Compliance Updater - November 2018

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

Regulatory and compliance news in brief

Charges for Goldman Sachs and its bankers over 1MDB scandal.
1MDB, the Malaysian state investment fund that, it is alleged, was the victim of a huge fraud estimated at $4.5bn, has resulted in criminal charges for bribery and money laundering from the US Department of Justice for two former Goldman Sachs bankers. A third individual was suspended by Goldman Sachs after being named as a co-conspirator in the embezzlement scheme by the DoJ. The bankers were involved in the underwriting of three 1MDB bond offerings, raising $6.5bn and generating $600m in fees for Goldman Sachs.
An Abu Dhabi sovereign wealth fund is also suing Goldman Sachs, accusing it of bribing officials to guarantee the bonds issued by the Malaysian fund. The legal action comes from the International Petroleum Investment Company (IPIC) and its subsidiary Aabar. As well as accusations of bribery against Goldman Sachs, IPIC also filed criminal complaints against two individuals that were directors for accepting the bribes and misusing the companies’ names to further the ‘massive international conspiracy to embezzle billions of dollars’ from 1MDB.

Privacy International calls for GDPR probe into ‘data traders’.
Campaign group Privacy International filed a series of complaints to British, Irish and French regulators against firms including data broker Acxion and credit rating agencies Experian and Equifax. It claims that the firms’ business models involve exploiting data that clashes with many of the provisions of the General Data Protection Regulation (GDPR) including the principles of transparency, data minimisation and purpose limitation.

Swift announces disconnection of Iranian banks.
After US sanctions were reinstituted against Iran, the Belgium-based global financial messaging system Swift announced that it will fall into line with US restrictions by disconnecting the targeted Iranian banks.

Ex-JPMorgan metals trader pleads guilty to manipulation.
A 36-year old former precious metal trader at JPMorgan has pleaded guilty to US charges of manipulation of the gold, silver, platinum and palladium futures contracts traded on CME Group exchanges. The charges include ‘spoofing’ – placing and then rapidly cancelling orders to fool the market and manipulate prices.

KPMG to phase out conflicts.
KPMG looks like it is becoming the first of the big four accounting firms to stop offering consultancy services to large audit clients. In a memo sent to partners, the firm’s chairman said it would phase out all services deemed non-essential for large audit clients to ‘remove even the perception of a possible conflict of interest’.

EU looking at the need to supervise Big Tech more closely.
Financial regulators in the EU and elsewhere are discussing whether they need to supervise large technology companies more closely. The discussions are a response to large companies like Amazon, Facebook, Google and Apple of the US as well as Alibaba and Tencent from China expanding into payments and other financial services. Banks are also heavy users of the cloud services of Amazon, Google and Microsoft to store much of their customer data.

Libor remains dominant.
The challenge faced by regulators to wean the markets off the scandal ridden Libor benchmark was brought into sharp focus. Figures showed alternative measures (including the Sonia benchmark) underpin just 3% of the $179tn of interest rate derivatives traded in the third quarter of 2018.

Kweku Adoboli deported from the UK.
The former UBS trader, Kweku Adoboli, who was convicted of fraud surrounding a $2.3bn unauthorised trading loss, lost his legal fight with the UK’s Home Office and is heading to his native Ghana. 38-year old Mr Adoboli left Ghana aged 4, spent 8 years in the Middle East and then the rest of his life to date in the UK. Under UK law, foreign nationals sentenced to more than 4 years in prison are automatically deported and Mr Adoboli faces a 7-year sentence.

British tech entrepreneur facing fraud charges in the US.
Mike Lynch, founder of the Autonomy software business that was sold to Hewlett Packard for $11bn in 2011 making him more than $800m personally, is facing charges of fraud from the US Department of Justice (DoJ). Hewlett Packard wrote off more than three quarters of the value of Autonomy just one year after purchasing it. Mr Lynch is accused of a fraudulent scheme to mislead others about the true performance and growth prospects of Autonomy between 2009 and 2011. The DoJ accuses Mr Lynch of artificially inflating revenues, misleading regulators and intimidating and pressurising analysts. Former chief financial officer at Autonomy, Sushovan Hussain, was convicted for fraud in April, but is appealing against the charge.

Danske Bank Estonian branch money laundering probe widens and criminal charges begin.
Three large US and German banks have become embroiled in the Danske Bank €200bn money laundering scandal emanating from its Estonian branch. Deutsche Bank, Bank of America and JPMorgan Chase acted as correspondent banks for the Estonian branch, providing links to the US financial system. The scandal is subject to criminal investigations, including one from the US Department of Justice (DoJ). The former Danske Bank manager who blew the whistle on the scandal has talked to US law enforcement agencies including the Securities and Exchange Commission (SEC) and the US Treasury’s Financial Crimes Enforcement Network (FinCEN) as well as the DoJ.
The €200bn money laundering scandal also led to the first of what could be multiple criminal charges with Danish prosecutors submitting preliminary charges against Danske Bank. The charges include that a large part of the €200bn of Russian and former-Soviet money that flowed through the Estonian branch between 2007 and 2015 was suspicious, that the bank failed to report a significant number of suspicious transactions and did not properly investigate customers and their transactions. Further charges are expected from criminal investigations in Estonia and by the US DoJ.

Potential UK clampdown on the misuse of limited partnerships.
The UK government is looking at tightening the rules around limited partnerships. Although legitimately used by the likes of private equity firms and pensions schemes, limited partnerships can be used to hide the ultimate beneficial owner behind layers of virtually impenetrable corporate identities. The dirty-money scandal around Danske Bank’s Estonian branch found that UK limited partnerships and limited liability partnerships were the second most common type of non-resident client at the bank after Russians.

Deutsche Bank’s Frankfurt offices raided under money laundering probe.
Deutsche Bank’s offices in Frankfurt were raided by police as part of a broad criminal investigation into alleged money laundering. The raid is thought to be related to transactions in the bank’s wealth management division that were highlighted in the so-called ‘Panama Papers’. The core of the investigation surrounds the Deutsche unit in the British Virgin Islands that in 2016 dealt with more than 900 clients and processed €311m.