Financial Crime Hot Topics

Transcription

1 Financial Crime Hot Topics DPAs and Correspondent Banking February 2016 David Brain

2 Agenda DPAs o Evolution of UK DPAs o Pros and cons of self-reporting o Pros and cons of entering into a DPA o The UK s first DPA o Monitors Correspondent Banking o Historic challenges o The extent and impact of de-risking o The changing regulatory requirements o Practical tips for firms 2

3 What is a deferred prosecution agreement (DPA)? Official Wording: A DPA is an agreement between a designated prosecutor and an organisation which could be prosecuted, under the supervision of a judge. (SFO) Practical Terms: DPAs are designed to encourage companies to self-report wrongdoing in the hope of more lenient treatment. 3

4 UK Background Introduced in Schedule 17 of the Crime & Courts Act 2013 DPAs came into force on 24 February 2014 Bribery and Corruption focus Prosecutor charges a company with a criminal offence but proceedings are automatically suspended Company (never an individual) agrees to a number of conditions If all conditions are met, the DPA is lifted, and no prosecution 4

5 Why have DPAs made it to the UK? Historic issues Corporate crime is difficult to investigate and prosecute Law Enforcement agencies desire for more tools to combat corporate crime Costs DPAs Save time Allow victims to be compensated quickly Save costs in relation to investigation and prosecution Allow a corporate to take remedial action 5

6 DPAs - UK vs US UK Judicial approval throughout negotiations Corporates only Scheduled offences Seemingly more aggressive POCA obligations Less so Judicial involvement Who Scope Prosecutor s tone Additional responsibilities Predictability US Limited, if any Corporates and individuals DoJ has broad discretion as to the types of crimes DoJ provides guidance, more educatory Only cash reporting requirements More so 6

7 The DPA Process Invitation to negotiate Negotiation period Terms of the DPA Financial penalty Monitor First hearing (public) Second hearing Final hearing (public) Breach/variation/ termination of the DPA 7

8 What a DPA may entail Terms must be fair, reasonable and proportionate May include the following: o Payment of a financial penalty o Payment of compensation to victims o Disgorgement of profits o Implementing a compliance program (or making changes) o Co-operating with any investigation o Appointment of an independent monitor o Paying reasonable costs of the prosecutor 8

9 Pros and Cons of Self Reporting Uncertainty as to whether a prosecution will follow o No guarantees of a DPA o Other public interest factors other than self reporting Risk of prosecution from another jurisdiction Reputational damage Do not leave yourself open to a knock on the door May enable a company to escape debarment Potentially avoid conviction Limited reputational damage Possibility of reduced penalty with open cooperation 9

10 Pros and Cons of entering into a DPA Save time and costs of a lengthy investigation Swifter restitution and rehabilitation Reduced collateral damage to innocent employees, stakeholders Positive reform agenda Potential lack of incentive o Fines will be broadly the same o Discount will be broadly the same Full disclosure and cooperation may unearth other irregularities Work of a Monitor can be disruptive to the business 10

11 UK s first DPA Payment of $6m USD to third party (EGMA) in March 2014 EGMA s chairman and a director were government officials Intention of inducing government officials Placement successful generating fees of $8.4m USD Terms of the DPA with the SFO: o Fine totalling c. $36m USD o Cooperate with ongoing and future investigations o Review and upgrade AB&C policies in accordance with independent recommendations DPA means that the bank will not be prosecuted under s.7 of the 2010 Bribery Act for failing to prevent bribery 11

12 UK s first DPA - Overarching Takeaways Purpose of the Bribery Act Extra-territorial reach of the SFO The importance of self-reporting The importance of a robust internal investigation Adequate procedures not a defence 12

13 Key Compliance Takeaways Policies and Procedures Lack of EDD Unclear policies e.g. Introducer and Consultants policy Implementation and assurance is key Involvement of a third party Government transaction in a high risk jurisdiction ABC due diligence No ABC due diligence undertaken on EGMA Appreciation of the due diligence differences PEP identification Identification and documentation Training Failed to identify a PEP at EGMA Therefore failed to implement commensurate controls EGMA were classified as high risk, but no explanation why Corruption red flags not identified, documented, considered ABC policies not reinforced effectively through communications and/or training 13

14 Role of the Monitor A Monitor s primary responsibilities are to: o Assess and monitor internal controls o Make recommendations for improvements o Report specific misconduct to the prosecutor o To report on the satisfaction of the DPA Appointed by the prosecuting authority Independent - although firm pays expenses of the Monitor 14

15 Monitor Appointment Process Firm responsible for shortlisting three Indicate a preferred candidate Firms should carefully consider their Monitor selection 15

16 Monitor Relations and Output Working with the Monitor Obtain an insight into how the Monitor will work Foster a relationship Consider the practicalities Advisory? Reporting Series of interim reports Responding to findings When does a Monitorship end? 16

17 Conclusion DPAs are here to stay Moved into an enforcement era regarding ABC The importance of an effective compliance programme Joined up financial crime controls 17

18 Correspondent Banking The Good, The Bad and The Challenging February 2016 Colin Darby

19 Overview An arrangement under which one bank (correspondent) holds deposits owned by other banks (respondents) and provides payment and other services to those respondent banks. Eurozone: - 25mn transactions /day - EUR 1 trn/day Other than payment settlement systems, the only way for funds to cross-borders electronically. 19

20 Correspondent Relationships Direct access products Correspondent Bank X Respondents Bank Y (customer of Bank X) Bank Z (customer of Bank X) Customers Bank A Bank B End Customers Nested / Downstream CB 20

21 Correspondent Banking is a high risk activity No direct relationship with underlying parties Limited information on underlying transactions Non-face to face business Reliant on respondent s possibly inadequate controls Exposure to respondents with higher risk appetites Exposure to less robust regulatory regimes Hidden exposure through downstream or nested activity 21

22 CB Compliance Challenges Defining CB Relationships KYCC Respondent risk assessment Risk-sensitive due diligence Regulated Status of Respondents Transaction Monitoring Qualitative Assessment Wire Transfer Regs Interaction with Respondents Maintaining Profitability 22

23 Wholesale De-risking Benefits Impacts 23

24 Wholesale De-risking Benefits Impacts 24

25 Wholesale De-risking Benefits Impacts 25

26 Wholesale De-risking Benefits Impacts Reduced risk of regulatory action Diminish small banks Less exposure to ML/TF risk Restrict developing economies 26

27 Wholesale De-risking Benefits Impacts 27

28 Changing Landscape 4MLD Definition of correspondent relationship broad and may capture relationships between NBFIs. Removal of equivalent jurisdictions in favour of identification of high risk third countries Less prescriptive, more risk-based approach to SDD CB due diligence likely to become less polarised, more risk sensitive. 28

29 Effective CB Operating Models Policy and procedures CB specific AML policies and procedures CB product/service risk assessments Multi-factor respondent risk assessment models Risk-based CB due diligence People CB due diligence in front line CB AML training for RMs Dedicated CM TM and AML Advisory personnel Technology Use of KYC utilities and LEIs Data analytics (e.g. SWIFT Traffic Profile) Dedicated CB TM rules Payment data algorithms Development of payment messages 29

30 Key messages CB remains vital Sustainability through collaboration Risk-Based Approach Authorities remain interested More technology 30

31 Questions? 31