Compliance Updater - September 2018

A summary of key compliance stories around the globe in September.

Regulatory and compliance news in brief

Adoboli facing deportation from the UK to Ghana.
Kweku Adoboli, the ex-UBS trader who went to prison after running up the largest unauthorised trading loss in UK history of $2.3bn, is facing deportation to the place of his birth, Ghana. He was sentenced to 7 years in prison and British law states that any foreign national sentenced to more than 4 years in jail is automatically deported. Mr Adoboli has been arguing he should be allowed to stay in the UK – he only lived in Ghana until he was 4, then spent 8 years in the Middle East and has been in the UK for the remainder of his 38-year life to date.

Danske’s Estonian branch estimated to have handled $235bn of foreign client money over 9 years.
The Estonian branch of Danish bank Danske at the centre of a money laundering scandal is said to have handled about $235bn for around 15,000 foreign clients in a period that lasted from 2007 to 2015. Although not all of this was necessarily suspicious, the estimate comes as a shock after initial estimates of suspicious transactions were just $3.9bn over the 9-year period. The bank acknowledged ‘a series of major deficiencies’ in its control and governance framework and its chief executive has resigned his post but will stay on until a replacement is found. As well as the Danish financial regulator, the UK’s National Crime Agency (NCA) has opened an investigation. The NCA is looking into a UK entity with links to the Danske Bank branch, where UK registered companies are said to have been used as the ‘preferred vehicle’ for moving non-resident money.
It later emerged that there was a whistleblower who warned Danske Bank’s management as early as 2013. He is a UK citizen who was head of markets at Danske and his initial whistleblow warned managers that the bank had breached “numerous regulatory requirements, behaved unethically (and had) a near total process failure”. He also highlighted how a UK-based limited liability partnership called Lantana Trade had beneficial owners including the Putin family and the Russian intelligence services. The whistleblower eventually resigned in 2014 due to the lack of action despite his warnings.

BA suffers major website hack.
British Airways (BA) admitted to a hack involving 380,000 customers, notifying the stock exchange and the Information Commissioner’s Office. Clients were emailed and told to contact their bank and ‘follow their recommended advice’. The attack is thought to be the first to hit a major company after the introduction of the EU’s General Data Protection Regulation (GDPR) that gives regulators the possibility of a fine of up to 4% of global turnover. For BA, that could amount to £500m.

Unilever details plan to move HQ to the Netherlands.
Shareholders received the detailed proposal for fast-moving consumer goods giant Unilever to simplify its current dual listing in London and Amsterdam and relocate its headquarters to the Netherlands. The proposal will be voted on in late October and UK shareholders are already angry at Unilever losing its eligibility for inclusion in the FTSE 100 index.

ING’s CFO resigns due to AML failings.
The Chief Financial Officer of Dutch bank ING has resigned after being singled out as responsible for compliance failings that allowed companies to launder hundreds of millions of euros and pay bribes. The bank has agreed to pay €775m in penalties to the Netherlands public prosecutor after revelation of breaches including $55m bribes paid to the daughter of Uzbekistan’s president by mobile operator VimpelCom and a Curacao underwear company that had allegedly laundered €150m.

UK’s NCA increasing scrutiny of Russian wealth.
The UK’s National Crime Agency (NCA) is preparing to expand the use of unexplained wealth orders to freeze UK assets and will particularly target Russians since the nerve agent attack on the former Russian spy Sergei Skripal and his daughter. Unexplained wealth orders came into force in the UK in January and none have yet been filed against Russians.

Briefcase may strengthen the corruption case filed in Milan relating to a Nigerian oilfield.
A corruption case against Shell and Italy’s ENI was filed in Milan relating to a $1.3bn Nigerian oilfield deal. The allegations are that of the total of $1.3bn paid by Shell and ENI, $1.1bn went to former Nigerian oil minister Dan Etete and his associates including the former Nigerian president Goodluck Jonathan. A briefcase seized in the Swiss flat of a former Credit Suisse private banker and belonging to Emeka Obi, a middleman who received millions of dollars from the deal, contained a laptop with 41,000 documents that could be crucial to the trial.

MiFID II leads to huge changes in research.
A consultant’s report suggests that the second Markets in Financial Instruments Directive (MiFID II) has resulted in huge changes in research. Frost Consultancy looked at 3,000 funds across 350 managers and found that those paying for research out of client money rather than their own P&L were paying significantly more. Emerging market funds paid around 7.5x more on average, whilst European and North American funds spent 3.8x and 2.7x more. The conclusion is perhaps that asset managers are much more careful about spending their own money than that of their clients.

KIDs obligations create optimistic projections.
The EU requirement for Key Information Documents (KIDs) to include future projections based on past returns is creating problems. The Association of Investment Companies found that one in ten investment companies imply gains of 20% in ‘moderate’ market conditions and that more than half project between zero and 10% even in ‘unfavourable’ markets.

Swedish regulators investigating Nasdaq as it rebuilds its default fund.
The Swedish Nasdaq exchange has lost two-thirds of its mutual default fund after Einas Aas, one of Norway’s best-known electricity market traders, was unable to maintain his positions that cost around €114m to close out. Swedish regulators are investigating the incidents and the 166 members of the clearing house are having to replenish the mutual default fund with around €100m of contributions.

Switzerland’s Finma censures Credit Suisse.
The Swiss regulator Finma censured Credit Suisse for anti-money laundering failings. Finma highlighted Credit Suisse’s failures in relation to corruption scandals such as those involving FIFA, Brazilian oil company Petrobras and Venezula’s PDVSA. The shortcomings identified included client ID, determining beneficial owners, categorising riskier business relationships and documentation. Finma does not have the power to impose fines but has demanded remedial steps at Credit Suisse which will be monitored by an independent third party.

UK Citizens Advice issues ‘super-complaint’ regarding loyalty penalties.
The charity Citizens Advice has issued a “super-complaint” to the Competition and Markets Authority regarding the loyalty penalty that is suffered by customers across five markets – mobiles, broadband, home insurance, mortgages and savings. Super-complaints can be submitted by a designated consumer body over aspects of a market that may be harmful to the interests of consumers. Citizens Advice surveyed more than 3,000 people and concluded the average overpayment by not switching was a staggering £887 per year. Previous super-complaints made by Citizens Advice include payment protection insurance.

Brazil’s Petrobras settles bribery probes by paying $853m in penalties.
Petrobras, the Brazilian state oil group, settled local and US claims of bribery and corruption by paying a total of $853m – 10% each ($85.3m) going to the US department of Justice and the US SEC and the balance of 80% ($682m) to the Brazilian authorities. It was alleged that former Petrobras executives had “facilitated the payment of hundreds of millions of dollars in bribes to Brazilian politicians and political parties and then cooked the books to conceal the bribe payments from investors and regulators”.

Iran moving towards FATF acceptance?
In the face of crippling US sanctions, Iran is potentially heading towards compliance with the global standards set by the Financial Action Task Force (FATF). FATF suspended Iran from its blacklist in June 2016 on condition that it took a number of steps to comply with international norms including ratifying two UN treaties. Iran has until an October meeting at FATF to either take the steps or return to the blacklist.