FCA signals streamlining of its own processes and toughening up of the regulatory gateway
We discussed N v RBS and the large fine levied against Deutsche Bank as a result of operating accounts on behalf of Jeffrey Epstein. As we explained, the issue caused by banks taking a more stringently risk-averse approach (‘de-risking’) was the increasing number of people excluded from the banking systems which, with more and more transactions occurring online and the decreasing use of cash, had the effect of excluding or marginalising people from swathes of society as well as causing difficulties if such parties needed to instruct lawyers to provide advice. A customer excluded from regular banking facilities might still need to process transactions, but the net effect of the exclusion could cause them to rely on non-standard and alternative methods of transferring funds. Rather than making payments safer and better regulated, and reducing the risk of money laundering and the financing of terrorist activities, this use of underground or unregulated and unmonitored spheres is therefore likely to have the opposite effect: making it harder to detect and report suspicious activity.
Concern about de-risking practices and financial exclusion is not new. In February 2016, the FCA published a statement saying that it was aware that some banks no longer offer financial services to entire categories of customer they associate with a higher risk but that ‘effective money-laundering risk management need not result in wholesale de-risking’. The FCA recommended that banks should use ‘judgement and common sense’, saying ‘this is what we would regard as an effective risk-based approach’.
International organisations have also sought to deal with this problem: the World Bank has been actively examining this issue for years, pointing out that ‘de-risking can frustrate AML/CFT [combating the financing of terrorism] objectives and may not be an effective way to fight financial crime and terrorist financing’. The G20 High-Level Principles for Digital Financial Inclusion strongly encourage a risk-based approach as opposed to de-risking entire categories of customers or accounts.
The European Banking Authority (EBA) is the latest body to recognise and seek to address this problem. In March it observed the increasing amount of de-risking being undertaken by banks and financial institutions and the impact this had on issues of customer protection and financial stability. On the basis of these observations and an information-gathering exercise, it published three regulatory instruments designed to deal with the problem. Echoing the guidance cited above, the instruments confirm that it is not necessary to refuse to provide facilities to entire categories of customer in order to comply with anti-money laundering obligations and counter terrorist financing. The instruments reiterate that the refusal of banking facilities could be an entirely appropriate approach to risk in certain circumstances, but that it could also be a sign of ineffective anti-money laundering and terrorist financing risk management: using a crane to crush a fly.
While recommendations that banks should take a risk-based approach (rather than take part in wholesale de-risking) are welcome, such guidance does nothing to address the commercial reality in which banks operate. Considering the possibility of heavy criminal sanctions and reputational risk against flaccid (albeit genuine) recommendations, it is clear where the balance lies.
One attempt at finding a solution to this problem can be found in the Payment Account Directive 2014/92, recognised by the EBA as imposing a conflicting requirement upon financial institutions. This provides the right to a basic payment account for those who are legally resident in the EU, predicated on the need to foster the participation of EU citizens in the internal market and its benefits. The directive was implemented in the UK by way of the Payment Account Regulations 2015 and, while the regulations were amended following Brexit so that the EU is now treated as a third country, the right to a basic payment account for those legally resident in the UK has been retained in UK law, subject to eligibility criteria.
The regulations require the provision of basic accounts to ensure no one is discriminated against, including those with no fixed address, asylum seekers and those without residence permits. These are parties who, by their very nature, are likely to be considered higher risk and therefore more likely to be denied an account. The regulations also make it clear that such a basic account can only be terminated in specific circumstances such as non-compliance with anti-money laundering legislation, but not because undertaking the necessary checks is time-consuming or otherwise onerous. While a step in the right direction, the regulations lack teeth: a refusal to open an account may result in a complaint to the Financial Ombudsman Service, but this would be unlikely to give any bankers a sleepless night.
It is clear a problem has been identified. The solution, however, remains elusive.
We are delighted to present, as a guest blog, the thoughts and views of Dr Valentyn Gvozdiy, managing partner of Golaw in Kyiv. Dr Gvozdiy outlines the significant changes to criminal procedure that have been heralded by the Russian invasion of his country and the subsequent adoption of martial law.
On Thursday 5 May, Kingsley Napley hosted the 4th annual Cross-Border Criminal Law Conference, which focused on individual and corporate accountability for international crimes.
This quarterly update provides a summary of a selection number of news stories relating to health and safety investigations and prosecutions, published in the period January - March 2022.
The English High Court, in Mr Dollar Bill Limited v Persons Unknown and Others  EWHC 2718 (Ch), has once again come to the rescue for victims of fraud – this time armed with a Norwich Pharmacal Order to be served outside the jurisdiction.
Whilst it is anticipated that prosecutions under the National Security and Investment Act 2021 (‘the Act’) will be exceptionally rare, the criminal sanctions set out in it are explicitly framed to create a “sufficiently robust deterrent to ensure compliance.” The provisions punish corporates and individual officers who connive or consent to commit an offence, as well as individual officers who are negligent (s.36). In addition, they are also extra-territorial (s.52), meaning that the scope of liability is particularly wide-ranging.
This quarterly environmental law update provides a summary of news stories in the period January 2022 – March 2022
The Prime Minister recently committed the UK’s support to achieving justice in respect of the war crimes allegations arising out of the Ukraine conflict. The conflict and associated allegations raise questions over the UK’s commitment and ability to bring prosecutions under the doctrine of “universal jurisdiction”. Universal jurisdiction describes the jurisdiction that is available in the national courts of many countries to prosecute individuals for the most serious international crimes, even if those crimes occurred abroad and neither the defendants nor victims have any connection to that country. Why only a few such prosecutions have taken place in the UK will be the topic of one of two panel discussions at Kingsley Napley’s Cross Border Criminal Law Conference on 5 May 2022.
This quarterly international criminal law update provides a summary of the news stories in the period January – March 2022. The relevance of international criminal law has been tragically highlighted by the current events in the Ukraine. This fast moving event has been covered below, along with a number of other international criminal law updates.
News broke last month that megastars Jay-Z, Meek Mill, Big Sean, Kelly Rowland and Fat Joe (among others) were supporting the introduction of a New York state law that aims to prevent the prosecution using rap lyrics in criminal trials.
On 28 February 2022, the UK Home Secretary Priti Patel announced to parliament that the UK would be ‘leading all international efforts’ to suspend Russia’s membership of INTERPOL.
This came moments before the Ukrainian minister of internal affairs, Denis Monastyrsky, made a public statement demanding Russia’s immediate expulsion from the organisation for “violating its basic principles and massive misuse of tools and services to cover up its crimes and persecute political enemies, particularly in Ukraine.”
The news is never short of horror stories involving travellers who find themselves detained in a foreign country. This is sadly a reality for thousands of British citizens who, for a variety of reasons, are being held in a prison abroad.
A new bill will be put forward to parliament tomorrow with the aim of increasing transparency of ownership of property in the UK. The introduction of this new Economic Crime (Transparency and Enforcement) Bill has been expedited following the sanctions announced last week, however the drive for change began over five years ago and that it is finally coming to fruition will be welcomed by many.
On 16 November the CJEU delivered its judgment following the publication of the Advocate General’s opinion on the UK-Ireland extradition questions which we wrote about here. The decision concerned the mechanisms for extradition to the UK from Ireland in two scenarios (1) under the terms of the withdrawal agreement from 1 February to 31 December 2020 and (2) under the EU-UK Trade and Cooperation Agreement (“TCA”) from 1 January 2021.
The judgment confirms the AG’s Opinion that Ireland is bound by the withdrawal agreement and the TCA (“the agreements”) in respect of extradition arrangements with the UK and accordingly extradition from Ireland to the UK post-Brexit will continue under those terms.
This blogs considers the recent corporate manslaughter conviction of Deco-Pak and two other recent corporate manslaughter cases, Bosley Mill and Aster Healthcare and what they tell us about the current approach to this offence. In January 2022 a garden supplies firm, Deco-Pak was found guilty of corporate manslaughter following a fatal accident at the Deco-Pak premises in Hipperholme, West Yorkshire on 14 April 2017.
The Medical Cannabis (Access) Bill (the ‘Bill’) aims to enable patients in England to access cannabis-based medicinal products (‘CBMPs’), such as nabiximols, more freely on the NHS. Although English law was changed in November 2018 to allow specialist doctors to prescribe cannabis (we have blogged about this here), very few people have been able to access NHS prescriptions which has left patients paying thousands of pounds a month for private prescriptions or unable to obtain treatment altogether. There are approximately 10,000 private prescriptions for CBMPs in the UK. In a paper published by BMJ Open in 2020, Professor David Nutt et. al. reported that thousands of UK patients were self-medicating with illicit cannabis-based products.
On 10 January 2020, the Financial Conduct Authority (FCA) became the anti-money laundering (AML) and counter-terrorist financing (CTF) supervisor for UK cryptoasset firms. Two years in, how effectively is it performing its role as the gatekeeper of the new registration regime?
A Civil Fraud quarterly round-up (4th quarter 2021)
This quarterly environmental law update provides a summary of news stories published in the period October – December 2021.
On 9 December the Gambling Commission published its annual Compliance and Enforcement Report for the financial year 2020–2021. This confirmed that the period was particularly active for the Enforcement and Compliance teams, with a record total of £32.1 million being paid by 15 gambling businesses as a result of fines or regulatory settlements. This included over £1.3m being paid by White Hat Gaming Ltd, after a January 2020 review by the Commission of its operating licence revealed inadequate policies and produces in respect of anti-money laundering (“AML”) and safer gambling.
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