Business ethics and anti-corruption - Norton Rose Fulbright · From the editor I am delighted to present you with the seventh issue of Business ethics and anti-corruption: Asia Pacific

Issue 07 / September 2015In this issue:

Anatomy of an effective corporate investigation

Bribery and corruption in the shipping industry

Money laundering in real estate transactions

Adapting global operations to the US anti-money laundering regulatory environment

Business ethics and anti-corruption Asia Pacific insights

Financial institutionsEnergyInfrastructure, mining and commoditiesTransportTechnology and innovationLife sciences and healthcare

From the editor

I am delighted to present you with the seventh issue of Business ethics and anti-corruption: Asia Pacific insights.

In this issue, we look at the impact of increased regulatory scrutiny surrounding bribery, corruption and money laundering, with a particular focus on the processes businesses should consider for effective management of risk. It is imperative for corporations which have a robust compliance programme in place to also establish an effective and impartial investigative function. Given the avowed intent of various regulatory and enforcement agencies in Asia and around the world to focus their attention and efforts on the private sector, it would be remiss for senior management and board of directors not to ensure that their corporations implement strategies to prevent, detect and respond to compliance failures.

Our first article examines the ‘Anatomy of an effective corporate investigation’. While a properly conducted internal investigation helps to establish facts and provide a sound basis for obtaining legal advice to assert its rights or protect its position, a botched investigation creates more issues and exposes the corporation to greater risks and liabilities.

While various industry sectors pose different types of corruption risks, the shipping sector came under the spotlight recently when the Singapore Court of Appeal handed down severe sentences in a case in which corruption was described as ‘antithetical to everything that Singapore stands for’. We analyse the findings and implications of this case in ‘Bribery and corruption in the shipping industry: a Singaporean case study’.

In ‘Money laundering in real estate transactions: developers’ obligations under Australian law’, we take a close look at money laundering issues in the context of the Australian real estate market. Along with bribery and corruption, the related financial crime of money laundering often rears its ugly head. Australia’s real estate market found itself to be the unwitting target of corrupt developers who allegedly conspired to inflate the value of properties so that kickbacks can be paid.

Finally, we take a step back and survey the increased regulatory scrutiny on money laundering – in particular, the regulations that must be satisfied by a foreign bank when establishing a business in the United States. ‘Adapting global operations to the US anti-money laundering regulatory environment’ outlines requirements that are instructive for banks, and have implications to corporations looking to mitigate the risks of inadvertently handling the proceeds of crime.

We hope our articles are informative and useful to you. Please do contact us if you wish to discuss.

Wilson AngPartner, SingaporeTel +65 6309 [email protected]

Business ethics and anti-corruption in Asia PacificNorton Rose Fulbright advises clients across the globe on all matters relating to business ethics and anti-corruption. Within Asia Pacific, we have acted in major corruption investigations and have a track record of advising on complex, cross-border matters. We are amongst the largest global legal practices in the region. Our team operates across offices in Bangkok, Beijing, Hong Kong, Jakarta, Shanghai, Singapore, Tokyo, Brisbane, Melbourne, Perth and Sydney.The quarterly review Business ethics and anti-corruption: Asia Pacific insights explores the impact of anti-corruption developments in the Asia Pacific region and offers practical insights in response to topical issues. See also Business ethics and anti-corruption world A global bulletin published by Norton Rose Fulbright LLP

Business ethics and anti-corruption: Asia Pacific insights

Contents

Anatomy of an effective 03 corporate investigation

Bribery and corruption 10 in the shipping industry

Money laundering in 13 real estate transactions

Adapting global operations 15 to the US anti-money laundering regulatory environment

In this article, we discuss the factors to take into consideration in Hong Kong and the US when determining whether and how to conduct an internal investigation in light of possible subsequent or pending investigations by regulators. We also highlight potential pitfalls that may occur and provide pointers on avoiding them.

An increasingly complex global business environment, combined with changing expectations and enhanced scrutiny both in Asia and overseas, mean that more companies are finding themselves subject to regulatory investigations and proceedings. In 2014, 64 per cent of large companies in the US with revenues of US$1 billion or more, and 44 per cent of companies with revenues of US$100 million to US$1 billion, retained outside counsel to assist with investigations. In recent years, in the US, approximately two-thirds of companies in the insurance, energy, financial services, and healthcare industries faced some type of regulatory or government investigation. In Hong Kong, in 2014 alone, the Securities and Futures Commission (Hong Kong SFC) conducted over 2,000 investigations and the Independent Commission against Corruption (Hong Kong ICAC) instigated 222 prosecutions.

This increasing regulatory scrutiny, along with a renewed focus on ethical behaviour and protecting (and in some cases incentivising) whistleblowing

activity, has created an environment where regulatory lawyers are increasingly called upon to conduct or supervise internal investigations into suspected wrongdoing.

An effective corporate investigation may provide management or the board with the information it needs to make an informed decision on how to proceed in the face of alleged misconduct. In many cases the investigation will provide the information needed to take steps to ensure that no future violations occur. Unlike many forms of traditional litigation, however, there is often no roadmap to follow. Internal investigations may cover various topics such as suspected accounting fraud, violations of the antitrust and environmental laws, violations of the US Foreign Corrupt Practices Act, the Hong Kong Prevention of Bribery Ordinance and the Hong Kong Securities and Futures Ordinance, violations of government contracting regulations, violations of trade sanctions and export controls, insider trading, employee theft, suspected

kickbacks, violations of a company’s specific policies and procedures, and so on. There are usually no mandatory procedural rules or court-imposed deadlines; there are no local rules or forms to follow. More importantly, how an investigation is conducted, and the scope of that investigation, are necessarily informed by the context and the potential impact on a particular company. As a result, there is a seemingly limitless variety of procedures and protocols to choose from.

Whether to initiate an internal investigation

Internal investigations often start with an allegation of wrongdoing, which may come from an employee, shareholder, director, the media, the company’s outside auditors, the regulators or someone else. At the outset, the company must decide whether the allegation warrants investigation and, if so, who should conduct the investigation.

In some cases in the US, the decision to commence an internal investigation is prescribed by statute. Section 10A of the US Securities Exchange Act of 1934, for example, requires a registered public accounting firm to take certain actions when, during the course of an audit, the auditor becomes aware of information that indicates that an ‘illegal act’ may have occurred (regardless of whether that illegal act

Anatomy of an effective corporate investigation The changing regulatory landscape and the increased need for effective internal corporate investigations

Norton Rose Fulbright – September 2015 03


is perceived to have a material effect on the issuer’s financial statements)1. In these circumstances auditors generally require the company to investigate the potential illegal act and then the auditors assess, pursuant to Section 10A, whether the company has taken ‘timely and appropriate remedial actions.’2 In Hong Kong, however, there is no statutory requirement for a company to conduct an internal investigation even when there is suspicion of wrongdoing. This means that the decision to commence an internal investigation is entirely at the discretion of the company. In reality, however, many companies choose to conduct internal investigations when they discover potential breaches so that they can assess their exposure ahead of formal investigations by the regulatory bodies, and ensure that directors and senior management discharge their fiduciary and professional duties to the companies.

Investigations can be disruptive and expensive and resources are limited. While the need to investigate in some situations is obvious, in some situations determining whether to conduct an investigation, and how that investigation should be conducted, are judgment calls. Some factors to consider in making these determinations include:

1 15 USC. § 78-j-1(b).2 See id.

• the seriousness of the allegations, including whether the alleged misconduct violates criminal law or company policy

• whether the alleged misconduct involves senior management or board members

• the company’s potential exposure if the allegations are true

• the possibility for additional, future violations, or the possibility that the violations are continuing

• whether the alleged misconduct implicates a potential health and safety risk to employees or others

• whether the alleged misconduct calls into question any prior internal control or financial certifications provided by executive officers and whether the alleged misconduct prevents such officers from truthfully executing future certifications

• the likely response of the company’s auditors to the alleged misconduct

• whether there is a parallel government investigation or whether such an investigation is likely to occur

• whether the company’s audit committee charter, code of conduct, or other policies mandate or encourage an investigation whether

the issue must be reported to regulatory officials

• the extent to which the company may receive credit from enforcement officials for conducting its own investigation

• the possible impact on any pending or potential civil litigation.

Consideration should also be given to whether the company has a history of similar incidents, since such history raises the likelihood of regulator intervention.3 If a complaint cannot be objectively dismissed as frivolous, the following scenarios often warrant some type of formal internal investigation:

• a subpoena from a government agency or regulatory authority, such as the US Department of Justice (US DoJ) or the US Securities and Exchange Commission (US SEC), or a notice from the Hong Kong ICAC or the Hong Kong SFC, which suggests that the company and/or its employees are the focus or subject of an inquiry

• a shareholder demand letter

• issues raised by an external auditor

3 The Federal Prosecution Principles, §9-28.600, provide that ‘[p]rosecutors may consider a corporation’s history of similar conduct, including prior criminal civil and regulatory enforcement actions against it, in determining whether to bring charges and how best to resolve cases.’

04 Norton Rose Fulbright – September 2015


• an internal report, such as through an ethics hotline, raising serious allegations involving senior management.

The likelihood of litigation or a separate regulatory investigation usually weighs in favour of initiating an internal investigation. A prompt and thorough investigation gives the company the opportunity to get ahead of a separate investigation by the regulators and gather the facts it needs to appropriately respond. In some Asian countries, such as Hong Kong, if the findings arising from the internal investigation suggest that there has been misconduct on the part of the company and/or its employees, the company will need to consider whether to self-report to the relevant regulator since failure to do so may result in severe penalties.

Determining who supervises the investigation

The decision of who should supervise the investigation, like the decision of whether to conduct an investigation, is highly contextual. Many investigations can be properly handled by a company’s own employees. Many larger companies, for example, have highly skilled legal and other staff dedicated solely to conducting such investigations.

In some situations, however, management should not be in charge

of the internal investigation. If the alleged misconduct involves senior management, for example, or if the corporate entity itself is the focal point of a government investigation, the board should consider delegating the task of overseeing the investigation to an independent committee of board members who are not implicated in the alleged wrongdoing (such as the audit committee or a board committee consisting of non-executive directors formed specifically for the investigation, which very often will engage separate independent counsel for advice). If management is perceived as influencing the investigation, the investigation may not be afforded credibility by regulators. Further, if the investigation involves public company accounting or other disclosure issues, the company’s outside auditors may insist that the investigation be conducted by independent board members and independent outside counsel.

Assembling the right team

Internal investigations are often handled with the assistance of outside counsel, who may have expertise concerning the laws at issue and experience with the interested government agency or regulator.

There are, however, significant costs that come with hiring a separate outside law firm to conduct an investigation.

In addition to outside counsel, consideration should be given at the outset to potential experts, such as forensic accountants, needed to assist counsel. These experts should usually be retained in such a way as to ensure legal privilege is protected, and such experts should sign retention agreements that make clear their engagement is intended to facilitate the provision of legal advice.4

Preparing an investigative plan and defining the scope of the investigation

Once the company determines who will supervise and conduct the investigation, the investigative team should prepare an investigative plan that defines the scope of the investigation. Preparing an investigative plan helps keep the investigation on schedule and on budget and may help identify potential pitfalls along the way. If a government agency or regulator is involved or is likely to become involved, a thorough plan may assist the company in showing that the company treated the allegations seriously and responded appropriately.

The scope of the investigative plan will often track the principal allegations of wrongdoing. The investigative

4 See, e.g. United States v Kovel, 296 F.2d 918 (2d Cir. 1961) (when an attorney retains an accountant so that the lawyer may better give legal advice, communications related to that purpose are privileged).



team, however, should be mindful of related conduct that is likely to be of interest to the regulators. For example, many regulators will demand specific investigation into whether board members knew of the alleged misconduct or should have known of the alleged misconduct. One example of this often occurs in accounting investigations conducted by the relevant regulators. The relevant regulators may probe the basis for previous representations made by the company’s directors in its financial statements as to any irregularities (for example, bribery conduct or inaccurate accounting records) or adequacy of internal controls.

The investigative plan should generally include an assessment of which company operations and employees are potentially involved and what jurisdictions will be the focus of the investigation. It may also be useful to provide an overview of what documents and data will be reviewed, who will be interviewed, and which financial records will be targeted in any forensic audit component of the investigation. A plan also helps to identify data privacy law and state secrets issues in countries that prohibit the collection of certain types of data, or impose restrictions on transferring data across borders. Short preliminary interviews are often useful to identify the universe of relevant documents, reporting structures, roles and responsibilities, and IT practices and infrastructure.

If counsel retains experts, rules should be established to ensure that communications to the client will involve counsel to maintain legal advice privilege or attorney-client privilege, and if litigation is in contemplation, litigation privilege. In addition, experts should not interview any witnesses separately without counsel. Counsel should be present at witness interviews to explain who counsel represents, whether the legal advice privilege (or attorney-client privilege) applies, whether that privilege may be waived, and who has the authority to waive that privilege. Although these so-called ‘Upjohn warnings’ are well understood by most lawyers, there is always the risk that officers and employees will assume that company counsel is acting on their behalf. To counter this assumption, and to ensure that employees are properly protected, many companies will allow or even encourage employees to retain separate independent counsel and reimburse the employees for the legal costs arising from their engagement in the internal investigation. If the company is already cooperating with government authorities and there is an agreement in place that the company will share the substance of interviews, which sometimes occurs in the US, counsel should advise interviewees that waiver of the privilege is likely, probable or certain—whatever the case may be.

Privilege considerations

Following the English Court of Appeal’s decision in Three Rivers District Council v Governor and Company of the Bank of England (No 5) [2003] QB 1556 (Three Rivers (No 5)), some common law jurisdictions, in which English cases are binding or persuasive, have adopted the position that legal advice privilege only applies to communications between a limited group of employees within a company entrusted with the handling of a particular investigation (for example the legal department) and the company’s external legal advisers. In Three Rivers (No 5), it was held that any communications between employees outside that limited group (and hence, a non-client according to the English Court of Appeal) and the external legal advisers were not privileged notwithstanding that they were created for the sole or dominant purpose of obtaining legal advice. This issue was recently re-visited by the Hong Kong Court of Appeal in its decision in Citic Pacific Ltd v Secretary for Justice and another [2015] HKCA 293. In that case, the Hong Kong Court of Appeal declined the restrictive approach adopted in Three Rivers (No 5) in identifying the ‘client’ and held that for the purpose of considering whether legal advice privilege applies to a particular document, one should apply the dominant purpose test, i.e. whether the document was created with the sole or dominant purpose of obtaining legal advice, rather than focusing too much on whether or not



the particular employee of the company creating/sending the document should be considered as a ‘client’.

Potential waivers of the attorney-client privilege may arise from sharing information with the individuals whose conduct is being investigated; sharing information with auditors; or sharing information with the government. Credit for cooperation with the government, however, does not require waiver of the privilege. In 2008, the US DoJ changed its Principles of Federal Prosecution of Business Organizations, which now state:

‘Eligibility for cooperation credit is not predicated upon the waiver of attorney-client privilege or work product protection. Instead, the sort of cooperation that is most valuable to resolving allegations of misconduct by a corporation and its officers, directors, employees, or agents is disclosure of the relevant facts concerning such misconduct.’5

This marks a notable change from the policies in the Thompson Memorandum issued in January 2003 which guide the US DoJ prosecutors when they make a decision as to the proper treatment of a corporate target. Pursuant to the Thompson Memorandum, in conducting an investigation, determining whether to bring charges, and negotiating

5 US Attorney’s Manual, Principles of Federal Prosecution of Business Organizations, §9-28.720.

plea agreements, prosecutors should consider, amongst other matters, the corporate target’s willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of corporate attorney-client and work product protection. The US SEC has similarly articulated that legitimate privilege assertions should not preclude cooperation credit.6

The investigative team may be well served to expressly inform any interviewees that one of the purposes of the interview is to obtain information to provide the company with legal advice. In United States ex rel. Barko v Halliburton Co., a company started an internal investigation based on allegations that it had overbilled the federal government for work by Iraqi subcontractors.7 After the company received allegations of the overbilling, non-lawyers in the compliance department conducted interviews and sent reports to the legal department pursuant to the company’s Code of Business Conduct.8 In subsequent civil litigation, a court held that eighty-nine documents from the investigation were not privileged because the investigation

6 See SEC Enforcement Manual § 4.3 (‘The staff should not ask a party to waive the attorney-client privilege or work product protection without prior approval of the Director or Deputy Director . . . . Both entities and individuals may provide significant cooperation in investigations by voluntarily disclosing relevant information. Voluntary disclosure of information need not include a waiver of privilege to be an effective form of cooperation and a party’s decision to assert a legitimate claim of privilege will not negatively affect their claim to credit for cooperation.’)

7 37 F. Supp. 3d 1, 3 (D.DC 2014).8 Id. at 4.

was ‘undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.’9 The court noted that the interviewed employees were not notified that the purpose of the interview was to assist the business in obtaining legal advice, and concluded that this fact further supported the view that the ‘purpose of the investigation was for business rather than legal advice.’10

The Court of Appeals for the DC Circuit granted mandamus relief, holding that the documents were protected by the attorney-client privilege because a ‘substantial purpose’ of the investigation was to obtain legal advice.11 The Court found that the company’s claim of privilege was ‘materially indistinguishable’ from the claim sustained in Upjohn v United States, 449 US 383 (1981), the landmark Supreme Court case holding that the attorney-client privilege protects confidential employee communications made during a company’s internal investigation led by company lawyers. Although the company obtained relief at the appellate level, it is noteworthy that the District Court had already revealed the substance of some of the privileged documents in its earlier opinion. The decision serves as a reminder that if a company intends for its investigation to be covered by the attorney-client

9 Id. at 5-6.10 Id. at 5.11 In re Kellogg Brown & Root, Inc., 756 F.3d 754, 760 (DC

Cir. 2014).



privilege, care should be taken to show that the investigation is being conducted under the supervision of lawyers for the purpose of providing legal advice and is not a routine compliance function.

Pointers to avoid potential missteps

Internal investigations involve a number of judgment calls, and the reaction to those judgment calls by interested parties such as government agencies, regulators, auditors, and shareholders are not always predictable. Nevertheless, the following are a few pointers to address issues that often arise during the course of internal investigations:

Identify, preserve, and collect relevant information early and document this processRelevant information often includes data other than email and hard copy documents. It can include items such as telephone records, text messages, instant messages, shared network files, backup data, internet search histories, databases, voicemails, and other data that may only be accessible through a forensic examination of a device.

Adhere to the agreed upon investigative structure unless a formal decision is made to change it. If, for example, investigative counsel is reporting to the Audit Committee, the

General Counsel should not direct the activities of investigative counsel.

Act on allegations of wrongdoing promptly. A company is usually well served by gathering the facts and determining an appropriate response quickly. For example, the company may need to take action to stop the potential wrongdoing as quickly as possible, and it may be in the company’s interests to self-report a potential violation if it is mandatory and before the relevant regulator learns about it through other means.

Set a realistic time frame for completionWhile companies should move swiftly to investigate allegations of misconduct, they should also set realistic timelines for completion.

Develop a clear plan prior to embarking on a substantial data review projectEven in situations where timing is critical, the investigative team is often better served by spending time up front planning any data review. Launching into a data review without a clear plan may cause the reviewers to miss relevant information, review irrelevant information, and create more issues (and expense) in the long run.

Carefully plan the interview processInterviews are stressful for employees and multiple interviews of multiple

employees will damage employee morale. Where feasible, review all relevant information prior to conducting interviews to reduce the chance of multiple sessions. Allow or encourage employees to retain separate independent counsel. Avoid conducting interviews alone and carefully document the information provided. It is important to get answers to all relevant questions, but it is also important to be polite. Keep in mind that it is not uncommon for whistleblowers to claim that a confrontational interview itself is retaliatory conduct in violation of a whistleblower statute.

Do not unintentionally waive the legal advice privilege (or attorney-client privilege) and obtain board consent for intentional waiversIn some circumstances privilege waivers are appropriate, but such a waiver should usually be approved by the board in advance and efforts should be made to avoid unintentional waivers.

Pay attention to various interested constituencies during the investigationIt is often important to communicate with various constituencies other than the client through the course of an investigation. Outside auditors, for example, should normally be kept in the loop on procedural steps the company is taking to investigate any accounting issues since the auditors



will need to be comfortable with the findings. Similarly, if the investigation starts with an internal complaint, consider communicating with the complainant. If the complainant is aware that the company is conducting a thorough and independent investigation, the complainant may forgo reporting externally.

Be sensitive to data protection and state secrets laws in other jurisdictionsMany countries often have data privacy or state secrets laws intended to protect company employees and sensitive information. Consult with a local practitioner prior to collecting or reviewing data to ensure that data privacy and state secrets laws are being complied with.

Know your regulatorDifferent government agencies and regulators have differing views on what constitutes an effective investigation and what constitutes appropriate remedial action. Consider which government agencies or regulators are likely to be involved and consider retaining professionals with direct experience working with these bodies.

For more information contact:

Mark OakesPartner, AustinTel +1 512 536 [email protected]

Wynne MokPartner, Hong KongTel +852 3405 [email protected]

Tara TuneSenior associate, AustinTel +1 512 536 [email protected]

Valarie FungSenior associate, Hong KongTel +852 3405 [email protected]



Bribery and corruption in the shipping industryA Singaporean case study

‘ … this kind of corruption is antithetical to everything that Singapore stands for as it undermines the confidence that if a person needs something such as a permit or licence to do business in Singapore, it will be forthcoming without bribes being paid. It also destroys the notion that business in Singapore is clean and transparent and that rules are there for good reason rather than to give people in whom discretion is vested or upon whom duties are placed, opportunities to have their palms greased and their pockets lined. In such cases, all would-be offenders must be warned that such acts, which undermine legitimate rights, will not be tolerated and will be severely dealt with.’ (Menon CJ in Public Prosecutor v Syed Mostofa Romel [2015] SGHC 117, at para. 30)

A recent case in Singapore, Public Prosecutor v Syed Mostofa Romel, has served to highlight some key lessons for the shipping industry in face of growing anti-corruption enforcement.

The case concerned bribery charges against Syed Mostofa Romel (the respondent), an associate consultant in the marine surveying business of PacMarine Services Pte Ltd. The respondent was responsible for conducting inspections of vessels seeking to enter an oil terminal, which involved ensuring vessels were sea-worthy and free of any high-risk defects; ensuring cargo was properly documented; and ensuring vessels had

correct documentation. Where defects were identified during an inspection, vessels would be allowed to enter the terminal and remedial works would be carried out if the defects posed low to medium-risk; however, if defects were classified as high-risk, rectifications would have to be carried out prior to entering the terminal. Regardless of classification, the respondent was responsible for preparing a report and submitting it to his superior.

On three occasions, the respondent solicited bribes from ship masters in return for submitting false inspection reports that would allow the vessels to enter an oil terminal. Chief Justice of

Singapore Sundaresh Menon (Menon CJ) allowed an appeal brought by the Public Prosecutor against the sentence imposed on the respondent by a district judge, deciding it was manifestly inadequate and clarifying guidelines on sentencing for bribery and corruption offences.

The respondent was charged with three offences under Singapore’s Prevention of Corruption Act (PCA) – two charges were proceeded with and the remaining charge was taken into consideration when sentencing. The facts of the offences are as follows:

• On March 10, 2014, the Respondent conducted a vessel safety inspection on the MT Torero at Vopak Terminal Banyan Jetty. After the inspection, he informed the ship master and the chief engineer of several high-risk observations which were likely to result in the vessel not being allowed to enter the terminal. The master disagreed with the observations and thought that the defects were minor ones which could be readily rectified. He asked the respondent how he could resolve the situation and the respondent informed him that money would do so. After some negotiation, the master agreed to pay the respondent US$3,000, while secretly reporting the bribe to his superiors.

• On May 27, 2014, a sting operation was launched by the Corrupt



Practices Investigation Bureau (CPIB) to catch the respondent in the act of bribery when the MT Torero arrived at the same port. The vessel was deliberately prepared with high-risk defects and the respondent was assigned to conduct its inspection. The ship master was again informed by the Respondent that these could be omitted from his report in return for a bribe, which was paid, and the altered report printed before the respondent was arrested by the CPIB.

The decision by Menon CJ highlights Singapore’s increased efforts to tackle private sector corruption. Although public sector offences typically attract custodial sentences, while private sector cases typically attract fines, this case illustrates that the distinction is not rigid nor is it reflective of the law in Singapore. The respondent was in a position to overstate risks and cause inconvenience as well as unnecessary expense and delay to ship masters unless a bribe was paid. The respondent could also offer to understate risks and in doing so threaten the safety of others in the oil terminal. In combining these two breaches of his duty by overstating the risks and offering to understate them, he could receive financial benefit in the process.

Menon CJ made clear that a custodial sentence is generally expected. Regardless of whether bribery is related to a private or public sector, sentencing

will be determined by the severity and nature of the offence, public interest in prosecution, and its potential threat to safety of people and facilities. In this case, the maritime industry’s strategic significance to Singapore was given as a specific aggravating factor in sentencing considerations. The shipping industry accounts for roughly 7 per cent of Singapore’s GDP and provides employment for 170,000 people. Since increased corruption could have a large effect on the nation’s economy, Menon CJ recommended that bribery offences in shipping relating to Singapore be strictly punished, with longer prison terms for offenders. As a result, Menon CJ disagreed with the district judge who had sentenced the respondent to a two months’ imprisonment for each charge and instead sentenced the respondent to a terms of six months’ imprisonment for each charge, which were to run concurrently.

On a global scale, demands for bribes in ports pose a particular threat to the maritime industry. In the case at hand, the respondent was required to ensure that vessels were free of high-risk defects before entering the oil terminal. On two occasions, the respondent ignored his responsibilities and sought to illicit bribes – US$3,000 in each incident. The admittance of unsafe vessels was a significant threat to the people working in the terminal, the terminal itself, the crew of the vessel, and also the vessel itself. Ship masters

should be aware that the consequences of paying bribes extend beyond potential prosecution to severe safety risks.

Acceding to demands for bribes may also constitute an offence under the PCA and other international anti-corruption legislation. There is no indication in the decision as to whether the master was also charged with bribery. UK and US regimes, as well as the law in Singapore, prohibit giving a bribe unless there is an immediate threat of physical harm (whether to the ship master or the crew). In this case, the facts suggest that the respondent made no threat of death or bodily injury and so the ship master could have safely refused to make payment. The fact that a bribe is first introduced by the recipient does ‘not alter the corrupt purpose of the part of the person paying the bribe’ (US Congress, introducing the Foreign Corrupt Practices Act 1977). It is clear from Menon CJ’s decision that Singapore is willing to pursue individuals for instances of low-level bribery. The sentence imposed on the respondent should be a warning to ship masters against future opportunities to grease palms. The sting operation carried out by the CPIB should also dissuade persons tempted to receive bribes from making such demands.

Anti-bribery compliance is clearly gaining ground in the maritime industry. Corruption dramatically


Bribery and corruption in the shipping industry

increases the costs of transporting goods by sea and small bribes are often deeply embedded in local culture. Harsher sentencing for offenders is one means of deterring demands for bribes. At the same time, shipping companies need to work together to fight corruption through collective action. Collective action initiatives are increasingly gaining interest from the shipping industry, as they provide the opportunity to engage with competitors and the public sector to combat systemic issues such as demands for small bribes. The World Bank has explicitly encouraged businesses to take part in collective action and funding is available for new enterprises.1 While companies may have ensured that the activities they control reflect good practice, isolated efforts are insufficient to counter institutionalised corruption.

In recent years, there has been a significant uplift in anti-corruption enforcement activity, coupled with increased cooperation between regulators. For the maritime industry, the case of Public Prosecutor v Syed Mostofa Romel reflects increasing stringency against a background of growing concern around the world for anti-bribery compliance. Masters and port officials should be aware that even low-level bribery will be pursued by enforcement agencies and prosecutors who are willing to pursue strict

1 http://info.worldbank.org/etools/docs/antic/Whole_guide_Oct.pdf.

penalties to deter future offenders. At the same time, given the growing attention on graft in the maritime industry, now is the time for shipping companies to think about what they can do to change the wider business environment through collective action. The fragmented nature of the shipping industry makes fighting corruption difficult. The problem demands collaboration in order to put pressure on governments, port officials and the sector as a whole to improve their reputation for transparency and integrity.


Sam EastwoodHead of business ethics and anti-corruption, LondonTel +44 20 7444 [email protected]

Wilson AngPartner, SingaporeTel +65 6309 [email protected]

Kayla A. FeldAssociate, SingaporeTel +65 6309 [email protected]

Co-written with Hari Jon from our London office.



Money laundering in real estate transactionsDevelopers’ obligations under Australian law

In this article we examine Australia’s anti-money laundering laws and how they touch on the activities of real estate developers, as well as the penalties developers may face if they are found to have facilitated money laundering.

In April 2015, the Financial Action Task Force (FATF), an inter-governmental body whose aim is to promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the international financial system, published a Mutual Evaluation Report reviewing Australia’s anti-money laundering and counter-terrorist measures. In the report, the FATF noted that, although Australia has strong legal, law enforcement and operational measures for combating money laundering and terrorism financing, it is still seen as an attractive destination for foreign proceeds of crime and identified the Australian real estate sector as a high money laundering risk.

In June 2015, Melbourne daily newspaper The Age published an article alleging that the sale of a Melbourne apartment complex had been used to facilitate the payment of bribes to Malaysian officials. Developers in Melbourne’s suburb of Caulfield allegedly accepted a price from a Malaysian Government investment fund that was inflated by around A$4.75 million; that excess

was allegedly then paid to corrupt Malaysian government officials through the Australian developers. According to the article, the developers went along with the money laundering scheme in order to push forward the sale of the development.

This case highlights the need for property developers in Australia to understand their potential liability should they be found to have facilitated money laundering (whether knowingly or not).

Australia’s anti-money laundering laws

In Australia, anti-money laundering offences are mainly contained in the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and accompanying regulations (together, AML Laws) and the Criminal Code Act 1995 (Criminal Code). These laws capture a wide range of conduct such as receiving, possessing or disposing of money or other property that is the proceeds of crime or may become an instrument of crime.

The Criminal Code makes it an offence to ‘deal with’ money or other property that is, or is likely to become, proceeds of crime or an instrument of crime. ‘Deal with’ is defined as receiving, possessing, concealing or disposing of money or other property, as well as importing, exporting, or engaging in a banking transaction relating to money or other property. An ‘instrument of crime’ is money or other property used in the commission of an offence.

The requisite mental element for the Criminal Code’s money laundering offence is knowledge (the defendant is aware or believes that money or property is the proceeds of crime or will be used to commit an offence), recklessness (the defendant is aware of a substantial risk that money or property is the proceeds of crime or will be used to commit an offence) or negligence (the defendant has failed to exercise due care to ensure that money or property is not the proceeds of crime).

For a company, the required mental elements of the crime are proven if the company is shown to have expressly, tacitly or impliedly authorised or permitted the commission of the offence. Authorisation can be proved by showing that the corporation failed to create and maintain a corporate culture that required compliance with the Criminal Code. Negligence can be proved by showing inadequate corporate management or supervision of an agent of the company. The mental


Money laundering in real estate transactions

elements of the money laundering offence mean that it is vital for developers to have a process in place to review investors and the source of their purchase funds as well as a training program that actively encourages and maintains an appropriate corporate culture.

Penalties and other orders

Penalties under both the AML Laws and the Criminal Code depend on the value of the money or property involved. Penalties under the Criminal Code additionally depend on the state of mind of the defendant when the offence was committed. The Criminal Code deals with money of a higher value than the AML Laws and it also deals with property. From July 31, 2015, the maximum penalty for a corporation under the Criminal Code is A$1.35 million where the value of the money or property involved is over A$1 million.

In addition to penalties, proceeds of crime can be confiscated under the Proceeds of Crime Act. Under this legislation, the onus is on the developer to prove that the purchase moneys were not the proceeds or an instrument of crime. Confiscation can be ordered even if the purchase moneys were received unknowingly and have been dissipated within the business. This can be a substantial burden for developers who have not undertaken adequate due diligence in relation to investors.

Overlap with bribery offences

The Criminal Code also criminalises bribery of a foreign public official and bribery of a Commonwealth public official. Australian State and Territory legislation prohibits private sector bribery.

In some circumstances, a company’s involvement in money laundering may also constitute bribery or aiding and abetting bribery.

From July 31, 2015, the maximum penalty for a company under the Criminal Code for a bribery offence will be A$18 million, three times the value of the benefit the company has obtained from the conduct, or 10 per cent of the company’s annual turnover, whichever is the greater.

Lessons for Australian developers

Earlier this year, Transparency International published Corruption on your doorstep: How corrupt capital is used to buy property in the UK. The report sets out the organisation’s key findings regarding international investment in UK property markets, including a recommendation that the UK Land Registry make transparency a requirement over the owners of shell companies investing in UK property.

In a similar vein, Australia’s booming property markets have a growing

reputation as some of the most lucrative for international money laundering, particularly for money flowing from the Asia-Pacific region. This means that Australian property development businesses should be vigilant when it comes to governance obligations under Australia’s anti-money laundering laws. A failure to do so may result not only in significant fines, seizure or tracing of purchase moneys but also significant reputational damage.


Abigail McGregorPartner, MelbourneTel +61 3 8686 [email protected]

Anjalee de Silva Associate, MelbourneTel +61 3 8686 [email protected]




In this article, we look at the impact of increased regulatory scrutiny regarding money laundering globally and explore the regulatory requirements a foreign bank must comply with when establishing offices or subsidiary banks in the United States.

Money laundering relies upon the ability to introduce into the global financial network funds that originated as a result of criminal activity and to hide the connection to their illicit origins. The holder of the funds conceals their origins through a series of complex transactions, often involving offshore banks, front companies and opaque ownership structures. The funds are ultimately reintroduced into legitimate financial institutions where, if the process was successful, their illegal origins can no longer be traced. Financial institutions in leading financial centres – including Singapore and Hong Kong – are particular targets for the receipt of such ‘tainted’ funds for reintroduction into the financial system because less scrutiny is applied to funds emanating from these institutions into the global financial network.

Ramping up the regulations

Regulators have placed financial institutions under increased pressure to control money laundering as part of a global effort which includes stemming the flow of funds that could be sent to terrorist organisations. To combat

money laundering and terrorism financing, governments across the world have introduced a series of regulations and requirements which financial institutions must comply with to ensure that they remain aware of the identity of their customers, the legitimacy of the source of the funds and the customers’ intended use of the funds. The regulations are in many respects consistent as they endeavour to comply with the recommendations issued by the Financial Action Task Force (FATF), the intergovernmental policy-making body whose objective is to promote the implementation of legal, regulatory and operational measures to combat money laundering and terrorism financing. The FATF reviews the progress of member countries in implementing its recommendations and issues public reports that would indicate any deficiencies found during that review. The recommendations of the FATF are widely followed, despite having no legal force and effect, because being labelled ‘non-compliant’ by the FATF can have a negative impact on the country’s risk profile, credit rating and access to the international banking system. Countries across Asia have responded to the deficiencies indicated by the FATF in a number of

ways: in Hong Kong, the Securities and Futures Commission introduced a new set of guidelines on anti-money laundering/counter-terrorism financing (AML/CTF); Vietnam has enacted a Money Laundering and Counter-Terrorism Law; and in Singapore, the Monetary Authority of Singapore (MAS) has amended its regulatory guidelines relating to money laundering (e.g. MAS Notice 626).

A number of financial institutions have taken a negative view of the increased attention to and augmentation of money laundering regulations in Asia, raising concerns that these measures will increase their regulatory burden and slow financial transactions globally. Despite the objections of these financial institutions, the global convergence towards similar requirements is a welcome step in requiring banks in Asia to develop uniform practices that they will need when operating in jurisdictions already subject to these standards.

US Regulatory requirements impact foreign banks in the US

Banks that are seeking to establish direct branches or subsidiaries outside of their home jurisdictions have the added requirement of complying with all the regulations imposed in each jurisdiction in which they operate. The US is a particularly complicated jurisdiction due to the vigilance and



activity of the regulators and the complexity of the regulations. It has a series of laws dealing with AML/CTF, which for the most part are consolidated in the Bank Secrecy Act. The Bank Secrecy Act has been amended many times since its enactment in 1970, most notably by the USA Patriot Act, which was enacted after the September 11, 2001, terrorist attacks in the United States.1 The primary regulator responsible for enforcing these laws is the Financial Crimes Enforcement Network (FinCEN), a unit of the US Treasury Department, which has promulgated regulations to implement the statutory provisions.2 FinCEN has jurisdiction over US branches and agencies of non-US banks regardless of where the bank is headquartered.

Pursuant to a delegation from FinCEN, US branches and agencies of non-US banks are examined for AML compliance by either the Board of Governors of the Federal Reserve System (Federal Reserve Board) for state-licensed branches and agencies of non-US banks, the Comptroller of the Currency (OCC) for federal branches and agencies of non-US banks licensed by the US Treasury Department, and the Federal Deposit Insurance Corporation (FDIC) for those few

1 See http://www.fincen.gov/news_room/aml_history.html. The Bank Secrecy Act is codified in the United States Code at 31 USC Chapter 53, Subchapter 32 (31 USC §§ 5311 – 5332).

2 31 CFR Chapter X (Part 1000 et seq.)

branches of non-US banks that carry federal deposit insurance.

A significant number of enforcement actions brought by US banking regulators against non-US banks have come about because of lax compliance with AML laws and regulations – since 2013, there have been at least five enforcement actions brought against US offices of non-US banks by the Federal Reserve Board. Remedial actions ordered included a comprehensive review by an outside consultant approved by the Federal Reserve Board, preparation and submission of an enhanced AML compliance programme and preparation and submission of a plan to enhance management oversight of the AML compliance programme.

A summary of significant AML laws and regulations applicable to a US branch or agency of a non-US bank are provided below.

Compliance programme3 Every bank must have an AML compliance programme that at a minimum:

• Provides for a system of internal controls to assure ongoing compliance

3 31 USC § 5318(h).

• Provides for independent testing for compliance to be conducted by bank personnel or by an outside party

• Designates an individual or individuals responsible for coordinating and monitoring day-to-day compliance

• Provides training for appropriate personnel.

Customer ID programme4 Every bank must establish a customer identification programme (CIP), which requires a bank to obtain, verify and retain certain information about each customer. When establishing a new banking relationship, the bank must first obtain certain basic identifying information about the customer (name, address, date of birth, identification number). The CIP must include risk-based procedures for verifying the identity of each customer in order to enable the bank to form a reasonable belief that it knows the true identity of each customer. These procedures must be based on the bank’s assessment of the relevant risks, including those presented by the various types of accounts maintained by the bank, the various methods of opening accounts provided by the bank, the various types of identifying information available, and the bank’s size, location, and customer base.

4 31 USC § 5318(l); 31 CFR § 1020.220.



Suspicious transaction reporting5 One of the key requirements of the AML laws and regulations is the requirement that certain financial institutions such as banks file suspicious activity reports (SARs). Every bank must file a SAR with respect to a possible violation of law or regulation. Even when not required, a bank may use the SAR to report any suspicious transaction that it believes is relevant to the possible violation of any law or regulation.

For a transaction conducted or attempted by, at, or through a bank and which involves or aggregates at least US$5,000 in funds or other assets, an SAR is required where the bank knows, suspects, or has reason to suspect that:

• The transaction involves funds derived from illegal activities, or is intended or conducted in order to hide or disguise funds or assets derived from illegal activities as part of a plan to violate or evade any US law or regulation or to avoid any transaction reporting requirement under US law or regulation.

• The transaction is designed to evade any AML law or regulatory requirement

• The transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be

5 31 USC § 5318(g); 31 CFR § 1020.320.

expected to engage, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction.

SARs must be filed with FinCEN no later than 30 calendar days after the date of initial detection by the bank of facts that may constitute a basis for filing a SAR. Additional SARs may need to be filed periodically containing updated information for continuing violations. In situations involving violations that require immediate attention (such as ongoing criminal activity) the bank must immediately notify by telephone an appropriate law enforcement authority, in addition to filing a SAR.6

Generally, a bank, and its directors, officers, employees, or agents, are prohibited from disclosing a SAR or any information that would reveal the existence of a SAR. However, provided that no person involved in activity leading to the filing of the SAR is notified, the bank (and its directors, officers, employees, or agents) may disclose information that would reveal the existence of a SAR to FinCEN or to any applicable Federal, State, or local law enforcement or regulatory

6 A bank is not required to file a SAR for a robbery or burglary committed or attempted that is reported to appropriate law enforcement authorities, or for lost, missing, counterfeit, or stolen securities with respect to which the bank files a report pursuant to the reporting requirements in the US federal securities laws and regulations.

agency; disclose the underlying facts, transactions, and documents upon which a SAR is based to another financial institution for the preparation of a joint SAR or in connection with certain employment references or termination notices; and disclose the SAR and related information within the bank’s corporate organisational structure for purposes consistent with AML laws and regulations.

A bank that makes a voluntary disclosure of any possible violation of law or regulation to a government agency or makes a disclosure pursuant to the SAR reporting requirement or any other authority, including a disclosure made jointly with another institution, is protected from liability for any such disclosure and for failure to provide notice of such disclosure to any person identified in the disclosure.

Correspondent banking7 If a bank provides correspondent banking accounts for non-US banks, the bank must establish a due diligence programme that includes risk-based policies, procedures, and controls ‘reasonably designed’ to enable the bank to detect (and report, as necessary) on an ongoing basis, any known or suspected money laundering activity conducted through or involving the correspondent account. The required policies, procedures, and controls must include an assessment of

7 31 USC § 5318(i); 31 CFR §§ 1010.610, 1020.610.



the money laundering risk presented by the account, based on a consideration of all relevant factors, including the nature of the bank’s business and customers, the categories of activities in which the bank engages in through that account; and any available information about the correspondent bank’s own AML record and a periodic review of the activity in the correspondent account to determine consistency with information obtained about the type, purpose and anticipated activity of the account.

Additional enhanced risk-based procedures are required if the correspondent bank has an offshore banking licence (a banking licence that prohibits the bank from conducting business with citizens in the jurisdiction which granted the licence) or a banking licence issued by a country that has been identified as a money laundering concern. The enhanced due diligence procedures require the US bank to conduct heightened scrutiny of the correspondent account to guard against money laundering and to identify and report any suspicious transactions in accordance with applicable law and regulation. This heightened scrutiny must include obtaining and assessing the sufficiency of the correspondent bank’s own AML compliance programme and monitoring transactions to, from, or through the correspondent account in a manner reasonably designed to detect money laundering and suspicious activity.

In addition, if the correspondent bank maintains its own correspondent bank accounts for other non-US banks, then the US bank must obtain information about those other non-US banks in order to assess the money laundering risks associated with those other accounts.

Politically exposed persons8 In addition to special rules for correspondent accounts, a US bank also must maintain a special due diligence programme for certain private bank accounts it establishes for certain non-US individuals. The programme includes policies, procedures, and controls that are reasonably designed to detect and report any known or suspected money laundering or suspicious activity conducted through or involving those private banking accounts. This applies to banking accounts established by or for the benefit of non-US persons with a minimum of US$1 million in assets and assigned to a special private banking relationship manager. The due diligence programme must: (i) identify all nominal and beneficial owners of the private banking account and determining whether any of them are current or former senior non-US governmental or political figures or close friends and family members (collectively known as politically exposed persons or PEPs); (ii) determine the source(s) of funds deposited into the private banking

8 31 USC § 5318(i); 31 CFR §§ 1010.620, 1020.620.

account and the purpose and expected use of the account; (iii) undertake a periodic review of the activity of the account to ensure that it is consistent with the information obtained about the client’s source of funds and expected use of the account; and (iv) scrutinise the account for suspicious activity and determine the need to file a SAR.

If any PEP is a beneficial owner of the private banking account, then the bank’s due diligence programme must require enhanced scrutiny to detect and report transactions that may involve the ‘proceeds of foreign corruption’. This would include any asset or property acquired by, through, or on behalf of a PEP through misappropriation, theft, or embezzlement of public funds; the unlawful conversion of property of a foreign government; or through acts of bribery or extortion.

Shell banks9 A US bank is prohibited from establishing correspondent accounts for non-US banks that maintain no physical presence in any country (shell banks). The US bank must take reasonable steps to ensure that correspondent accounts for non-US banks are not being used to indirectly provide banking services to shell banks. This includes obtaining a certification from each of its non-US correspondent banks declaring the account is not being used to provide

9 31 USC § 5318(j); 31 CFR §§ 1010.630, 1020.630.



services to shell banks. A bank must obtain the name and street address of a person who resides in the United States and is authorised, and has agreed to be an agent, to accept service of legal process for records regarding each account. The US bank also must maintain records in the United States identifying the owners of each non-US correspondent bank whose shares are not publicly traded, unless the non-US correspondent bank regularly files a list of its owners with the Federal Reserve Board.

The certification must be renewed at least once every three years. Many non-US banks maintain these certifications on their websites for their own convenience and the convenience of US banks.

Cash reporting requirements10 US banks must report each deposit, withdrawal, exchange of currency or other payment or transfer, by, through, or to a financial institution where it involves a transaction in currency of more than US$10,000. These reports are filed electronically with FinCEN. Multiple currency transactions during the same business day must be treated as a single transaction if the bank has knowledge that they are by or on behalf of the same person and aggregate more than US$10,000. Structuring cash transactions to avoid the reporting requirements is illegal.

10 31 USC § 5313; 31 CFR §§ 1010.310-1010.314, 1020.310-1020.315.

Record-keeping requirements11 Records of each cash transaction report must be maintained for at least five years. In addition, a bank also must maintain a sufficient record of its operations in order to recreate a customer’s transactions.

US requirements related to information sharing with the government and with fellow bankers12

AML laws and regulations allow for information sharing between government agencies and financial institutions, and information sharing between financial institutions.

Information sharing between government and financial institutionFinCEN – acting on its own behalf, on behalf of another unit in the Treasury Department, or at the request of a federal, state, local or foreign law enforcement agency investigating terrorist activity or money laundering – may request the solicitation of certain information from a financial institution. If a request has been submitted to FinCEN, it must be accompanied by a written certification that states that each person or entity

11 12 USC §§ 1829b, 1051-1959; 31 CFR §§ 1010.400-1010.440, 1020.400-1020.410.

12 Section 314 of the USA Patriot Act, Pub. L. 107–56, Oct. 26, 2001 (this section was not codified into the Bank Secrecy Act); 31 CFR §§ 1010.500-1010.540; 1020.500-1020.540.

about which the law enforcement agency is seeking information is engaged in, or is reasonably suspected based on credible evidence of engaging in, terrorist activity or money laundering, and includes enough identifying information (including date of birth, address, and social security number), that would permit a financial institution to differentiate between common or similar names.

Once the financial institution has received the request from FinCEN, then the financial institution must ‘expeditiously’ search its records to determine whether it maintains or has maintained any account for, or has engaged in any transaction with, each person or entity named in the request. Unless otherwise specified in the information request, a financial institution need only search its records for current accounts and accounts maintained during the preceding 12 months, as well as recent transactions.

The information contained in the request from FinCEN is considered confidential and cannot be used by the financial institution for any purpose other than reporting the results of the search conducted pursuant to the request, determining whether to establish or maintain an account, or to engage in a transaction, or assisting the financial institution in complying with any other AML requirement. The financial institution is also prohibited from disclosing to any person (other than FinCEN or the requesting agency



named in the information request), including the target of the request, the fact that FinCEN has requested or obtained information pursuant to the request, except to the extent necessary to comply with such an information request. The financial institution is required to have policies, procedures and controls in place to protect the security and confidentiality of these requests. A financial institution is not required to take any action with respect to the account or transaction for a target (such as declining a transaction or closing an account).

Information sharing between financial institutionsA financial institution may – without fear of liability for disclosing such information – transmit, receive, or otherwise share information with any other financial institution regarding individuals, entities, organisations and countries for the purposes of identifying and, where appropriate, reporting activities that the financial institution suspects may involve possible terrorist activity or money laundering. Prior to doing this, the financial institution must file with FinCEN a notice on an annual basis indicating that it intends to engage in information sharing.

Prior to sharing information, the financial institution must take reasonable steps to verify that the other financial institution with which it intends to share information has also submitted to FinCEN an information-

sharing notice. It can either obtain this verification directly from the other financial institution or it can review a list that FinCEN periodically makes available of financial institutions that have filed an information sharing notice.

Information shared between financial institutions may not be used for any purpose other than identifying and, where appropriate, reporting on money laundering or terrorist activities; determining whether to establish or maintain an account, or to engage in a transaction; or assisting the financial institution in complying with any other AML regulations. Each financial institution that engages in the sharing of information must maintain adequate procedures to protect the security and confidentiality of such information. If, as a result of the information shared, a financial institution knows, suspects, or has reason to suspect that an individual, entity, or organisation is involved in, or may be involved in, terrorist activity or money laundering, it must file a SAR if it is subject to that requirement.

Special measures13

Section 311 of the USA Patriot Act gives FinCEN the authority to issue regulations imposing special measures against a non-US jurisdiction, institution, class of transaction, or

13 31 USC § 5318A; 31 CFR §§ 1010.651-1010.670.

type of account that is considered to be of ‘primary money laundering concern.’ The special measures can include prohibiting the opening or maintaining of correspondent accounts for a financial institution against which special measures have been imposed and conducting due diligence to prevent a correspondent account from being used indirectly by such an institution. Since 2002, the Director of FinCEN has imposed special measures against several non-US financial institutions.

Conclusion14

Violations of these AML laws and regulations carry civil and criminal penalties.

Criminal penalties range from imprisonment for up to 5–10 years and criminal fines ranging from US$250,000 to US$500,000. Any person convicted of knowingly making any false, fictitious or fraudulent statement or representation in any required report can be fined not more than US$10,000 or be imprisoned not more than five years, or both.

Civil penalties range from US$500 for negligent violations, US$1,000 for record-keeping violations, and between US$25,000 and US$100,000 for other violations. Civil penalties up to the amount of money involved in

14 31 USC §§ 5321, 5322, 5324; 31 CFR §§ 1010.820,1010.840.



the transaction may be imposed for any wilful violation of the structuring prohibitions. Civil penalties are usually imposed by the regulatory agencies through an administrative enforcement action and can amount to millions of dollars. For example, on June 15, 2015, FinCEN announced a US$4.5 million civil money penalty against Bank of Mingo of Williamson, West Virginia (Mingo), for wilfully violating the Bank Secrecy Act, due to ‘severe and systemic failures’ in its AML compliance programme. FinCEN noted that those failures led to the bank processing millions of dollars in structured and suspicious cash transactions.15

15 Additional information on penalties may be accessed on the FinCEN website, www.fincen.gov.


Kathleen A. ScottSenior counsel, New YorkTel +1 212 318 [email protected]

Kayla A. FeldAssociate, SingaporeTel +65 6309 [email protected]



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Documents

Business ethics and anti-corruption - Norton Rose Fulbright · From the editor I am delighted to present you with the seventh issue of Business ethics and anti-corruption: Asia Pacific