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Financial Crime Summary

Financial Crime Report (May 2020)

Laven regularly reports on the most interesting and relevant financial crime news to give an idea of the ongoing regulatory approach taken against money laundering and terrorist financing. This allows us to make clients and other regulated firms aware of the potential risks they face. We also provide alerts on any preventive measures firms can take. Passages are linked throughout to more in-depth articles should our readers want to explore certain aspects of this summary further.

Posted on 3 Jun 2020

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The FCA has released advice about how to avoid COVID-19 related scams.

“A major event like Coronavirus can initiate new types of scam activity. You may have already seen reports of fraudulent activity around the sale of face masks and hand sanitiser. When it comes to financial services, the scam activity is more nuanced and often appears after the initial shock of a major event. With that in mind, we are urging consumers to be vigilant for scams that could arise over the coming months. 

Scammers are sophisticated, opportunistic and will try to get personal details or money from victims in many ways. They tend to target people who are more vulnerable or susceptible to being scammed, particularly in the current climate with many more people being at home. 

What tactics to look out for:

  • Exploiting short-term financial concerns, scammers may ask you to hand over an upfront fee – usually between £25 and £450 – when applying for a loan or credit that you never get. This is known as loan fee fraud or advance fee fraud.
  • ‘Good cause’ scams. This is where investment is sought for good causes such as the production of sanitiser, manufacture of personal protection equipment (PPE) or new drugs to treat COVID-19 – with scammers using the promise of high returns to entice consumers. 
  • Using the uncertainty around stockmarkets, scammers may advise you to invest or transfer existing investments into high return (and high risk) investments.
  • Clone firms - firms must be authorised by us to sell, promote, or advise on the sale of insurance products. Some scammers will claim to represent authorised firms to appear genuine. In particular, be aware of life insurance firms that may be cloned.
  • Scammers may contact you claiming to be from a Claims Management Company (CMC), insurance company or your credit card provider. They may say they can help you recuperate losses by submitting a claim, for the cost of a holiday or event such as a wedding cancelled due to COVID-19. They will ask you to send them some money or your bank details.
  • Look out for cold calls, emails, texts or WhatsApp messages stating that your bank is in trouble due to the coronavirus crisis, and pushing you to transfer your money to a new bank with alternative banking details.

How to protect yourself:

  1. Use the Financial Services Register and Warning List to check who you are dealing with.
  2. Reject offers that come out of the blue.
  3. Beware of adverts on social media channels and paid for/sponsored adverts online.
  4. Do not click links or open emails from senders you don't already know.
  5. Avoid being rushed or pressured into making a decision.
  6. If a firm calls you unexpectedly, use the contact details on the Register to check that you’re dealing with the genuine firm
  7. Do not give out personal details (bank details, address, existing insurance/pensions/investment details).”

You can report the firm or scam to the FCA by contacting their Consumer Helpline on 0800 111 6768.


Fraudsters potentially targeting former clients of Synergy Wealth and Westbury Private Clients.

The FCA believes fraudsters may be offering to review individuals’ pensions and arrange a pension transfer for an inappropriately high fee.

A third party may have provided client contact details to companies believed to be linked to recovery rooms. This is where fraudsters contact investors who have been scammed or had failed investments, offering to help them recover their money for an upfront fee.

The FCA is also currently investigating firms cold calling customers about their pensions and other investments. These firms do not have appropriate FCA authorisation. The FCA is aware of the following firms:

  • Excelsior Worldwide Ltd,
  • Excelsior Legal & Estate Services (UK) Ltd,
  • Connected Financial Services Ltd and,
  • Phoenix Consultants (UK) Ltd.

The FCA has advised not to give any information if you receive a call regarding transferring your pension and to hang-up. Customers can call the FCA’s consumer helpline to check if the firm is a recognised regulated entity and check the firm’s details on the FS Register.

If customers believe they have been scammed, they are advised to contact Action Fraud. Any information regarding the call would also be helpful in aiding the FCA with their investigation.


FCA admits revealing confidential details of 1,600 consumers

In a statement published on 25 February 2020, the FCA revealed that it had accidentally exposed confidential details of 1,600 consumers.

The FCA stated that, in response to a Freedom of Information Act request published on its website, the underlying confidential information may have been accessible. The details belong to complainants who made complaints against the FCA between 2 January 2018 and 17 July 2019.

The FCA has removed the information from its website and undertaken a full review to identify the extent of the information which may have been accessible. The FCA published names, addresses and phone numbers, which were contained within descriptions of complaints. More than half of the complainants only had their names revealed, and no financial, payment card, passport or other identifying information was included.

The data breach is prevalent for the FCA, as the regulator previously fined, Tesco Bank £16.4 million for failing to protect customer information in 2018. The FCA is also currently investigating a security breach at the Bank of England.

Where confidential information was exposed, the FCA is directly contacting the individuals concerned to apologise, advise them as to the extent of the data exposed and to discuss possible next steps. The FCA stated that they had taken immediate action to ensure that this does not happen again and that the matter has been referred to the Information Commissioner’s Office.


FCA fines Moneybarn for unfair treatment of customers in arrears

The FCA has fined Moneybarn Ltd (‘Moneybarn’), a car finance provider, £2.77 million for failing to treat customers fairly when they fell behind on loan repayments while in financial difficulties, between 1 April 2017 and 4 October 2017.

Moneybarn failed to communicate to customers the consequences of failing to keep up with loan repayments in a way that was fair, clear and not misleading. More than 1,400 customers subsequently defaulted after entering into unsustainable short-term loan plans. Many of these customers are considered vulnerable.

Moneybarn is a subsidiary of Provident Financial Plc, which provides motor finance for used vehicles mainly to customers who are unable to access mainstream lenders due to their personal circumstances. Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, highlighted that these customers are particularly vulnerable and at a greater risk of detriment when falling to arrears as they often have a poor or no credit history, or past problems with credit due to unemployment, ill-health or other adverse life events. Moneybarn also failed to communicate clearly to these vulnerable customers their options for exiting their loans and the financial implications of doing so. This resulted in higher termination costs for many customers. Given this, Mark Steward has called Moneybarn’s failures “serious breaches”.

Moneybarn has since voluntarily paid more than £30 million in redress to customers potentially affected by its failings and did not dispute the FCA’s findings. The FCA gave Moneybarn significant credit for this when assessing the size of the penalty, and the firm was also eligible for a 30% discount. If Moneybarn had not made voluntary payments to address their failings or accept the FCA’s findings, the FCA would have imposed a fine of £3,963,500.


Report reveals Swedbank AML failings on €37bn of transactions.

A report published by Clifford Chance, the UK law firm hired by Swedbank, reveals that the bank carried out €37bn of transactions with a high risk of money laundering over a five year period. The report also reveals how Swedbank had inadequate systems and controls for AML.

Clifford Chance designed the investigation to identify historical deficiencies in Swedbank’s AML compliance systems and controls from January 2007 to March 2019. The investigation focused on the areas of Swedbank and the Baltic subsidiaries that, based on the available information, evidenced the highest historical AML-related risk.

Regarding the bank’s AML controls, Clifford Chance did not conclude that Swedbank had engaged in money laundering or processed customer transactions that constituted the proceeds of crime. However, the investigation did reveal that Swedbank had inadequate systems and controls to ensure proper management of the AML and economic sanctions risk of its customer base, which historically exposed Swedbank and its Baltic subsidiaries to significant AML and sanctions risk. The risk was most prevalent in the bank’s Baltic subsidiaries, primarily at Swedbank Estonia and mainly arose from the high-risk non-resident (‘HRNR’) business. Swedbank Estonia and Swedbank Latvia actively pursued high-risk customers as a business strategy. They accepted certain customers who were off-boarded by another bank in Estonia in 2015 due to excessive money laundering risk. A special committee was formed at Swedbank Estonia to review the onboarding and maintenance of HRNR customers. However, the committee approved high-risk customers without having complete documentation regarding the ultimate beneficial owners (‘UBOs’), proof of source of funds or explanation of the legitimate business purpose of the customers, and did not address red flags that arose from the information that was provided.

The investigation also analysed the external payment transactional activity of Baltic banking HRNR customers for the period from March 2014 and March 2019. A detection algorithm used by Clifford Chance identified transactions with risk indicators that meant that the transactions warranted further review. The investigation found that across all three Baltic Subsidiaries the total value of external payments that alerted on three or more detection scenarios during the five-year period was approximately €17.8 billion of incoming and €18.9 billion of outgoing payments. €4.8 billion of these transactions could also have broken US sanctions.

Swedbank was recently fined a record SKr4bn ($380 million) by Swedish and Estonian regulators. It is also facing an investigation in the US which could lead to further fines and criminal probes in Sweden and Estonia.

Goran Persson, the former Swedish Prime Minister who was brought in last year to remediate the bank’s failures, stated that “Clifford Chance’s report confirms the bank’s failure. In its anti-money laundering work, the bank has not measured up to the requirement that customers, owners and society are required to set” and that the bank is “working hard” to resolve the problems. Swedbank CEO Jens Henriksson also stated that there were unacceptable cultures at the bank, and a review is underway to examine the culture and identify the actions needed.


British former investment bankers convicted for tax fraud in Germany

Two British former investment bankers have been convicted in Bonn of committing tax fraud in Germany on 18 March 2020. Martin Shields and Nicholas Diable were sentenced for their part in ‘cum-ex’ equity trades. They were accused of involvement in trades that defrauded the German Treasury of more than €400 million (£341 million) between 2006 and 2011.

The two men were given suspended jail terms and one also received a €14 million fine for tax evasion. Shields and Diable avoided jail time by closely cooperating with German prosecutors and providing intel on the elaborate tax evasion scheme. MM Warburg, a Hamburg-based private bank, was also fined €176 million for links to most of the transactions under review in the trial. A spokesman for the bank said it would appeal the decision. The judge, Ronald Zickler, stated that the trades were illegal rather than merely exploiting loopholes in the law.

The name ‘Cum-Ex’ refers to a security traded with or without a right to a dividend. ‘Cum-Ex’ trading involves the rapid transfer and/or borrowing of shares between investors just before the date on which a dividend is paid to a shareholder. This enables two parties to simultaneously claim ownership of the same shares so that both can claim tax rebates. It is estimated cum-ex trading has cost the treasuries of Europe €55bn.

The FCA’s Executive Director of Enforcement and Market Oversight, Mark Steward, stated in a February 2020 speech that “the FCA had been investigating substantial and suspected abusive share trading in London’s markets that has allegedly supported these schemes. These investigations are now very close to their conclusion and decisions about action are imminent.”

Many of the traders were UK nationals and most of the trading will have taken place in the City of London. Given the recent convictions and increased worldwide coverage, the FCA may soon use its full range of enforcement powers against firms and individuals that have participated in and failed to tackle such conduct.


FCA bars Cypriot firms that used unauthorised celebrity endorsements.

The FCA has taken action to stop four Cypriot investment firms from continuing to offer highrisk CFDs to UK investors. The firms are entitled to seek a review of the FCA's action.

Hoch Capital Ltd, Magnum FX Ltd, Rodeler Ltd and F1Markets Ltd used social media and webpages carrying fake endorsements from celebrities to entice consumers into the scams involving CFDs. The FCA estimates that UK investors have lost hundreds of thousands of pounds in these investments.

The FCA took action because consumers were not provided with sufficient information as to the nature of the investments, some were pressured into making increasingly large investments in CFDs, which referenced bitcoin, foreign exchange, shares and indices, and some were even encouraged to take out credit to make the payments.

It is the first time the FCA has used its power to remove passporting rights from a firm. Mark Steward, FCA Executive Director of Enforcement and Market Oversight, said: 'The FCA has removed passporting rights for these firms which effectively stops them from continuing to provide these types of products in the UK. We welcome the further action taken by the CySEC. The FCA's investigations into the sector are continuing.

Following the FCA's action, and on the basis of information supplied by the FCA, the Cyprus Securities and Exchange Commission has fully suspended the regulatory authorisations of Rodeler Ltd and Hoch Capital Ltd and partially suspended the regulatory authorisations of Magnum FX Ltd and F1 Markets Ltd. The CySEC action means that Rodeler Ltd and Hoch Capital Ltd must cease all regulated activities entirely.


How can we help?

At Laven, our consultants are on hand to help identify the actions your firm needs to take to ensure you are in compliance with new regulations and aware of all the risks outlined in this report. Whether this is through assisting with new policies and procedures that need to be put in place or providing online/in-person training for staff to make them fully aware of the regulatory burden.

Laven has also built Laven Tech, a unique Regulatory Technology (RegTech) solution that leverages advanced technology combined with our vast subject matter expertise. Our RegTech solution is designed to assist fund managers, service providers and investors to meet today’s growing demands.

If you would like to find out more, please fill out a contact form or give our London office a call on +44 (0)20 7838 0010.