EU update – February 2021

February 23, 2021

As Fraud in the UK is seen as a “Threat to National Security”, Judges limit Serious Fraud Office’s powers to investigate foreign companies.

2019/20 saw 3.7 million reported incidents related to fraud, with even more going unreported due to victim’s lack of trust in the system and policing around it. This is not helped by the recent report of a 20 hour wait times to reach the HSBC fraud help line.

The repercussions and valuation of fraud from various Covid19 relief schemes globally is yet to be fully understood, however of the £15-26 billion losses from the Coronavirus Bounce Back Scheme, it is thought that the level of fraudulent applications contributing to these defaulted loan payments will be higher than the typical estimate of 0.5-5%. That is money straight out of the taxpayer’s pocket during a global pandemic when financial support is desperately needed in many areas.

Amid these increased and still underestimated fraudulent activities, efforts to combat international fraud have been dealt a “serious blow” after Supreme Court judges ruled the Serious Fraud Office (SFO) powers to investigate foreign companies are limited.

The Supreme Court was deciding on a two-year legal battle between the SFO and US-based engineering firm KBR, which is under investigation for suspected bribery and corruption.

This decision means that the SFO cannot unilaterally demand documents and evidence from a company which does not have ties to the UK.

This ruling reinforces the limits on existing British law and highlights the need for new powers from the government to fully investigate these cases.

Jersey Regulator fines firms £700,000 for breaching anti-money-laundering rules

Jersey Financial Services Commission says that penalties totalling £719,000 have been made against three S G Kleinwort Hambros firms for breaches including inadequate monitoring of controls to prevent money laundering and financing of terrorism between January 2018 and May 2019. The JFSC said this is the third time it has used its powers to fine businesses in a proactive and preventative measure to protect the reputation of the Island’s finance sector. The firms fined included a Banking division, Trust company and Corporate Services provider.

Concerns were also raised about staff resourcing for compliance work, failure to respond to rule breaches that were discovered, not notifying the JFSC of breaches and inadequate documentation of compliance matters at board meetings. It was suggested by the JFSC that the issues flagged about SGKH’s compliance could have been ‘mitigated’ had the company’s board acted quicker.

Businesses need to be prepared to see an increase in these types of fines. It is not enough to have static and unchecked controls in place. Businesses should demonstrate a continuously evolving AML Compliance Programme and be able to document and evidence their level of risk and risk-based approach.

British Firms setting up Shell companies to gain access to the EU

The EU accuses British firms of trying to circumvent post-Brexit rules by setting up shell or “letterbox” companies to satisfy EU headquartering requirements.

Whilst the EU’s chief Brexit negotiator Michel Barnier said “Needless to say, national authorities of the EU in each and every country and the EU authorities themselves will be very, very vigilant. In the next few weeks and months, I recommend everyone to be careful.”. The Bank of England Governor Andrew Bailey seemed to retaliate when he said the EU’s approach to equivalence, the system of regulatory approval for operating in the market, was aimed at forcing the City to be a “rule-taker”.

Nether the less, the UK will need to go through this rigorous scrutiny to obtain this status and enable firms to continue to operate in and benefit from the EU market.