Compliance News | March 2022

Posted by

Roberta Buhagiar

on 31 Mar 2022

Key compliance news includes Atrium and 888 fines, Russian sanctions, Shell environmental lawsuit, Toyota plummeting shares, and UK Online Safety Laws.

Compliance News March 2022

Our pick of key compliance stories this month

The UK possibly bought illegally-made PPE gloves

Officials from the UK Department of Health and Social Care (DHSC) are investigating allegations that 3 billion PPE (personal protective equipment) gloves bought during the first year of the Covid-19 pandemic were made by forced labour.

Jonathan Marron, a director at one of the department's offices, stated: "We have concerns that the manufacturers may be engaged in an allegation of modern slavery". If the allegations are true, the contractor will likely be legally bound to take the gloves back and refund the monies paid by the UK government.

Key takeaways:

  • Always conduct due diligence on all clients, suppliers and third parties - make sure that you 'know the chain'
  • Be wary of significantly lower-than-market prices for goods, particularly if you're engaging a supplier for the first time - while going with such suppliers is economically the best decision, the lower costs may be attributed to modern slavery and forced labour practices
  • Familiarise yourself with the International Labour Organisation's Indicators of Forced Labour to learn about the red flags you need to watch out for to help you identify persons potentially trapped in a forced labour situation
  • Ensure your company includes anti-forced labour clauses in contractual agreements to safeguard your business
    Free Modern Slavery Statement Template

£9.4m fine for Online gambling company, 888

888 UK Limited, an online gambling business that operates 78 websites, has been ordered to pay a £9.4 million fine issued by the UK Gambling Commission. The company's failings included:

  • Failing to identify players at risk of harm, including ones with existing or at high risk of developing gambling problems
  • Failing to implement the Gambling Commission's formal guidance on customer interaction
  • Allowing customers to gamble with large amounts of money without carrying adequate due diligence and Source of Funds checks

    In response to the failings, Andrew Rhodes, the Gambling Commission Chief Executive, stated: "[The] fine is one of our largest to date, and all should be clear that if there is a repeat of the failures at 888, then we have to seriously consider the suitability of the operators to uphold the licensing objectives and keep gambling safe and crime-free."

AML Compliance & Training Roadmap

Lloyd's issues a £1m fine to Atrium

The insurance market Lloyd's of London has fined one of its member firms, Atrium, £1 million over serious misconduct. The case shows Atrium tolerated discrimination, harassment and bullying over several years and failed to take action to end a "systematic campaign of bullying" against a specific employee.

In this specific case, Atrium told the whistleblower to keep quiet and went on to negotiate a settlement package with the bullying employee, who resigned and faced no repercussions. Atrium also failed to notify Lloyd's about the misconduct - which breached the insurance market's bylaws.

The charges also included "sanctioning and tolerating" after-work parties attended by several male employees - including two senior executives - where attendees engaged in heavy drinking and made discriminatory and degrading sexual comments about female colleagues. These parties took place over the course of several years.

Atrium's non-executive chairman has publicly apologised and stated that they are taking  measures to ensure "this situation is never allowed to happen again."

Key takeaways:

  • Ensure your company has adequate reporting and whistleblowing procedures in place that encourage employees to report cases of sexual harassment, bullying or discrimination at the workplace
  • Managers and senior management should be well-trained and knowledgeable on how to escalate and process reports of misconduct
  • Professionals are accountable to practice good conduct both inside and outside the workplace and may be liable for bullying and discriminatory behaviour if this is during out-of-office events

Free Whistleblowing Training Presentation

Former Nissan executive guilty of aiding law evasion

Greg Kelly, a former executive at Nissan, has been found guilty of aiding Carlos Ghosn, Nissan's ex-CEO, to evade pay disclosure laws. The Tokyo courts heard how Kelly helped Ghosn hide a portion of his annual £60m income from financial regulators. Kelly was charged and convicted of one count of misreporting financial information.

Kelly received given a six-month jail sentence suspended for three years. The courts also fined Nissan 200m yen (£1.2m) for not disclosing Ghosn's pay, which Nissan pleaded guilty to at the trial in 2019.

Credit Suisse sanctions compliance questioned

US lawmakers have questioned Credit Suisse's sanctions compliance in light of the sweeping sanctions imposed on Russia. Financial firms worldwide are now facing increased scrutiny from regulators on the matter.

At the beginning of March, Thomas Gottstein, CEO of Credit Suisse, stated that around 4% of the assets run by the bank's wealth management department were with Russian clients.

Credit Suisse has stopped all new business with Russia and is supporting clients to reel back their exposure to Russian investments and financial instruments to limit their sanctions risk exposure. The bank has also moved out of Russia and is in the process of relocating employees.

How to Avoid Sanctions Penalties

The UK introduces Online Safety Laws in Parliament

The UK has taken a definitive step towards creating a safer online environment as the government begins reviewing and approving online safety laws. The legislation also aims to provide the government with the increased legal power to hold tech giants to account. The laws will cover several issues, including:

  • Regulating social media and search engine companies and making them tackle harmful, offensive or misleading adverts in an attempt to reduce online scams and fraud
  • Make sure all websites which publish or host adult content, including commercial sites, have robust checks in place to ensure users are 18 or over
  • Adding new measures to clamp down on anonymous online abusers (known as trolls) by giving users the power to control whom they interact with
  • Requiring companies to tackle harmful, illegal content and criminal activity on their sites and platforms quicker
  • Criminalising cyber flashing (the digital equivalent of public indecency)

Key takeaways:

  • Once ratified, the Online Safety Laws will have a tangible impact on companies' Information Security, Sexual Harassment, External Communications and Code of Conduct policies
  • Tech companies are likely to have more responsibilities and regulator expectations designed to protect end-users
  • This new law might require additional company-wide training as the scope of "misconduct" is extended to include interactions and activity in the digital, online space

Free Information Security Training Presentation

Toyota shares tank after emissions test cheating

Investors have punished Toyota after its majority-owned commercial vehicle unit admitted to faking emissions and fuel economy figures for certain diesel vehicles sold in Japan. After subsidiary Hino Motors suspended the sale of certain trucks and buses equipped with fraudulent engines, Toyota's shares plummeted by 6.5%.

Hino made this discovery after expanding an internal investigation into its North American operations to include vehicles sold in Japan subject to its 2016 emission regulations.

According to a Hino spokesperson, the carmaker "failed to appropriately respond to internal pressures to achieve certain targets and meet schedules that were placed on Hino employees." They have now pledged to help any affected customers and to put legal compliance first from now on.

Shell directors sued over environmental concerns

In what could be a first-of-its-kind action, Shell's directors are being sued for failure to make suitable preparations for net-zero, i.e. the amount of greenhouse gas they generate being no more than the amount removed.

The lawsuit, brought by activist shareholders ClientEarth, asserts that the firm's 13 directors are personally liable for failing to devise a strategy in line with the Paris Agreement and thus breaching their duties.

Paul Benson, a ClientEarth lawyer, said: "It's this case's first of its kind. It's the first time anyone has sought to hold the board accountable for failing to prepare for the net-zero transition properly."

"It is highly novel, we're in uncharted territory here, but we see real merit with this claim. We think, frankly, the longer the board delays with this, the more likely it is that the company will have to execute this sort of handbrake turn to retain commercial competitiveness, to meet the challenges of inevitable regulatory developments."

If ClientEarth is successful, it could coerce Shell's board to alter its plans, taking certain steps to ensure it aligns with the Paris Agreement. However, if they lose, they could have to pay for the full costs of the case, including directors' legal fees.

ESG Compliance Roadmap

Former Redcentric CFO jailed for over five years

Tim Coleman, former CFO for Redcentric Plc, an IT service provider and AIM-listed company, has been sent to jail for five and a half years and disqualified from being a director for ten years.

This action comes after Coleman was found guilty of three offences of false accounting as well as two offences of making false and misleading statements to the market during his time as Redcentric's CFO.

Coleman had inflated the cash position presented to the Redcentric Board of Directors. He had used the same false figures to reassure key investors about Redcentric's financial position, persuading them not to sell their shares. The price of Redcentric shares was artificially inflated due to the false statements, resulting in investors paying more for shares than they were worth.

While sentencing Coleman, HHJ Beddoe said that "A CEO of a public company – of any company – is expected to demonstrate the highest standards of integrity. It is the bedrock upon which a company, its directors and its shareholders are entirely dependent. When people such as you are found to have failed seriously, they must expect severe punishment."

Key takeaways:

  • Never make statements or give signals through your actions that may impact the price of a security
  • Under no circumstances should you lie about a company's assets or make any accounting 'tweaks'
  • Don't trade a security or encourage others to do so - if you have material non-public information about it
  • Don't disclose material non-public information to anyone except where explicitly required to do so

Free Fraud Prevention Good Practice Guide

Russian sanctions becoming a double-edged sword

As sanctions against Russia have now had some time to bear fruit, it is clear that they are having a significant impact on the Russian economy. Stock markets are closed, the Rouble has plummeted in value, and foreign companies are fleeing the country.

However, the West, particularly the EU, has suffered significant collateral damage due to Russia's oil and gas dependency, which has caused prices to skyrocket and pushed governments toward Saudi Arabia, Iran, and Venezuela.

Which begs the question, with no tangible effect on curbing Russia's military aggression, how long will the West's appetite for sanctions last?

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