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With 2016 drawing to a close, we review the main developments in financial crime over the last year.
Beneficial ownership was arguably the most talked-about issue in financial crime in 2016. This was partly because of the release of the Panama Papers in April 2016. The revelations have led to high-profile resignations of government officials implicated in the Panama Papers, numerous criminal investigations into the allegations, and ongoing media coverage of the story.
Beneficial ownership is now firmly on the agenda of governmental and intergovernmental bodies trying to tackle financial crime. At the London Anti-Corruption Summit in May, it was announced that 40 jurisdictions have committed to automatically sharing beneficial ownership information with each other. This means law enforcement agencies in these countries will be able to see who really owns and controls every company incorporated in these jurisdictions.
Intergovernmental bodies like the G20 and the OECD have called on countries to do more to share beneficial ownership information. In October, the Financial Action Task Force (FATF) published proposals on how to improve the implementation of international standards on transparency, including the availability of beneficial ownership information.
A key trend in legislation in 2016 has been to encourage companies to report themselves to the regulators when they come across evidence of suspected financial crime within the company, or by a third party. In July, the UK’s Serious Fraud Office (SFO) agreed only its second ever Deferred Prosecution Agreement, with an anonymous company accused of bribery. The company quickly reported the evidence it had uncovered to the SFO, assisted the investigation and reviewed its compliance program. In return, it avoided a criminal conviction and received a penalty that is lower than the typical level of fine determined for bribery offences. France adopted new legislation which allows companies to enter into negotiated settlements in November, and the Australian government is considering doing the same.
In April, regulators in the US began a one-year pilot program to encourage companies to voluntarily self-disclose suspected breaches of the Foreign and Corrupt Practices Act (FCPA). Companies that voluntarily and promptly disclose the evidence of the suspected offence and fully cooperate with the government’s investigation can receive up to a 50 percent reduction off the typical level of fine.
Legislation to tackle money laundering was also strengthened in 2016. In July, the European Commission adopted a proposal to reinforce EU rules on anti-money laundering, which will counter terrorist financing and increase transparency about who really owns companies and trusts.
There have been significant changes in sanctions policies in 2016. The US has continued to reduce its sanctions against Cuba, North Korea, and Myanmar, and the EU has renewed sanctions against Russia. These changes and more were documented in a LexisNexis e-book released in November.
Events in 2016 might lead to further changes in sanctions regimes in the longer term. The UK voted to leave the EU in June 2016, which would mean the UK no longer automatically signs up to the EU’s sanctions policies. Since Donald Trump was elected as the next US President, his early statements suggest he will adopt a different sanctions policy to his predecessor.
2016 has brought further evidence that when a company or a country makes a serious attempt to combat bribery and corruption, it can actually improve its bottom line. A recent report by ethiXbase found that Singapore has gained a “significant competitive advantage” over its neighbors in the Asia-Pacific because of its robust anti-corruption laws and its tough stance on corruption in the private and public sector.
Figures released by the World Bank earlier in the year show that in the two fiscal years ending in June 2015, the Bank debarred or sanctioned 144 firms or individuals who were found to have engaged in corrupt practices. Companies that have been sanctioned and debarred are no longer eligible to apply for lucrative World Bank contracts.
The International Standards Organization published a new standard called the ISO 37001 in October, which companies can use to certify their anti-bribery and corruption compliance procedures. Experts predict that this standard will help companies to gain new contracts by demonstrating that they are honest and accountable.
A report by the World Bank in April identified technology as a central part of a strong compliance strategy, noting that good data collection by companies can help them to identify patterns which reveal where there are inefficiencies or corrupt practices.
The UK Financial Conduct Authority’s business plan for 2016/17 encouraged “the use of technology to reduce compliance costs”. Technology allows companies to quickly screen third parties against databases of up-to-date information on negative news, legislation, and watch lists of sanctions and politically exposed persons.
This year, there has been greater scrutiny on companies around their ethical sourcing practices. October 2016 marked a year since the Modern Slavery Act came into force in the UK. A report by the Business and Human Rights Resource Centre studied 27 company statements by FTSE 100 companies to find that only 56% explicitly complied with the minimum requirements of the Act. A report by LexisNexis in September showed that there is a “strong risk” of forced labor taking place in the construction industry and its supply chains.
Developments in all areas of the bribery and corruption landscape in 2016 show the continued importance of managing risk and strengthening compliance to meet a company’s regulatory, financial, strategic and reputational objectives. For more information on how LexisNexis can help your company negotiate these ever-changing risks, FOLLOW THIS LINK