Compliance Essentials News - July 2020
Key compliance news including Google GDPR, Novartis bribes, Amazon sanctions, Boohoo modern slavery, Roland-Korg price-fixing, DB & Epstein, EU fines, Wirecard collapse and more...
Our pick of the most informative compliance news this month
- Roland and Korg facing the music for competition law violations
- Google fined €600,000 over 'right to be forgotten' law
- The mystery of Wirecard's vanishing $2.1 billion
- Novartis gets a taste of its own medicine
- Amazon fined for breaching US sanctions
- Deutsche Bank fined $150 million over Jeffrey Epstein accounts
- BooHoo stocks plummet as Leicester modern slavery exposed
- EU AML fines being dished out across the bloc
- UK employees asked to pay back furlough money
Roland and Korg facing the music for competition law violations
The latest musical instrument firms to get into trouble with the Competition and Markets Authority (CMA) are the industry giants, Roland and Korg, who have just been fined a combined total of £5.5 million for online price fixing.
A CMA investigation found that both firms had been in breach of competition law by restricting online discounts, in a practice known as 'resale price maintenance'. As a result, Korg was fined £1.5 million, while Roland was given a £4 million penalty.
Unfortunately, this situation is far from unprecedented. Fender received a £4.5 million penalty last January for a similar offence, while Casio was ordered to pay a £3.7 million fine for fixing the prices of its keyboards and digital pianos back in August 2019.
CMA research revealed that more than 40% of musical instrument sales take place online, "so it’s important that manufacturers and retailers do not illegally work together to keep prices high."
- Never discuss or enter into agreements with competitors regarding prices, margins, market shares or production volumes
- Never discuss future pricing plans and promotions with suppliers or discuss RRPs with retailers
- Don't place price, territorial or online sales restrictions on suppliers or distributors unless you are absolutely certain that it is legally permissible to do so in that instance
- Don't act in a way that restricts competition in any market where you enjoy a dominant position - e.g. refusing to supply, prohibiting discounting, imposing exclusive obligations or entering "pay-for-delay" deals
Google fined €600,000 over 'right to be forgotten' law
What happened is that Google failed to delete links to "obsolete" news stories, which were considered to be harmful to the reputation of a person with a public profile in Belgium. These stories appeared in search results linked to the person's name, which resulted in their regular harassment.
The APD ruled that Google was "negligent" since they were in possession of clear evidence that the content of these news stories was outdated and irrelevant. They also ordered Google to stop referencing the stories within Europe, as well as to publish less ambiguous information about who is responsible for handling 'right to be forgotten' requests.
In response, Google has stated that it intends to appeal the decision. A Google spokesperson has stated that "we didn’t believe this case met the European Court of Justice’s criteria for delisting published journalism from search - we thought it was in the public’s interest that this reporting remain searchable".
The mystery of Wirecard's vanishing $2.1 billion
Wirecard, the German payment processing and financial services firm, has collapsed, owing creditors nearly £3.2 billion. This comes after they disclosed a gaping hole in their books which auditors claim is the result of a sophisticated global fraud, resulting in the arrest of Markus Braun, then CEO, and two board members.
Wirecard’s downfall comes just a week after EY, its auditor for over a decade, refused to sign off their accounts for 2019. As a result, Braun was forced out, with the firm admitting that $2.1 billion of its cash probably didn’t exist at all.
EY said that while working on 2019's audit, it was given false confirmations with regard to escrow accounts, and had no choice other than to report them to the relevant authorities. "There are clear indications that this was an elaborate and sophisticated fraud involving multiple parties around the world," EY said in a statement.
Olaf Scholz, Germany's Finance Minister, has called the collapse a "scandal", adding that it was time to "rethink our supervisory structures". He asked his ministry to come up with new ideas, saying that "if legal, legislative, regulatory measures are needed, we will embrace them and implement them". He also said that "a scandal like Wirecard is a wake-up call that we need more monitoring and oversight than we have today."
Similarly, car dealership chain Lookers has also admitted that it will need to book a £19 million charge to correct inaccuracies in its accounts, after being caught out in an investigation. Unsurprisingly, this caused their share price to plummet by two-thirds since the start of the 2020.
Novartis gets a taste of its own medicine
Novartis Pharmaceuticals has agreed to pay $678 million in order to close a case against them in which they were accused of bribing and paying kickbacks to thousands of doctors between 2002 and 2011.
As part of the deal, Novartis said that it "agreed to new corporate integrity obligations with the Office of Inspector General of the US Department of Health & Human Services that will change how the company delivers peer-to-peer programs in the U.S."
Novartis was accused of hosting tens of thousands of speaker programs and similar events "under the guise of providing educational content, when in fact the events served as nothing more than a means to provide bribes to doctors," the Department of Justice claimed.
Novartis paid doctors purportedly as compensation for delivering lectures regarding a Novartis drug. However, prosecutors claim that many such programs were little more than social events held at pricey restaurants, with little or no talk about healthcare or medicine. Prosecutors also revealed that some of the events had never even taken place.
"Giving these cash payments and other lavish goodies interferes with the duty of doctors to choose the best treatment for their patients and increase drug costs for everyone," stated Acting US Attorney Audrey Strauss for the Southern District of New York. "This office will continue to be vigilant in cracking down on kickbacks, however they may be dressed up, throughout the pharmaceutical industry."
- Never offer money or anything of value in return for improper performance of any function
- Make sure that gifts, hospitality, donations, sponsorship and expenses are proportionate and in line with industry-standard policies and thresholds
- Never make facilitation payments to speed up processes or 'jump the queue'
- Make sure you report any suspicion or knowledge of bribery to the relevant authorities immediately
Amazon fined for breaching US sanctions
The US Treasury Department has released a statement announcing that Amazon has agreed to pay a $134,523 fine over alleged sanctions violations. The charges in question relate to goods and services sent to people in Syria, Iran and Crimea between 2011 and 2018. All three of these countries are covered by Office of Foreign Assets Control (OFAC) sanctions.
This settlement is relatively insubstantial compared to Amazon's enormous market cap. However, the sales were for fairly low-level retail goods and services. In fact, the total amount of the goods and services which breached US sanctions only totalled just over $250,000 - peanuts for a firm like Amazon!
The Treasury Department does not believe that these sales were made with malicious intent, but that they relate to issues with Amazon's online systems, which failed to flag shipments to sanctioned countries. There seem to be a number of reasons why this occurred. One specific example involves the Amazon site failing to note when a sale was made to an Iranian embassy outside of Iran.
This event only serves to highlight the importance of reforming sanctions infrastructure for cross-border transactions, which has scarcely changed since 1977. As of 2021, ISO 20022 is set to streamline cross-border payments, creating a flexible infrastructure to facilitate information exchange and aid in harmonizing the payments language between old and new technologies. The ultimate aim of ISO 20022 is to remove the barriers to sanctions compliance and get the global financial community on the same page.
- Be vigilant and proactive - don't just rely solely on automated screening software to flag up name or target matches
- Keep up to date with any changes to global sanction lists and compliance technologies
- Watch out for attempts to add, alter, delete or omit payment information in instruction lines to evade sanctions
- Report any concerns, including actual or potential sanctions violations, to the relevant authorities immediately
Deutsche Bank fined $150 million over Jeffrey Epstein accounts
Yet another German firm has found themselves in hot water this month. Deutsche Bank has been fined $150 million by a New York regulator for ignoring red flags and allowing the late Jeffrey Epstein to withdraw suspicious amounts of cash and make payments to models in Russia.
According to New York Governor Andrew Cuomo, "Mr Epstein’s criminal, abusive behaviour was widely known, yet big institutions continued to excuse that history and lend their credibility or services for financial gain." Epstein, a registered sex offender, had a history of abuse and sex trafficking, which Deutsche Bank was aware of when they took him over as a client from JP Morgan Chase. This history included his 2007 guilty plea to state prostitution charges.
Among the incriminating transactions, New York uncovered payments to alleged accomplices, Russian models, lawyers, victims, and "suspicious" cash withdrawals of around $200,000 a year.
Deutsche Bank's servers contained internal emails showing that its employees had actually weighed up the risks of keeping Epstein as a client but eventually brushed them aside, enticed by the millions in annual revenue he could generate for the bank.
The New York investigation discovered that Epstein had over 40 Deutsche Bank accounts, some for specific use by the 'Butterfly Trust', whose beneficiaries included co-conspirators in alleged sexual abuse. According to the investigators, this created a risk that transactions could be used to "further or cover up criminal activity and perhaps even to endanger more young women."
BooHoo stocks plummet as Leicester modern slavery exposed
A damning new report has found that up to 10,000 people may be working in slave-like conditions in textile factories in Leicester. Leicester MP Andrew Bridgen claims that a "conspiracy of silence" has permitted such factories to continually exploit people over many years, and says that "you've got a systemic failure of all the protections in Leicester that would prevent this from happening."
These factories supply garments to a number of UK retailers, most notably Boohoo, which also owns brands such as Nasty Gal and Pretty Little Thing. Despite the UK's minimum wage being set at £8.72 an hour for over 25's, an undercover reporter found employees being paid a mere £3.50 per hour instead. Additionally, no protection was provided to workers to protect against Covid-19, putting their health at serious risk.
As a result of the modern slavery investigation, a staggering £2 billion has been wiped off of Boohoo's value on the AIM market in London, reducing it to £2.7 billion - further hindering its chances of reaching its £7.55 billion target in three years' time.
Boohoo is now facing a massive backlash, as retail giants such as ASOS and Next have both stopped stocking Boohoo garments in their shops in retaliation. Likewise, Very.co.uk and Zalando have both temporarily suspended the sale of any items associated with Boohoo, as quite a few Instagram influencers cut ties with them.
- Conduct due diligence checks on all workers, agencies, suppliers and third parties before engagement - it's vital you know exactly who you are dealing with
- Raise awareness of modern slavery among suppliers and third parties - encourage them to sign up to your Code of Conduct and insist on clauses in their contracts
- Ensure that you follow all legal requirements when setting employee wages - remember that in the UK the minimum wage varies by age
- Ensure you provide all staff with adequate protection during health crises like Covid-19
EU AML fines being dished out across the bloc
The EU appears to be stepping up its game at tackling money laundering across the bloc, as both Romania and Ireland receive fines from the EU's top court.
Both countries were found guilty of failing to fully apply and enforce the EU's rules against money laundering and terrorist financing. As a result, Ireland was fined €2 million, while Romania received a €3 million fine.
Latvia's Signet Bank was also fined nearly €1m for anti-money laundering failures including:
- not taking sufficient measures to discover firms' true beneficiaries
- not verifying the origin of financial means in its customers' accounts
- failing to document conclusions on any AML findings
- failing to carry out timely and sufficient customer due diligence
- failing to classify individual customers as shell companies in line with AML regulatory requirements
UK Employees asked to pay back furlough money
The Coronavirus Job Retention Scheme (CJRS) has been a lifeline for countless UK businesses and their employees. However, new allegations claim that some employees are being asked to contribute to furlough payments from their own salaries.
According to The Stage, some offstage workers are being asked to sign contracts which would require them to repay furlough payments once shows resume in the UK. Asking employees to pay up in this way is being called a 'retrograde step' which casts doubt on the future of these employees within the sector.
Under the furlough scheme, workers could receive 80% of their salary, but from August, employers still making use of the scheme will need to begin paying National Insurance and pension contributions. Additionally, employers will need to pay 10% of their employees' salaries from September, and 20% from October.
As part of the contracts in question, the amount that employers paid towards furlough contributions may be automatically deducted from employees' salaries when shows start up once again. However, employees who choose not to return to the show may also be forced to repay the furlough contributions in full.
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