international asset finance & regulation seminar · 2019-12-11 · the firm’s failings...

Dublin London New York San FransciscoDublin London New York San Francisco

4 December 2019

International Asset Finance & Regulation Seminar


Christine O’Donovan, Partner & Head of International Asset Finance, Mason Hayes & Curran

Welcome


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Muireann Dennehy, Partner, Mason Hayes & Curran

Regulatory Reporting and What to Expect From Subsequent Litigation


Why should you care?


• Regulation and Enforcement in Ireland

• Financial Regulation as a model

• Future Enforcement Trends

• White Collar Crime Reforms

• Risks posed to the aviation industry

Today’s Topics

Introduction

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Specialist Units

• Proceeds of Crime Act 1996• Independent Statutory Body• Investigate suspected proceeds of

criminal conduct

Garda Bureau of Fraud Investigations

• serious and complex economic crimes• financial crimes - major public concern• prevention and detection of fraud• cases of foreign bribery and corruption as

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Regulatory and Enforcement Agencies


“…these failings, JMPAS did not always have a clear understanding of, and controls around, its outsourcing arrangements. This undermined the ability of the Firm to effectively identify and manage the risks associated with its outsourcing arrangements. In addition, the Firm’s failings undermined the Central Bank’s ability to properly assess, monitor and supervise JPMAS…Persistently failed to remediate the root causes of these failings despite repeated supervisory intervention by the CBI…It is important for firms to have strong controls in place around the governance and oversight of all outsourcing arrangementsJPMAS’s failures in this case demonstrated unacceptable weaknesses in its outsourcing framework. These weaknesses were further evidenced by the Firm’s repeated failures to satisfactorily remediate…”

J.P. Morgan Administrative Services (Ireland) Limited

• €1.6 million for regulatory breaches relating to the outsourcing of fund administration activities


Wells Fargo Bank International Unlimited Company

• €5.88 million fine for “serious failings” in its regulatory reporting capability and compliance

“Failure to calculate and report accurately the Firm’s capital position; Failure to periodically monetise…; Weak governance arrangements including lack of robust Board and senior management oversight… Inadequate internal controlmechanisms including a failure to properly document processes and procedures; Inadequate review by internal audit of regulatory reporting processes and procedures; Weaknesses in IT systems”

“It is a minimum requirement of being regulated that firms submit accurate and timely regulatory returns...Miscalculation and misreporting of the Firm’s capital position, in particular, is a fundamental failure.”



Financial Action Task Force Review


“Like a lot of people, I am frustrated at our inability as a country to secure more convictions when it comes to corruption and white-collar crime. Corruption and white-collar crime damage our economy, breed cynicism in our society and are a threat to our international reputation.

So, we have looked at best practice around the world and will be changing our approach into the future through new laws and better enforcement. We cannot change the past but we can change things for the future.”

November 2017

An Taoiseach Leo Varadkar

White Collar Crime Package


• Strict liability corruption offence for individuals and corporates

• Presumption of Bribery in relation to PEPs or government officials (Sections 14-16)

“shall be presumed to have been given and received corruptly as an inducement to, or reward for, or otherwise on account of, that official doing an act in relation to the performance of any of those functions, unless the contrary is proved”

• Additional Offences: Trading in influence Use of confidential information False information Intimidation

Criminal Justice (Corruption Offences) Act 2018



• Company liable if act is committed by a director, manager, secretary or other officer of the body

corporate; a person purporting to act in that capacity; a shadow director within the meaning of the Companies Act

2014 of the body corporate; or an employee, agent or subsidiary of the body corporate

• Trial in the State will apply if one or more of the acts are “committed on an aircraft registered in the State”

• Extraterritorial effect once dual criminality: all aspects of your business in all jurisdictions

• OECD criticism

What does it mean in practice?


• New anti-corruption offences Ireland: Strict liability UK: Failure to prevent

• Ireland: Section 18(2) Corruption Offences Act 2018:

“It shall be a defence for a body corporate… to prove that it took all reasonable steps AND exercised all due diligence…”

• UK: Section 7 Bribery Act (Failure to prevent bribery):

“It is a defence… had in place adequate procedures designed to prevent persons from committing an offence”

Corporate Liability



• Anti-Bribery and Corruption Programme• ABC internal policies, training and ongoing monitoring • Gifts and Hospitality Policy• 3rd party liability for anyone purporting to act on behalf of

company

• Lessons from R v Skansen: Company guilty for the failure to prevent bribery

• Size doesn’t matter• Policy without implementation

“Skansen argued at trial that it had adequate procedures in place to prevent bribery, but a jury found this not to be the case”

• Employee and 3rd party compliance

What must you do?


• Corporate Enforcement Authority (CEA)• “an Irish FBI for white-collar crime”

• Independent agency with enhanced investigatory powers• Led by 1-3 full time members with 5 year terms• International influences• European Context:

• Loi Sapin II and French approach• Spainish Criminal Code

• Staff appointments • Prosecution and relationship with DPP

New Investigations Agency: CEA



• Law Reform Commission Recommendation• Permits company to continue doing business• UK Model

• Judicial Oversight• Public Interest • Statement of facts• Issues with individual culpability

• Duty to Self Report and Cooperate • Rolls Royce DPA

Deferred Prosecution Agreements



Risks for Individuals



• Personal individual liability for officers and directors

• Well structured compliance programme and risk assessment will create a Defence to regulatory prosecution/investigation

• Ongoing compliance efforts must take place, particularly in high risk jurisdictions and operations concerning

• Nature of aviation industry means interaction with governments and politically exposed individuals so much higher risk than most firms

The Takeaways: Risks for you and mitigation strategies



Nicholas Metcalfe, Partner, Mason Hayes & Curran

Corporate and Trust disclosure requirements in Ireland


• Requirements for certain structures (e.g. tax, financing) commonly necessitate the use of SPVs – limited companies- registered in Ireland.

• Assets often held on trust, e.g. through an orphan structure.

• Companies and trusts have certain disclosure requirements.

Corporate and Trust disclosure requirements in Ireland

Introduction



• Companies required to file:• details of directors and secretaries; and • annual returns and financial statements.

• Ongoing obligation to disclose changes to directors and secretary, allotments of shares.

• Director’s residential address is disclosed on public register unless exemption obtained.

• Register open to the public.

Companies Act disclosure requirements

Companies



• 2019 saw the introduction of:

• The European Union (Anti-Money Laundering: Beneficial Ownerships of Trusts) Regulations 2019 (SI 16 of 2019) (the “Trust Regulations”); and

• The European Union (Anti-Money Laundering: Ownership of Corporate Entities) Regulations 2019 (SI 110 of 2019) (the “Corporate Regulations”).

• Obligations on trusts to establish internal resisters of beneficial owners from January and companies and industrial & provident societies to file details their beneficial owners on a central register from 22 November.

Introduction

Disclosure of beneficial interests


• Corporate Regulations apply to all corporate and other bodies incorporated in the State, not just companies. One narrow exemption.

• Trust Regulations apply to all express trusts whose trustees are resident in the State or which is otherwise administered in the State.

Application of Regulations

Disclosure of beneficial interests



• For corporate bodies – ultimate ownership or control or senior management.

• For trusts – not just ownership.

Definitions

Beneficial Owners



• If a relevant entity cannot identify any beneficial owners, it must enter the details of its senior managing officials on its register.

• Senior managing officials “includes a director and a chief executive officer”.

Senior managing officials

Corporate bodies



• Name;

• Date of birth;

• Nationality;

• Residential address; and

• Nature and extent of the interest held or control exercised.

• Ongoing duty to keep information on the register up to date.

• Applies where senior managing officials are on register.

Corporate bodies

Information to be included on the internal register



• Name;• Date of birth;• Nationality;• Residential address;• Date each natural person was entered into the register as a

beneficial owner; and• Date when each such natural person ceased to be a beneficial

owner.

• Update if any of the particulars change or if the trustee learnsthat any particulars are incomplete or incorrect.

Trusts

Information to be included on the internal register


• Relevant entities required to obtain the PPS number of each beneficial owner “to whom such a number has been issued”.

• Not to be included on internal register or disclosed.

• Applies where particulars of the senior managing officials are included on internal register.

Verification of identity

Corporate bodies



• Relevant entity to provide timely access to its internal beneficial ownership register, on request, to:

• State bodies with responsibility to combat money laundering etc;

• competent authorities;• designated persons.

• Information can be shared with equivalent bodies in other Member States.

Corporate bodies

Rights of access to internal register



• “Competent authority” - governing body of a class of designated person.

• “Designated person” - any person required to carry out customer due diligence.

• General public has no right of access to internal register.

Corporate bodies




• Access on request to a “State Competent Authority”: the CentralBank, Financial Services Authority, Minister for Justice, any otherbody as may be prescribed from time to time.

• State competent authority can disclose information to any othercorresponding competent authority if requested.

• Designated persons.

Trusts




• Part 3 of Corporate Regulations in force from 22 June 2019, register opened 29 July.

• Then existing entities had until 22 November 2019 to file information.

• Entities incorporated after 22 June 2019 have 5 months from incorporation.

Part 3 – Central Register

Corporate bodies



• Information required for filing:• beneficial owners’ details (name, residential address,

nationality, date of birth);• nature and extent of ownership or control of each beneficial

owner (or, if senior management, that fact);• company number and industrial & provident society number,

as the case may be.

• Ongoing obligation to keep the information on the central register up to date.

• Part applies to “relevant entities”. Only companies and societies can comply with third requirement above

The Central Register

Corporate bodies


• PPS number required where individual has one.

• Registrar is entitled to request such other information as she may determine in place of a PPS number.

• BEN2 form – used where beneficial owner/senior management has no PPS.

• PPS number will be “hashed” to keep it secure and will not be available for inspection

Central Register

Corporate bodies


• Individuals acting on behalf of:• Garda Síochána;• the Financial Intelligence Unit;• the Criminal Assets Bureau;• the Revenue Commissioners;• other competent authorities entitled to all information (save for PPS numbers).

• Safeguards in place - request must come from an individual of or above a specified position or rank, acting on the authority of an individual of or above a specified higher rank.

Access to Central Register

Corporate bodies


• Designated persons and public have a restricted right of access to:

• beneficial owner’s name;• country of residence;• nationality;• month and year of birth;• nature and extent of ownership and control.

• No “legitimate interest” justification.

Access to Central Register

Corporate bodies



• Breach of the Corporate Regulations - Class A fine (not more than €5,000) on summary conviction and fines of up to €500,000 on indictment.

• Knowingly or recklessly making a statement to the Registrar which is false in any material particular, additional option for up to 12 months imprisonment.

• Officers of company in default can also be found guilty of offence.

Offences

Corporate bodies


• Breach of any obligation under the Trust Regulations is criminal offence, Class A fine.

• Trustees to retain the records for 5 years after the date on which the final distribution is made under the trust and make arrangements to delete the details after 5 years.

• Central Register required to be established under 4AMLD by March 2020

Offences, record keeping, central register

Trusts



Questions?

Thank you


international asset finance & regulation seminar · 2019-12-11 · the firm’s failings...

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