Compliance and Regulatory Update: April & May 2017

The latest news on financial crime, corruption, compliance, and regulatory developments worldwide. This update focuses on the UK Criminal Finances Act and provides summaries of recent developments in Latin America, Malaysia, Nigeria, the DRC, Ukraine and Russia.

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The UK Criminal Finances Act 2017 received Royal Assent on 27 April 2017, and its provisions are expected to come into effect by the end of September 2017. A YouGov survey of UK businesses suggests that 76 percent are unaware of the new legislation, including businesses exposed to significant risk of non-compliance. As reported in our October update, the Act creates new tax evasion offences and investigative powers for UK authorities.

DRC/US: Conflict Minerals regulation

In April, the US SEC confirmed that it will not recommend enforcement action against companies that do not conduct a due diligence review or audit of their supply chain, as required under Section 1502 of the Dodd-Frank Act (the “Conflict Minerals Rule”). The Conflict Minerals Rule requires that publicly traded companies make efforts to determine if their sourcing of gold, tin, tungsten and tantalum (3TG) is supporting armed groups in the Democratic Republic of Congo (DRC), or an adjoining country. Although companies will still be required to file reports and conduct source of origin enquiries, several human rights groups have criticised what they describe as a ‘watering down’ of the legislation. Also in April, the EU adopted its own regulation, which will become binding from 2021, to stop the trade in conflict minerals, requiring all but the smallest EU importers sourcing 3TG to conduct due diligence on their suppliers.

Mexico: Senate stalls implementations of anticorruption system

In 2016, after massive civil society pressure, the Mexican Congress was compelled to reform the local legislation and create the National Anticorruption System (NAS), a coordination body with sweeping investigatory and prosecuting powers. One of the key figures in the implementation of the system is the Fiscal General (“Anticorruption General Prosecutor”). Last March, the committee created to oversee the enactment of the NAS presented the Senate four prospective names to occupy the position. The senators, however, have not yet voted on those names or established a deadline to do so. The delay has attracted criticism from Mexican media outlets and experts, and comes in the wake of the arrest of two fugitive former state governors for corruption and embezzlement.

Peru: President’s party presents anticorruption package

In January 2017, Peru’s president, Pedro Pablo Kuczynski, and his party presented an ‘anticorruption package’. The package consists of six initiatives to improve Peru’s public tender legislation, introduce criminal liability for companies involved in corrupt practices, and establish stricter ethical and disciplinary standards for members of the judiciary. Further, in February, Kuczynski announced the creation of a programme to protect and reward whistleblowers and increase the budget of the national public prosecutor’s office. The measures are the latest chapter in recent anti-corruption reforms passed by President Kuczynski’s administration. They follow a 5-point plan to combat corruption enacted by decree in October 2016, which established the concept of ‘civil death’, prohibiting public officials convicted of corruption crimes from holding public office for life.


Russia/UK: Investigation into Russian money laundering implicates UK banks

In March, records obtained by Organized Crime and Corruption Reporting Project (OCCRP) and Novaya Gazeta, an independent Russian newspaper, implicated a number of major international banks in handling funds linked to the ‘Global Laundromat’, a criminal financial vehicle moving vast sums of money out of Russia through Moldova and Latvia. Over a four-year period, more than USD 20 billion was moved from Russia using the scheme, which was first described by the OCCRP in 2014. Recent reporting showed that the majority of the firms involved in laundering the money were UK-based.

UK’s high-street banks have also been implicated, having reportedly processed nearly USD 740 million of funds from the money-laundering operation. Following the reports, the UK government faced significant criticism, not just for failing to prevent the transactions, but also for failing to ensure that criminal investigations were subsequently opened and charges brought against those responsible.


Nigeria/Italy: Accountability over historic corruption claims

In March, the Nigerian anti-corruption federal agency, the Economic and Financial Crimes Commission (EFCC), filed corruption charges against oil multinationals Shell and Eni in relation to a USD 1.1 billion deal struck for Nigerian oil block OPL 245 in 2011. A cache of Shell emails seized by Dutch investigators has reportedly forced the energy group to admit that it knew the money would go to Malabu Oil and Gas, a company secretly owned by former Nigerian oil minister Dan Etete. Malabu was awarded the rights to OPL 245 in 1998 while Etete served as oil minister. In February, a Milan prosecutor also filed corruption charges against Eni, Shell and several senior executives regarding the OPL 245 deal. The Italian courts are expected to make a decision by the end of May on whether a landmark trial will go ahead.

Russia: Former anti-corruption police chief sentenced on corruption charges

On 27 April, a Moscow City Court sentenced Denis Sugrobov, a former head of the Russian Interior Ministry’s Anticorruption and Economic Crimes Directorate, to 22 years in prison on corruption charges. Sugrobov and a number of his subordinates were arrested in 2014 on suspicion of involvement in organised crime, soliciting bribes and abuse of power. Other Interior Ministry officials involved in the case received prison terms ranging from 17 to 20 years. There are limited official details concerning the trial, which has been held behind closed doors, reportedly to protect classified information relating to Russia’s Interior Ministry’s inner workings.

Ukraine: Government begins confiscating USD 1.5 billion of ex-president’s assets

In April, Ukraine’s government began the process of returning an estimated USD 1.5 billion in assets reportedly stolen by former president Viktor Yanukovych and his associates from the state budget. The National Security and Defence Council said the state savings bank had begun confiscating the old regime’s holdings in line with an earlier court ruling. Assets belonging to Yanukovych and his affiliates had been frozen in Ukraine in 2014 when the former was deposed after mass protests in the country. The ex-president has been widely accused of embezzling state funds whilst in power. Ukrainian president Petro Poroshenko described the ongoing process as confiscating money which had been “pulled out of the pocket of every Ukrainian”.

Malaysia: US Authorities to press criminal charges against 1MDB financier

In March 2017, the Wall Street Journal reported that US authorities were planning to press criminal charges against Jho Low, a Malaysian financier tied to the 1MDB scandal. The proposed lawsuit follows a separate July 2016 asset seizure suit by the US Department of Justice for more than USD 1 billion in stolen assets. The 1MDB scandal erupted in 2015, with allegations that vast sums had been misappropriated from 1MDB by individuals close to Najib Razak, the prime minister of Malaysia, including Jho Low. Razak and Jho Low have denied any wrongdoing.

Brazil: Odebrecht’s plea bargain affects entire Brazilian political spectrum

In April 2017, Supreme Court Justice Edson Fachin publicised the list of politicians being investigated following the plea bargain signed last December by executives of Odebrecht, Brazil’s largest construction company. Odebrecht has been implicated in widespread corruption uncovered in Operação Lava Jato (“Operation Car Wash”), a federal money laundering and corruption investigation, and is currently cooperating with Brazilian authorities. The list names politicians from across the political spectrum, and includes eight ministers, 24 senators, 39 congressional representatives (including the speakers of both Houses), three governors and 23 other politicians currently not holding office. While there is no guarantee that all inquiries opened by Justice Fachin will result in prosecution, nevertheless, the extent of the reported wrongdoing and the number of parties affected has further aggravated Brazil’s political crisis.

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