Fast-Growing UK Challenger Bank Fined £29m for Insufficient Sanctions and Financial Crime Controls

On September 27, 2024, the Financial Conduct Authority (“FCA”), which is a financial regulatory body in the UK that regulates firms providing financial services to consumers, fined a UK Challenger Bank (the “Bank”) £29 million due to significant failings in its financial sanctions compliance and anti-money laundering systems and controls.

The FCA’s Summary of Reasons found that, while the Bank had undergone “exponential growth” between 2016 and 2023, growing its customer base more than 8,000 percent from approximately 43,000 customers to approximately 3.6 million customers and its revenue more than 3 million percent from approximately £13,000 to approximately £453 million, “its financial crime controls [had] failed to keep pace”.  Of note, the penalty would have been £41 million, 30% more, but for the Bank’s agreement to reach an early resolution with the FCA.

Our client alert covers the FCA’s findings in more detail and discusses the steps that all regulated firms, not least disruptive companies that are leveraging pioneering financial technology to grow as fast as possible, should be taking to help ensure compliance.  It is key that firms reconsider their financial crime risk assessments and controls on a regular basis, to confirm that they remain appropriate for the nature and size of their business and the risks identified.  Businesses that are fast-growing, introducing innovative products, entering new markets, or otherwise susceptible to abuse by sanctioned persons, money launderers, or other malicious actors, should undertake this reconsideration urgently.

Please do not hesitate to reach out if you would like to discuss how we can help you to assess the adequacy of your existing sanctions and anti-money laundering compliance programs, which in turn will help to mitigate exposure to government investigations, prosecutions and penalties, derivative litigation, and reputational loss and brand devaluation.

DOJ Updates Guidance on Corporate Compliance Programs

In a post published earlier this year, we highlighted the importance of proactively managing artificial intelligence (“AI”) risks as part of an effective compliance program. Specifically, we explored the key considerations for organizations to effectively navigate AI-related risks and enhance their compliance efforts.  We also referenced Deputy Attorney General Lisa O. Monaco’s announcement incorporating an assessment of AI-related risks into its policy on Evaluation of Corporate Compliance Programs (“ECCP”).[1] On September 23, 2024, Principal Deputy Assistant Attorney General Nicole M. Argentieri announced that the U.S. Department of Justice (“DOJ”) updated the ECCP (“ECCP Update”) to guide federal prosecutors in analyzing how companies utilize new technologies, including AI, in their operations, and whether this use is accompanied by an appropriate assessment of the risks these technologies may present.[2]  The revisions in the ECCP Update aim to “account for changing circumstances and new risks” posed by AI and other emerging technologies in compliance programs, reinforcing the DOJ’s commitment on corporate compliance in an evolving technological landscape.[3]

Continue Reading

FinCEN Issues Investment Adviser and Real Estate Rules

On August 28, 2024, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued two final rules to counter financial crime and safeguard national security: one broadening the definition of “financial institution” to include certain registered investment advisers (“RIAs”) and exempt reporting advisers (“ERAs”) under the Bank Secrecy Act (“BSA”), and one mandating FinCEN reporting on certain residential real property transfers.

As outlined in more detail below, RIAs and ERAs will need to reevaluate their anti-money laundering (“AML”) risks and revise their compliance programs accordingly as additional scrutiny will be placed upon certain transactions. Real estate experts should also ensure that their clients are in compliance with the new rules.

Continue Reading

Non-Financial Misconduct in the UK: A Thoughtful Initiative or a Hastily Conceived Concept?

Non-financial misconduct (“NFM”) within the financial sector has posed significant challenges for the U.K. Financial Conduct Authority (“FCA”) for several years. The FCA handbook prescribes that regulated firms must assess and certify to the FCA, at least annually, that senior individuals and those performing regulated activities meet the relevant standards of fitness and propriety to be approved to perform those roles.

Continue Reading

Recent FARA Charges Against Legislators Raise Constitutional Questions

Tom Firestone recently blogged on how the recent prosecutions of Senator Robert Menendez and Representative Henry Cuellar under a previously never used statute, 18 USC 219, raise serious Constitutional issues.  18 USC 219 makes it a crime for members of Congress (and other government officials) to engage in activity that requires registration under the Foreign Agents Registration Act (“FARA”). But members of Congress are not permitted to register under FARAWhat’s more, FARA is extremely broad and covers acting at the “request” of a foreign principal.  And 219 does not require evidence of corruption or improper intent. So, does a member of Congress commit a federal crime by supporting a foreign aid bill at the urging of a foreign leader?  Tom offers insight on this complicated issue – check out his full blog on Bribery Matters: Are the Menendez and Cuellar FARA Charges Unconstitutional? (briberymatters.com)

Millions of Reasons to be a Whistleblower Means Increased Need for Internal Reporting Incentives

Summer may be coming to an end, but whistleblower awards are far from over.  On August 23, 2024, the Securities Exchange Commission (“SEC”) announced payment of over $98 million total to two whistleblowers who provided the SEC with information that led to successful enforcement actions – the fifth largest since the program’s inception in 2011, which to date has awarded nearly $1.8 billion to whistleblowers.  This year the Department of Justice (“DOJ”) has followed in the SEC’s footsteps and created the Criminal Division Corporate Whistleblower Awards Pilot Program which allows for financial awards to whistleblowers.  With increasing external incentives for speaking up on potential misconduct, there is also a need for similar internal reporting incentives.

Existing Programs and Incentives

Continue Reading

ESG Due Diligence Update: First lessons from Recent Rulings in the EU

There has been a major shift in the European Union (“EU”) in recent years around Environment, Social and Governance (“ESG“), from voluntary corporate social responsibility initiatives to a much more regulated and legislation-driven ESG regime. A key component driving this shift is the Corporate Sustainability Due Diligence Directive of June 13, 2024 (“CS3D”),[1] which established due diligence requirements for large EU companies and groups,[2] as well as large multinational entities, including those based in the US that are operating in the EU.[3]

The CS3D lays out rules that address (i) due diligence obligations for companies in relation to the adverse ESG impacts of their operations, (ii) liability for companies not complying with these requirements, and (iii) the obligation for companies to adopt and put into effect a transition plan for climate change mitigation.

Continue Reading

Insider Dealing: Increasing Scope and Greater Focus from UK and US Enforcement – Are You up to Speed?

The UK and US enforcement agencies have been actively pursuing insider dealing (“insider trading”, in US parlance) since the COVID-19 pandemic ended. The UK and US have different securities enforcement regimes, but both have seen recent developments expanding the scope of conduct that can be prosecuted. For individuals and organizations trading across multiple jurisdictions, it is important to keep abreast of the scope of these offenses and of the different rules that apply in key enforcement jurisdictions. In this article, we will summarize the UK and US criminal offenses of insider dealing and highlight some key similarities and differences between those enforcement regimes. We will review recent legislative changes and enforcement activity and touch upon how enforcement agencies are signaling greater abilities to identify insider dealing, through reporting and the use of more advanced technical capabilities. 

Continue Reading

SEC v. Jarkesy: Possible Implications for the SEC’s FCPA Enforcement

On June 27, 2024, the Supreme Court issued its opinion in Securities Exchange Commission v. Jarkesy.  The Court held that the Seventh Amendment entitles a defendant to a jury trial when the SEC seeks civil penalties for securities fraud, because these cases replicate common law fraud claims.  S.E.C. v. Jarkesy, No. 22-859, slip op. at 6 (U.S. 2024), as we noted in our earlier post.  Therefore, these types of claims must be heard by an Article III court.  One impact of this ruling is that the SEC’s administrative proceeding (“AP”) enforcement mechanism is no longer available for matters where the SEC brings a fraud claim and seeks civil penalties, and otherwise fails to reach a negotiated settlement with the defendant prior to filing.  However, even though Jarkesy did not address the Foreign Corrupt Practices Act (“FCPA”) directly, the case will potentially have some impact on FCPA enforcement because the SEC will likely be unable to use the AP process for contested FCPA matters where a penalty is sought, and instead will be required to file these matters in federal district court.  This will pose additional risk and resource calculations for the SEC, as discussed below. 

Continue Reading

OFAC Guidance on the Statute of Limitations Extension

  • OFAC will only apply new 10-year statute of limitations for a violation that occurred after April 24, 2019; if the violation occurred on or before April 24, 2019, OFAC will only apply the previous 5-year statute of limitations
  • OFAC’s record keeping requirements and administrative subpoena authority to be extended to 10 years

The President’s signing of the 21st Century Peace through Strength Act (the “Act”)[1] on April 24, 2024 marked one of the most significant expansions of the sanctions enforcement authority of the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). For many decades OFAC’s civil enforcement actions have been limited to five years pursuant to the statute of limitations found at 28 U.S.C. § 2462.  Section 3111 of the Act extended “the amount of time that regulators and prosecutors have to investigate and prosecute civil and criminal sanctions violations from five to 10 years,” as discussed in a previous blog post. This extension applies to sanctions enforcement actions pursuant to both the International Emergency Economic Powers Act (“IEEPA”) and the Trading with the Enemy Act (“TWEA”).

Continue Reading

LexBlog