This month's key compliance news includes an SJP refund, Herbalife bribery, G4S fraud, the FinCEN leaks, Blackrock climate change, Citigroup risk, cold call fines, DB sanctions and more.
Our pick of key compliance stories this month
- SJP to pay back £75,000 over rogue advisor
- Herbalife agrees to pay $123m over China bribery case
- Former G4S execs charged over electronic tagging scandal
- FinCEN leaks reveal UK as a high-risk jurisdiction
- BlackRock votes against 49 firms for lack of climate action
- Citigroup to be reprimanded for failing to improve risk systems
- CPS Advisory fined £130,000 for pension-related cold calls
- Landmark ruling for non-binary and gender-fluid individuals
- Deutsche Bank's compliance procedures limit sanctions penalty
- Pharmacist wins £15k because of age & disability discrimination
SJP to pay back £75,000 over rogue advisor
St James's Place (SJP) has agreed to refund one of their clients over £75,000 after they were sold unregulated investments by a rogue advisor. Philip Cox, was employed by SJP for more than ten years, and in that time encouraged 17 of his clients to invest £1.35m into Green World Innovations, a firm owned by one of his personal friends. When Green World was liquidated in October 2019, 68 of its investors were left to face losses of over £3.3m. Among these investors were the 17 SJP clients who had been advised to invest by Cox.
When the matter was brought to the attention of SJP representatives, the firm's official response was that it did not accept "any responsibility in the matter" since it was "emphatic that his clients were aware that this was separate and distinct from any product or service provided by SJP".
While the Financial Ombudsman Service found that this was true in most cases, they ruled against SJP in one case after discovering that Cox had persuaded the client to transfer out of other SJP-approved products to be able to to invest in Green World, which counts as a regulated activity that falls under SJP's responsibility.
Herbalife agrees to pay $123m over China bribery case
Herbalife Nutrition Ltd has agreed to pay $123.1 million to settle civil and criminal charges relating to the bribery of Chinese officials in media outlets and government agencies to boost its business in China. The multi-level marketing firm, most famous for their range of dietary supplements, entered a three-year deferred prosecution agreement after admitting to conspiring to violate the books and records provision of the FCPA.
US Authorities found that Herbalife schemed from 2007 to 2016 to bribe Chinese officials with entertainment, cash, holidays and dinners to reduce government scrutiny, gain direct selling licenses and suppress negative coverage by state-controlled media.
Apart from a $55.74 million criminal fine, Herbalife will also need to pay $67.31 million in disgorgement and interest in order to settle a related SEC case. The firm will also be required to upgrade their compliance procedures to ensure this case does not repeat itself.
- Never give or offer any inducement, nor request or accept one from others - keep in mind that bribery is a criminal offence and a predicate offence to money laundering
- Make sure that any gift or hospitality you give or accept is proportionate and in line with industry-standard policies and thresholds
- Conduct due diligence on all third parties and make your company's stance on bribery clear
- Never attempt to disguise a bribe as something legitimate, for instance as a 'scholarship' or 'loan repayment'
Former G4S execs charged over electronic tagging scandal
Three former G4S executives have been charged by the UK's Serious Fraud Office with defrauding taxpayers as a result of the investigation into the company's electronic tagging of offenders. These charges come in spite of the settlement between G4S and the SFO which guarantees that the security firm will avoid criminal charges if it meets conditions to improve its corporate governance.
James Jardine, Richard Morris and Mark Preston, the former G4S executives involved in the electronic tagging scandal, have each been charged with seven offences of fraud relating to false representations made to the UK's Ministry of Justice from 2009 to 2012.
Last July, the firm agreed to pay £44m over allegations of misrepresenting the profits of its prisoner tagging contract. They had initially filed a projected profit margin of 8.3% for the duration of the contract, yet the SFO discovered that in reality it was approximately 17.9%.
FinCEN leaks reveal UK as a high-risk jurisdiction
The latest scandal to befall the world of finance comes in the form of the FinCEN leaks, as over 2,000 Suspicious Activity Reports (SARs) have been leaked to the press by an insider at the US Financial Crimes Enforcement Networks (FinCEN).
These leaks demonstrate how world-renowned banks have been making transfers without carrying out basic Know Your Customer (KYC) procedures. In one case, an HSBC employee approved a multi-million dollar transfer in spite of a receiving clear warning that the account holder was part of a Ponzi Scheme.
Alarmingly, international journalists sifting through the leaks have noticed that a significant portion of the financial misconduct uncovered stems from UK-based banks. In fact, FinCEN is now referring to the UK as a high-risk jurisdiction due to the exceptionally high number of money laundering instances taking place.
- Conduct initial and ongoing client due diligence using risk-based approach with no exceptions
- Look out for anything about any customer or transaction that is unusual or suspicious - pay particular attention to high-risk customers and jurisdictions
- Report any knowledge or suspicion of money laundering to the relevant authorities immediately, and take no further action until authorised to do so
- Exercise extreme care to avoid tipping off anyone who has been reported for money laundering or terrorist financing
BlackRock votes against 49 firms for lack of climate action
The world’s largest asset manager, BlackRock, has claimed that over the past 12 months it has voted 55 times against directors at 49 different firms for not taking enough steps to tackle climate change.
BlackRock announced its focus on sustainability last January, when it pledged to come down hard on firms that failed to appropriately deal with the climate crisis, and said that it would vote against them at annual shareholder meetings.
The firm's annual investment stewardship reveals that it cast over 5,000 votes against company directors over the past year to hold management accountable for failing to move forward on a variety of issues, including board diversity and sustainable growth. This was 300 votes higher than the number recorded in the previous year.
Citigroup to be reprimanded for failing to improve risk systems
Federal regulators are preparing to reprimand Citigroup Inc, the investment bank and financial services company, for not making sufficient improvements to its risk-management technology and procedures.
This forthcoming rebuke has accelerated Chief Executive Michael Corbat's retirement, even though regulators did not specifically call for his resignation. However, it is understood that Corbat came to believe that a costly, multiyear overhaul was best left in the hands of his successor, Jane Fraser. This news comes as quite a shock to investors and analysts who had expected him to remain in his position for quite a few more years.
A consent order will very likely require the firm to produce a comprehensive plan to repair its risk protocols. Such formal regulatory actions are often accompanied by financial penalties or stricter oversight, however it is not yet clear what, if any, punishment will be imposed.
CPS Advisory fined £130,000 for pension-related cold calls
A Swansea-based company, CPS Advisory Ltd, has been handed a £130,000 fine for making more than 100,000 pension-related cold calls. The fine was issued by the ICO under a new law which was drafted to clamp down on scammers trying to defraud vulnerable people out of their pensions.
The ICO investigation discovered that between 11th January 2019 and 30th April 2019, the firm made a total of 106,987 cold calls to potential customers without lawful authority. The investigation also found that the firm was not a manager or trustee of a legitimate pensions scheme, had no FCA authorisations, and failed to provide any satisfactory evidence that valid consent for the calls had been obtained.
ICO head of investigations, Andy Curry said "Unwanted pension calls can cause real distress and even significant financial hardship to often vulnerable people, who can end up losing their hard-earned pension pot to scammers. This company clearly flouted the law when they should have known better. Businesses making direct marketing calls are responsible for understanding their responsibilities under the legislation, ignorance is no excuse."
- Make appropriate disclosures to individuals and get their consent for unsolicited marketing phone calls, text and video messages, picture messages, voicemails and direct messages sent via social media
- Don't send unsolicited marketing to anyone who has said that they do not want to receive it, anyone registered with the TPS or CTPS, or anyone named on a suppression ('Do not call') list
- Remember that consent is often time-limited - it should be checked regularly and you must let individuals exercise their right to stop their personal information being used for marketing purposes
- Conduct reasonable due diligence on third-party lists, and plan how to handle objections and complaints in advance
Landmark ruling for non-binary and gender-fluid individuals
It's official! Protections given to those undergoing gender reassignment also apply to gender-fluid and non-binary workers, according to a landmark ruling. Confirmation comes after a gender-fluid former Jaguar Land Rover (JLR) engineer won their claim for harassment, discrimination and unfair constructive dismissal.
Ms R Taylor, who was as an engineer at JLR for 20 years, had previously been presenting as a male. In 2017, she began identifying as gender-fluid and wearing women's clothes. This sparked abuse, insults and jokes from colleagues. There was little support from the company's management and Taylor had problems accessing toilet facilities.
JLR claimed that Taylor did not fall into the definition of gender reassignment under section 7 of the Equality Act because Taylor was gender-fluid and non-binary. The Tribunal, however, disagreed stating the argument was "totally without merit".
Taylor's compensation will also be uplifted by 20% for the firm's failure to comply with the ACAS Code of Practice when grievances were raised during transitioning.
Now HR firms are warning that a lack of understanding of LGBTQ+ individuals was "one of the biggest issues" facing firms and are warning companies to review their policies and start raising awareness.
Deutsche Bank's compliance procedures limit sanctions penalty
One of Deutsche Bank AG's US units has agreed to pay $583,100 to resolve claims of US sanctions violations. This is a mere fraction of the maximum the bank could have faced ($75 million), as the US Treasury Department pointed to the bank's cooperation and compliance efforts as mitigating factors that led to penalty reductions.
The final settlement focused on two alleged US sanctions breaches. One involved a $425,600 fine for processing dozens of transactions into a sanctioned Russian financial institution, while the other was a $157,500 penalty for processing a single large payment involving a sanctioned oil company in Cyprus.
In both cases, authorities concluded that Deutsche Bank did not wilfully violate US sanctions. It also gave the bank credit for cooperating with the investigation and for immediately making changes to its protocols for adding business identifier codes to their sanctions screening mechanisms. These penalties show that sanctions authorities may be more lenient with firms whose compliance software fails them, provided that they have a comprehensive compliance program in place.
- 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 and cooperate fully with any investigations
Pharmacist wins £15k because of age & disability discrimination
A 60-year-old pharmacist has been awarded £15,000 because of age discrimination by a tribunal after she was mistreated by her colleagues over her memory and hearing issues. A tribunal discovered that Sue Walsh became a victim of age discrimination from practically her first day on the job. It also found that she had been subjected to disability discrimination due to her arthritis.
The tribunal found that Walsh had been regularly ridiculed by her co-workers for not hearing them calling her name, and that she had later been fired due to an absence related to her disability. According to the tribunal, the ridiculing of both her memory and hearing "generated a climate at work that was hostile" and related to her age, as co-workers did not ridicule each other when they misheard or forgot things.
Walsh was awarded £245 for a week of lost pay, with 8% interest, as well as £13,000 for injury to feelings for acts of age and disability discrimination, with 8% interest. In addition to this, she also received another two weeks' worth of pay (£470) for her employer's failure to provide written particulars of employment. This came to a grand total of £15,649.
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