Episode 131

21st October – 27th October 2024

Sanctions

This week’s sanctions news starts in the UK, which has had a level of activity this week not typically see outside action taken in coordination with other jurisdictions. First, the Office of Financial Sanctions Implementation (‘OFSI’) has updated its Counter-Terrorism Guidance and Delegation Frameworks to reflect changes made by the Sanctions (EU Exit) (Miscellaneous Amendments) Regulations 2024. The Licensing and Counter Terrorism Delegation Frameworks have also been updated. Secondly, OFSI has also updated its Expired General Licences information following the lapse of the National Settlement Depository Licence.

The Office of Trade Sanctions Implementation (‘OTSI’) has published a blog post on the process of navigating trade sanctions with guidance from OTSI. The ‘goal is to equip UK businesses with up-to-date knowledge that enables them to navigate this challenging landscape successfully.’ The OTSI website contains a wealth of information and detailed guidance on observing trade sanctions, as well as guidance on OTSI’s approach to enforcement and licensing.

In the US, the Office of Foreign Assets Control (‘OFAC’) has sanctioned the Sudanese Armed Forces Weapons Procurement Director, Mirghani Idris Suleiman.

Finally on sanctions this week, the ‘Price Cap Coalition’ has updated its Maritime Advisory.

Money Laundering

On money laundering this week, the significant news is from the Financial Action Task Force (‘FATF’) Plenary in Paris. In advance of the meeting, it was being widely reported that Russia could be placed alongside North Korea, Iran, and Myanmar on the ‘black list’ – ‘High-Risk Jurisdictions subject to a Call for Action’. Well, the FATF has long-grassed it once more, though this is not likely to stop continued lobbying to get Russia added to the list of international pariahs. Russia’s status as a suspended member is maintained and members reminded that ‘all jurisdictions should be vigilant to current and emerging risks from the circumvention of measures taken against the Russian Federation in order to protect the international financial system.’ The other three were left on the ‘black list’. As to the ‘grey list’ – ‘Jurisdictions under Increased Monitoring’ – Algeria, Angola, Côte d’Ivoire and Lebanon, were all added to the list, and Senegal removed. ‘Senegal will continue to work with the FATF and the Inter Governmental Action Group against Money Laundering in West Africa (GIABA) of which it is a member to continue strengthening its AML/CFT/CPF regimes.’

In other money laundering news, the Association for Financial Markets in Europe (‘AFME’) has published its response to the Financial Conduct Authority’s consultation on proposed amendments to Guidance on the treatment of politically exposed persons (PEPs).

Bribery and anti-corruption

On bribery and corruption news this week, the former vice president of China Development Bank, Wang Yongsheng, has been sentenced for his role in a bribery and corruption scandal by abuse of his position in the bank. He has been sentenced to 12 years’ imprisonment and fined two million yuan.

In Peru, the former president, Alejandro Toledo, has been sentenced to 20 years and six months’ imprisonment for his participation in a scheme of bribery and corruption linked to Brazilian engineering and construction corporation, Odebrecht. Toledo received £35 million in bribes for his support in the construction of a highway between Brazil and Peru. As we reported in episode 128 of the podcast, the former comptroller general of Ecuador was recently sentenced for his participation in bribery and corruption for soliciting and receiving over $10 million in bribe payments from Odebrecht.

In other bribery and corruption news, the Organisation for Economic Cooperation and Development (‘OECD’) has issued updates on Austria and Romania. ‘Austria has made important progress in the enforcement of the foreign bribery offence since its … evaluation in 2012 and has significantly enhanced resources and expertise for investigations and prosecutions.’ That being said, the OECD Working Group recommends that it clarifies interpretative issues relating to the foreign bribery offence and the corporate liability regime. Secondly, it should address a concern regarding the statute of limitations to allow adequate time for investigation and prosecution. Thirdly, it should proactively pursue criminal charges against legal persons. Fourthly, it should urgently take meaningful steps to revise the current framework to shield prosecutors from undue interference prohibited under Article 5 of the Anti-Bribery Convention. Fifthly, it should clarify and enhance the framework for non-trial resolutions. Finally, it should address foreign bribery risks in the national anti-corruption strategy and improve detection. In relation to Romania, the recommendations are that it should amend its foreign bribery offence to fully align it with the Convention; increase sanctions available in foreign bribery cases and ensure that proceeds can be confiscated; develop a strategy for detecting and reporting foreign bribery cases; clarify and enhance its foreign bribery whistleblowing framework; consider whether additional non-trial resolution mechanisms or incentives can be used to encourage reporting; raise awareness about the importance of internal controls, ethics, and compliance programmes; and, ensure that the National Anti-Corruption Directorate has sufficient resources and training for foreign bribery and that it remains insulated from the risk of improper political interference.

And finally on bribery and corruption news this week, the Council of Europe has reported that ‘the city of Fastiv, Ukraine, presented key results of a Congress-supported local initiative in this community: a local anti-corruption code and a novel anti-corruption chatbot where users can browse related legislation and practices, and alert authorities about alleged cases of corruption. The anti-corruption code, based on the European Code of Conduct for all Persons Involved in Local and Regional Governance (adopted by the Congress in 2018) will serve as a model to replicate for Ukrainian communities.’

Fraud

On fraud news this week, the trade organisation, UK Finance, has released its Half Year Fraud report which provides information on the amounts lost through fraud payment and scams in the first half of 2024. In total, £571.7m was stolen by both authorised and unauthorised fraud. While the figure is significant, it represents a 1.5 per cent decrease on the first half of 2023. Of the authorised push payment fraud (‘APP’), 72 per cent started online, and 16 per cent via telecoms. The losses to APP fraud amounted to £213.7m, down 11 per cent on the same period last year, with 78 per cent of that first being personal losses, while the rest is accountable as a business loss. The total number of APP fraud cases was 97,344, which is down 16 per cent on the same period for 2023. In relation to fraud enablers, ‘72 per cent of APP fraud cases originated from online sources. These cases tend to be lower-value scams, such as purchase scams, and so account for 32 per cent of total losses. 16 per cent of cases originated in telecommunications and these tend to include higher value cases, such as impersonation fraud, and so account for 35 per cent of total losses.’ From a review of the data, it is clear that there are a number of relatively small amounts involved, that is, around £2,000. However, of the 89,685 cases assessed and closed during H1 2024, only three per cent involved sums of more than £10,000 – around 2,700 cases. It would be interesting to see how many of those cases were above the reduced threshold of £85,000 following the recent outcome of the Payment Systems Regulator’s consultation. I am left wondering why that data is not provided.

The other piece of fraud news from the UK comes from the Home Office, which has announced a new voluntary charter which is ‘designed to identify loopholes in the insurance market, enhance collaboration and criminal justice outcomes, better understand the scale of the [fraud] problem and improve victim support.’

One piece of reading to flag before moving on, and that is that the global law firm, Norton Rose Fulbright, has published an explainer on the new failure to prevent fraud offence in section 199, Economic Crime and Corporate Transparency Act 2023.

Market Abuse

On market abuse news this week, in Japan, it is being reported that an employee of the Tokyo Stock Exchange is being investigated by the Securities and Exchange Surveillance Commission (‘SESC’) concerning suspected insider trading. There is nothing to confirm this news on the SESC website, but I wouldn’t expect that. So, if more is to come, I suppose we will have to wait for it.

Other Financial Crime News

In other financial crime news this week, finfluencers are once more in the sights of the Financial Conduct Authority (‘FCA’), which has announced that 20 finfluencers have been interviewed under caution by the FCA in relation to allegations that they may be promoting financial services illegally. The motivation for the push is that while obviously it is not permitted for those operating on social media to do such things, but that the likely impact is to be disproportionately on younger people. ‘Increasing numbers of young people are falling victim to scams, and finfluencers can often play a part. Nearly two-thirds (62%) of 18 to 29-year olds follow social media influencers, 74% of those said they trusted their advice and 9 in 10 young followers have been encouraged to change their financial behaviour.’ Earlier this year, the FCA charged nine individuals with promoting unauthorised trading schemes.

Next, in the UK, the leaders of the agencies with significant roles in financial crime controls and enforcement have been issuing public statements. First, Nikhil Rathi, FCA Chief Executive, has delivered a speech at the City Dinner held at the Mansion House. While the main thrust of the speech was growth, there was content on enforcement since financial crime is a ‘drain on growth and competitiveness.’ ‘We’re more assertive against harm. 10,000 errant financial promotions tackled. Doubled cancellations of firms breaching minimum standards. And we have more targeted enforcement. 9 successful fraud prosecutions and 21 charges last year – the most ever. A record 45 people facing proceedings. Investigation times are falling – as low as 14 months in recent cases vs a 42-month average. We have proposed being more transparent on enforcement. Not in all cases. But no longer just by exception. Because our current approach doesn’t work. We think a degree more openness can reduce harm, build whistleblower confidence and benefit firms that play by the rules.’

The next media was an interview in The Guardian with Nick Ephgrave, director of the Serious Fraud Office (‘SFO’). To be frank, some of it is a rehash of other interviews which he has given in the mainstream media, but there is an interesting tit-bit relating to the fact that the SFO seems to have provided immunity to an individual who spilled the beans on another’s wrongdoing. Ephgrave said in the interview: ‘I mean, if you look at the legislation, I can actually, as director, in really extreme cases, authorise immunity from prosecution. Now, of course, that would be a very, very significant step to take and it’s hard to imagine how that would work. I believe it has, once. You might need to factcheck me on that but I think it’s been used once by the SFO. So I can do that, but rarely, rarely, rarely do we ever do it.’ He also talks about amplified protection of, and US-style payouts to, whistleblowers. Now, while on the subject of whistleblowers, a body of support is building around wider protection, and possibly compensation for, whistleblowers, with the campaign being driven to a significant extent by the campaigning group, Whistleblowers UK. Ephgrave is not the first prominent public figure to speak publicly about whistleblowers and their protection and compensation, and with news that Whistleblowers UK plans to introduce a Bill to parliament (again), after a number of failed attempts, in order to establish the Office of the Whistleblower, the election of a sympathetic government may give the Bill momentum it has not been possible to achieve in previous years.

And finally on other financial crime news this week, a couple of bits of reading. First, the Tony Blair Institute for Global Change has published a report outlining A New Approach to Serious and Organised Crime in the UK. I haven’t had the chance to read it yet in full, but from a read of the Executive Summary, there is a heavy degree of overlap with what has already been said in other settings. In terms of specific recommendations, it provides that Serious Organised Crime should be treated as a ‘national-security threat’ and tackled ‘using the powers and resources commensurate to those used in counterterrorism as well as enhanced intelligence and foresight capability.’ Secondly, that the UK should strengthen its ‘infrastructure and legislative framework to disrupt criminal enablers, resources and tools.’ Thirdly, law enforcement’s capabilities should be updated with emboldened ‘structures and capabilities to fit the modern threat.’ Secondly, a chapter from the International Comparative Legal Guide: Business Crime 2025 (Fifteenth Edition) written by two lawyers from White & Case on the subject of DOJ Enforcement Priorities and Outlook for 2024/2025 has been published on the firm’s website.

Cyber Crime

We end this week’s financial crime news with a brief round-up of cyber crime news. First, Sky News in the UK reports that an unnamed company was hacked after it hired a cyber criminal from North Korea who posed as an IT consultant. This is a risk which has more commonly entered into a corporate’s assessment scheme following cases highlighted from the US where this has also occurred. Indeed, it may be recalled that in the UK in September this year, the Office of Financial Sanctions Implementation (‘OFSI’) issued an Advisory on North Korean IT Workers.

Secondly, the Russian Ministry of Foreign Affairs suffered a distributed denial-of-service attack on its infrastructure.

The other cybercrime news this week is the publication of Vanta’s State of Trust Report 2024. The report, freely available with sign-up, indicates, amongst other things, that cybersecurity risk ranks more highly than financial and operational risks in the business sector, and that around half of businesses detect and respond to cybersecurity threats at least weekly. Frankly, this is not uncommon now and these findings appear consistent with much of the rest of the sector. Nobody working in cybercrime or cybersecurity risk management can have avoided hearing similar statistics before now.