Financial Crime Summary
Financial Crime Summary: Q3 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 23 Sep 2020
Deutsche Bank will Pay $583K to Settle Violation of Sanctions
The US Department of Treasury’s Office of Foreign Assets Control (OFAC) announced two settlements totalling $583,100 with Deutsche Bank Trust Company Americas (‘DBTCA’) to resolve investigations into violations of Ukraine-related sanctions.
In its enforcement release, the Treasury stated that the US unit of Deutsche Bank agreed to pay $157,500 for processing a payment through the United States that involved a property interest of a designated oil company in Cyprus. At the time it processed the payment, DBTCA had reason to know of the designated oil company’s potential interest, but did not conduct sufficient due diligence to determine whether the designated oil company’s interest in the payment had been extinguished.
DBTCA also agreed to pay a settlement of $425,600 due to its processing of 61 payments in December 2014 to Krayinvestbank, a Russian financial institution that had been designated for its role in the annexation of the Crimea region of Ukraine. The bank failed to stop the 61 payments because of lapses in its payment screening tools.
In response to the fines, DBTCA committed to review the circumstances of the apparent violation with its U.S. sanctions compliance unit and to perform any necessary additional training or changes to the bank’s internal procedures.
Criminals increasingly targeting EU green funds, says anti-fraud agency
Fraudsters in Europe are increasingly targeting European Union funds intended for environmental and sustainable projects, as the bloc planned to unlock €1 trillion in green investments over the coming years.
In its latest report released on Thursday, the European Anti-Fraud Office (OLAF) said that it concluded 181 investigations in 2019, opened 223 new probes, and recommended the recovery of €485 million from the EU budget.
Completed investigations included cross-border fraud schemes affecting humanitarian aid and the EU’s environment, agricultural and regional development funds. OLAF also investigated cases looking into the misspending of EU funds intended for green products and the counterfeiting and smuggling of products with the potential to harm the environment and health. In particular, OLAF identified a major trend where fraudsters are using the procurement and tendering process to gain access to EU funds for illegal purposes. In one case, three Polish companies were found to have defrauded the EU's food, farming and rural development fund by faking and inflating invoices and manipulating tendering procedures. OLAF has recommended the recovery of over €1.1 million in EU financing.
The agency's Director-General, Ville Itälä, stated that OLAF had "observed a growing trend building up over the last few years in fraud involving EU funds for environmental and sustainable projects." The OLAF is a “crucial asset” for Europe as fraudsters target the budget designed to help Europe’s recovery from the COVID-19 pandemic.
The EU Commission has put a proposed New Green Deal at the heart of the bloc's 2021-2028 budget to make it's economy more sustainable, with the aim of becoming the world's first carbon-neutral region by 2050. To fund the Green Deal, the EU plans to mobilise €1 trillion in public and private investments.
EY chairman admits ‘regret’ over Wirecard failures in letter to clients
Carmine Di Sibio, global chairman of EY, wrote to clients amid a backlash against the group after it failed to identify a €1.9bn fraud at the payments processor it audited for a decade, writing that “even though we were successful in uncovering the fraud, we regret that it was not uncovered sooner.”
EY signed off on Wirecard’s accounts for over a decade, despite growing scrutiny of its accounting practices from journalists and some investors. Auditors failed to request crucial account information from a Singapore bank where Wirecard claimed it had over €1 billion in cash. This is a routine audit procedure that would have helped to uncover the fraud. A number of investors are preparing to sue Wirecard and EY, which is also being investigated by German regulators.
In response to the scandal, EY will increase its use of technology to improve its audits, including “using electronic confirmations for audit evidence” such as “matching the company’s records of banking transactions with those provided to EY by the bank”.
EY will also use more third-party data and information during its audits and carry out greater checks on “management probity”, according to the letter. All EY auditors will also be given annual training in forensic accounting.
The letter has been given to EY’s global partners, who will send the letter to the senior executives at the companies they work with in order to mitigate the reputational damage suffered by EY from its role in the Wirecard scandal.
FCA publicly censures former Worldspreads CEO for market misconduct
On 9 September 2020, the FCA published a Final Notice in respect of Conor Foley, the former Chief Executive Officer of Worldspreads, publicly censuring him for market abuse and banning him from performing any roles linked to regulated activity.
The FCA published a Decision Notice on 3 July 2020 that also imposed a financial penalty of £658,900 on Mr Foley. Due to evidence of Mr Foley’s financial hardship, the FCA has imposed a public censure in lieu of the financial penalty.
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said “Mr Foley misled investors in the Worldspreads Group and manipulated the market for its shares in a concerted and deliberate scheme. He should have no place in UK markets.”
Mr Foley, the ex-CEO of WorldSpreads Limited (WSL), and its holding company WorldSpreads Group plc (WSG), was involved in drafting admission documentation ahead of WSG’s flotation on the Alternative Investment Market of the London Stock Exchange in August 2007. The documentation contained misleading information and omitted key information that investors would have needed to make an informed decision about the company. The documentation also failed to mention that some WSG executives had made significant loans to WSG and its subsidiaries. This was also never disclosed in the annual company accounts, nor was an internal hedging strategy where certain WSG subsidiaries hedged considerable trading exposures internally with company executives.
Between January 2010 and March 2012, large spread bets were placed on the shares of WSG on the trading accounts of WSL clients on terms which made statements in WSG’s Annual Accounts as to its credit policy false and misleading. In addition, large spread bets were carried out on two clients’ accounts by Mr Foley himself without the knowledge of the clients and this had the effect of giving the appearance of greater demand for WSG shares than in fact existed.
Mr Foley is the third and last executive of WSL against whom the FCA has taken action following its collapse in March 2012.
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