgian bill to avoid disproportionate confiscation expected to be enacted. 2018 New draft Criminal Procedure Code expected to be introduced before the Federal Parliament.

CZECH REPUBLIC January 2018 Draft decree of the Ministry of Justice regarding the register of beneficial owners to be published. 2018 Decree of the Czech National Bank on requirements for internal systems for assessment of risks with respect to anti-money laundering to be published (replacing decree no. 281/2008 Coll.). 2018 Amendment to Criminal Code expected to be introduced before Parliament which will expand the scope of legalisation regarding the proceeds of crime implementing recommendations from international team of experts from Moneyval.

ITALY TBC ECJ Grand Chamber to release judgment on compatibility of Italian “dual track” system with double jeopardy principle. TBC Government to implement provisions prescribed by reform of Italian Criminal Code and Code of Criminal Procedure. TBC Legislative decree regulating collection of wiretap evidence to enter into force.

ROMANIA TBC Adoption of the act implementing MLD4.

UK 17 January 2018 Office for Professional Body Anti-Money Laundering Supervision (OPBAS) becomes operational. 5 February 2018 Applications for role of Director of the Serious Fraud Office close. April 2018 Newly appointed director of Serious Fraud Office will take up position with David Green QC, the current director, who is stepping down. April 2018 Prosecution of the “Euribor six” (Serious Fraud Office v Kraemer & others) scheduled to be heard in the Crown Court. By April 2018 Remainder of the provisions in the Criminal Finances Act 2017 (including Unexplained Wealth Orders) to be in force. 3 July 2018 Appeal hearing against decision of High Court narrowing the scope of litigation privilege in ENRC v Serious Fraud Office to commence on 3 July 2018.

EU-WIDE H1 2018 Continue to monitor ML5 through the EU legislative process – including publication of any policy documents or significant amendments. 2020-2021 The European Public Prosecutor’s Office is expected to become operational.

Contributors and key contacts

Editorial team Contributors to this edition

Hayley Humphries (UK) UK: Evangeline Atkinson; Hayley Humphries; Calum Macdonald; [email protected] Christian Parker France: Dan Benguigui; Paul Fortin; Jérémie Nataf Blair Keown (UK) [email protected] Spain: Lara Ruiz Calum Macdonald (UK) Germany: David Schmid; Jan Erik Windthorst [email protected] Italy: Tommaso D’Andrea di Pescopagano; Matteo Fanton; Amilcare Sada Belgium: Morgan Bonneure; Nanyi Kaluma; Camille Leroy Netherlands: Hendrik Jan Biemond; Jaantje Kramer; Krit Zeegers Poland: Monika Murawska; Marek Neumann Czech Republic: Markéta Císařová; Michal Stanek

Key contacts by jurisdiction

Belgium Poland Joost Everaert, [email protected] Jaroslaw Iwanicki, [email protected] Nanyi Kaluma, [email protected] Marek Neumann, [email protected] Krystyna Szczepanowska-Kozlowska, [email protected] Czech Republic Markéta Císařová, [email protected] Romania Adriana Dobre, [email protected] France Dan Benguigui, [email protected] Slovakia Denis Chemla, [email protected] Martin Magál, [email protected] Ivan Kisely, [email protected] Germany Wolf Bussian, [email protected] Spain Jan Erik Windthorst, [email protected] Javier Castresana, [email protected] Antonio Vazquez-Guillen, [email protected] Hungary Balázs Sahin-Tóth, [email protected] UK Calum Burnett, [email protected] Italy Lawson Caisley, [email protected] Massimo Greco, [email protected] Arnondo Chakrabarti, [email protected] Luxembourg Jonathan Hitchin, [email protected] Thomas Berger, [email protected] Netherlands Hendrik Jan Biemond, [email protected]

allenovery.com 24 European White Collar Crime Report | Q4 2017

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GLOBAL PRESENCE

Allen & Overy is an international legal practice with approximately 5,400 people, including some 554 partners, working in 44 offi ces worldwide. Allen & Overy LLP or an affi liated undertaking has an offi ce in each of:

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Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP’s affiliated undertakings. © Allen & Overy LLP 2018 | CS1801_CDD-50095_ADD-72498 allenovery.com