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Corporate Advisory

Danske Bank – Audit firms to be investigated over AML rules breach

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The Danish government has reported Big Four auditor EY to the domestic fraud squad to investigate whether the firm broke money laundering rules when it audited Danske Bank in 2014.

The Danish Business Authority, a government agency, said it had conducted its own investigation into EY’s 2014 audit of Danske and found the firm had discovered information about potential money laundering issues at the bank.

The firm should have made further inquiries and reported the matter to the authorities at the time, according to the business authority. It said on Friday it had asked the Danish state prosecutor to launch a police investigation into whether EY violated laws against money laundering and terrorist financing.

Danske’s money laundering scandal started in 2007 and stretched until 2015, with €200bn of non-resident money — much of it suspicious and from Russia — passing through its Estonian branch during the period.

The referral to Denmark’s fraud investigators is a fresh blow to EY and the wider audit industry, which has come under heavy criticism during the past 18 months following a series of high profile corporate scandals involving the Big Four firms.

EY was one of a number of audit firms that vetted Danske’s financial statements during the period when money laundering activities allegedly took place at the bank.

The Danish Business Authority launched an investigation of EY, as well as Deloitte, KPMG, PwC and Grant Thornton, in October to assess whether they had fulfilled their anti-money laundering duties with respect to their audit work for Danske up to 2015.

The Danish Business Authority has not explained why it is focusing on 2014, which is just after the peak year for the scandal in 2013, when about €35bn flowed through the Estonian branch. The government agency said it was still investigating the audit conducted in 2013.

See full article here

Corporate Advisory

SEC Subpoenas Hit Crypto Industry

Blockchain Capital’s Bart Stephens on risks of experimenting without safe harbor, exodus to Singapore, Switzerland and Malta, and how NFTs are the killer dapp

“If 2017 was a raging party, then 2018 is the hangover,” laughed Blockchain Capital’s Bart Stephens as he addressed the Back to the Crypto Future conference during SF Blockchain Week. “You can’t have an asset class go up 20 to 30 times, like in the case of Bitcoin and Ethereum, and not have some sort of retrace. It’s the nature of capital formation and speculation.”

”What we saw last year was that the Ethereum ERC20 standard really captured the imagination of both investors and entrepreneurs worldwide where with just two lines of code you could create your own crypto assets, whether it was a utility token or a security token. Whether the category of utility token even exists in the eyes of the SEC, we saw $18 billion of capital being raised with a kind of Kickstarter on steroids. It proved Ethereum as a platform for global crowdsourcing,” said Stephens commenting that ICOs made it possible for entrepreneurs to bypass raising capital from traditional VCs, a far more arduous task that involves established relationships on Sand Hill Road and greater scrutiny and due diligence of investors.

“It’s a challenging time if you’re an entrepreneur or investor right now, primarily due to acute regulatory uncertainty. There’s no path forward if you’re a token issuer. If you touch the U.S. in anyway, it’s a contagion that can turn your token into a security. It’s a frustrating environment.”

“There’s a tremendous amount of innovation happening here. Some of the largest market cap companies and projects are based in San Francisco including Coinbase, Ripple, Coinlist, Kraken. It’s important for regulators to recognize that this is a global phenomenon. The markets of China, Korea and Japan are incredibly important. From a regulatory point of view, the U.S. is offshoring innovation. They’re saying the U.S. is closed for business, go to Malta, go to Singapore, go to Switzerland.”

Referencing Ripple’s Swell 2018 conference last week in which former U.S. President Bill Clinton delivered the opening keynote, Stephens said with the birth of the internet in the 1990s, the Clinton Administration took a hands off approach to let innovation flourish. Federal regulatory entities like the FTC, FCC and even the IRS said no sales tax on your Amazon order, thus giving entrepreneurs and venture capitalists the rules of the road.A

“When you know the rules of the road, the magic of U.S. capitalism can happen which is the efficient allocation of capital to the world’s most promising entrepreneurs.” Stephens said, “That is no longer happening here. The crypto industry has been dangerously naive over last three years and have assumed U.S. regulators have a balanced approach to innovation on one side and consumer protection on the other. Things have changed markedly in the last six months. There are hundreds of subpeonas out in the crypto industry right now. This is not well known. Whether they’re exchanges, or law firms, or investors and ICOs, startup companies as little as three people. What we’re seeing as a result is capital formation is freezing.”

“It’s very unclear how a protocol would conduct a public sale of a utility token to U.S. investors. There’s no guidance from appropriate regulatory authorities on that. The SEC is applying laws that are on the books which were written in 1933, 1934 and 1940. Crypto assets are a new asset class and ill-equipped to be dealt with security laws that are getting close to nearly 100 years old. It’s hard to look out two or three years because things are getting worse for U.S. entrepreneurs and investors, not better.”

As for larger economies, Stephens added

“We need to take a holistic approach to fostering innovation that recognizes that this is a new decentralized technology that’s global. Writing legislation that is better crafted and not 89 years old. Provide a safe harbor for entrepreneurs who are trying to innovate.”p

The SEC was also at the Back To The Crypto Future Conference with Scott Walker on the opening panel discussing the SEC mandate to balance capital formation and efficient markets with investor protection. For guidance, he directed the audience to SEC Director Bill Hinman’s remarks on applying the Howey Test, CryptoMom Hester Pierce‘s’ dissenting opinion in support of an ETF that would give retail investors access to bitcoin, and newly appointed Crypto Czar Valerie Szczepanik, who oversees ICOs.

See full article here

Corporate Advisory

Driving Change in Uk’s post-FATF Evaluations AML Regime

The surge of activity in the UK’s anti-money laundering (AML) regime between 2015 and 2018 was notable, with a huge range of new strategies, initiatives and AML architecture being created largely, a cynic might say, in preparation for the decennial Financial Action Task Force (FATF) evaluation of the UK, which reported its findings in December 2018. In PR terms at least, the government’s efforts seem to have paid off, with the UK receiving the highest aggregate scorings under the revised FATF evaluation methodology to date. 

The chapters in this Whitehall Report examine specific elements of the UK’s AML response and seek to challenge the intimation that the UK AML regime can be judged largely effective in real terms as the 2018 mutual evaluation report (MER) appears to suggest. On this basis, the report aims to focus post-evaluation efforts by making a series of recommendations for the government’s AML efforts in the post-MER policy cycle.


Chapter I examines the evolving AML strategic landscape and suggests that priority should be given to refreshing the UK’s AML and Asset Recovery Action Plans, and ensuring that progress is properly monitored through Parliament and/or an Independent Commissioner for Economic Crime. In terms of new structural innovations, it makes the case for giving political support to the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), adequate technical and human resourcing to the National Economic Crime Centre (NECC), and reinvesting in the depleted law enforcement response.

Chapter II examines the gap between the UK’s high aggregate scorings under the FATF ‘effectiveness’ methodology and the reality on the ground, which recognises the UK’s implication in various global money-laundering scandals. The chapter poses the question as to whether the UK’s place at the top of an invented ‘league table’ equates to an effective system overall and concludes that perhaps not all of the Immediate Outcomes (IOs) from the FATF’s evaluation methodology are created equal. It argues that the areas of identified weakness within the UK system – IO3 (supervision) and IO6 (use of financial intelligence) – best demonstrate the ‘wicked’ nature of the money-laundering problem; poor scorings in these areas drag down overall systemic effectiveness in a way that others do not. It calls on the UK government to focus on these areas to achieve effectiveness in real rather than abstract terms.


Chapter III examines the issue of AML supervision of the UK’s non-financial regulated sectors, in particular those supervised by their own professional bodies, noting that this has been a perennial weak spot. The chapter notes the creation of new architecture, in the form of OPBAS, which was created to raise standards in professional body supervision, but missed an opportunity to include Her Majesty’s Revenue and Customs (HMRC), a statutory supervisor of accountants and estate agents, in its remit. As OPBAS readies itself to release its first annual report, the chapter asks whether it is time to consider an independent review of HMRC’s role alongside OPBAS’s work to ensure a level playing field.

Chapter IV looks at the innovations in the sphere of public–private information exchange since the inception of the Joint Money Laundering Intelligence Taskforce (JMLIT) in 2015. While JMLIT is a welcome innovation, the chapter cautions against complacency and calls for developments which expand the two-way information flow to the wider regulated sector (albeit in a fit-for-purpose form, rather than simple JMLIT expansion); firm the legal foundations for the partnership; extend existing bank-to-bank information-sharing provisions; and champion the conversation at the global level on the balance to be had between data privacy and financial crime objectives.

Chapter V looks at the need for the AML regime to evolve to tackle the challenges posed by new technologies. It discusses the next frontier for AML regulation – ‘the virtual asset economy’ – noting that the government will need to decide on the parameters of the regulation necessary to contain potential threats. It also discusses the need to consider regulation not only of fiat-to-virtual currency exchanges, but also of virtual-to-virtual exchanges. The chapter encourages the government to develop responses which are fit for purpose, rather than simply extending existing rules.


Chapter VI examines the UK’s place as the destination of choice for the proceeds of grand corruption and explores whether political commitments, including new anti-corruption and transparency legislation, are being actioned in practice. It welcomes the new Unexplained Wealth Order (UWO) established in 2017, but notes that without law enforcement and prosecutorial resourcing, its impact will be largely symbolic; it notes that the new People with Significant Control register is good in theory, but has problems with accuracy in practice; and it notes the need to push forward with whistle-blower reforms to generate much-needed intelligence. 

Finally, chapter VII looks at the UK’s track record on the use of financial intelligence and finds cause to both agree and disagree with the 2018 MER’s findings in this regard. The chapter strongly agrees with the 2018 MER’s conclusion that the UK Financial Intelligence Unit (UKFIU) is in need of considerable reform and suggests that the government bolsters human and technological resources and reforms the ‘devolved analysis’ operating model. The chapter disagrees with the finding that ‘LEAs [law enforcement agencies] at the national, regional and local levels integrate the use of SARs and other financial intelligence into their standard practice’, and recommends regional resources to improve SAR exploitation.

In conclusion, this report notes that the recent FATF evaluation served one of its purposes well – that of focusing attention on the area of AML and broader financial crime – but urges the government to continue its reform programme to ensure it achieves systemic effectiveness in practice, rather than on paper. 

12 Recommendations for Policymakers

Policy and Coordination: ‘Policy, coordination and cooperation mitigate the money laundering and financing of terrorism risks’ – FATF Intermediate Outcome 1

Recommendation 1: Refresh and publish the AML and Asset Recovery Action Plans and provide annual reports to Parliament setting out progress.

Recommendation 2: Appoint an Independent Commissioner for Economic Crime to drive progress across government.

Recommendation 3: Prioritise funding of human and technological intelligence capabilities within the NECC.

Recommendation 4: Prioritise addressing deficiencies in the AML supervisory regime and use of financial intelligence over the next three years to improve systemic effectiveness overall.

Prevention and Detection: ‘Proceeds of crime and funds in support of terrorism are prevented from entering the financial and other sectors or are detected and reported by these sectors’ –  FATF Intermediate Outcome 2

Recommendation 5: Provide an independent assessment of HMRC’s AML supervisory activities, alongside work OPBAS is undertaking in relation to professional body supervisors.

Recommendation 6: Review the legislative information-sharing pathways between JMLIT members and consider building fit-for-purpose gateways to support the operating model. 

Recommendation 7: Support FATF efforts to champion a conversation, at the global level, regarding the balance to be had between data privacy and financial crime policy objectives.

Recommendation 8: On bringing the virtual asset economy under the purview of the AML regime, ensure that provisions are tailored to the new regime, rather than simply extending existing provisions.

Disruption: ‘Money laundering threats are detected and disrupted, and criminals are sanctioned and deprived of illicit proceeds. Terrorist financing threats are detected and disrupted, terrorists are deprived of resources, and those who finance terrorism are sanctioned, thereby contributing to the prevention of terrorist acts’ – FATF Intermediate Outcome 3

Recommendation 9: Provide training to prosecutors and financial investigators on the use of Part 5 (civil confiscation) Proceeds of Crime Act (POCA) powers in furtherance of their objective to expand use of UWOs.

Recommendation 10: Increase UKFIU headcount to 200 as promised during the 2007 FATF evaluation.

Recommendation 11: Expedite plans to update or replace the ELMER database.

Recommendation 12: Establish proactive SARs data-mining capabilities within the Regional Organised Crime Unit (ROCU) network.

Read the Report

Corporate Advisory

US sues Barclays over mortgage-backed loans

Federal prosecutors have sued Barclays and two of its executives over allegedly fraudulent mortgage-backed securities the bank issued as the US housing bubble was at its peak.

 The suit claims the bank “securitised billions of dollars of loans it knew had material defects” and financed lenders that it knew were issuing mortgages to customers who would be unable to repay them, prosecutors charged. The loans in question defaulted “at exceptionally high rates early in the life of the deals”.

It comes after the breakdown of talks aimed at reaching a negotiated settlement with the US Department of Justice and seeks unspecified civil penalties from the bank and the two men.

See full article here

Corporate Advisory

Deutsche Bank agrees settlement with the DoJ

Deutsche Bank has agreed to pay $7.2bn to resolve the Department of Justice’s probe into the alleged mis-selling of mortgage securities – about half the sum authorities had originally claimed.

After months of talks with the US authorities, the German bank said early on Friday it agreed “in principle” to pay a $3.1bn civil penalty and also provide $4.1bn in relief to consumers.

The figure compares with the Justice Department’s opening request of $14bn. Deutsche had insisted it was not expecting to settle the claims for anything like that sum.

See full article here

Corporate Advisory

Italian government approves bailout of Monte dei Paschi

The Italian government has approved a bailout of Monte dei Paschi di Siena at a late night cabinet meeting in Rome, led by prime minister Paolo Gentiloni.

The state rescue of the country’s third largest bank, saddled by non-performing loans, became necessary after it failed to raise enough capital in the wake of European-wide stress tests published in July.

A last-ditch effort to gather funds in the last few days only yielded about €2.5bn, well short of the €5bn target required.

In the decree approved early on Friday, the Italian government also announced a compensation scheme for retail investors in junior debt who would be hit under EU rules on burden sharing, saying that they would be able to receive senior debt of the equivalent value in exchange for the subordinated bonds.

See full article here

Corporate Advisory

MiFID II – ESMA sets timetable for Waiver Applications

he European Securities and Markets Authority (ESMA) has updated two Questions and Answers (Q&A) documents regarding implementation issues relating to transparency topics and market structures topics under the Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR).


The new MiFID II transparency regime, which requires trading venues to make public bid and offer prices and depth of trading interest unless granted a waiver, applies from 3 January 2018. To obtain a waiver, trading venues must submit the application to the relevant national competent authority (NCA) and the NCA, where it considers the application is MiFIR compliant, will submit it to ESMA for an Opinion.

The updated Q&A document sets out the waiver application schedule for 2017 in order for competent authorities and ESMA to handle applications in time for 3 January 2018. The waivers will be processed in two tranches:

Equity and Equity-like instruments:

  • Trading venues submit waivers to NCAs by 1 February 2017
  • NCAs submit waivers to ESMA by 28 February 2017
  • ESMA review completed by 31 May 2017

Bonds and Derivatives:

  • Trading venues submit waivers to NCAs by 1 June 2017
  • NCAs submit waivers to ESMA by 31 July 2017
  • ESMA review completed by 30 November 2017

Waivers submitted by trading venues after the above dates will be processed on a best effort basis. The updated Q&A document also clarifies the conditions when existing waivers for shares require a new waiver application.

Market Structures

ESMA has also updated its Q&A document on market structures with new questions on the topics of algorithmic trading and the mandatory tick size regime.

Future work

The purpose of these Q&A documents is to promote common supervisory approaches and practices in the application of MiFID II/MiFIR and its implementing measures. ESMA will continue to develop these Q&As in the coming months, both adding questions and answers to the topics already covered and introducing new sections not yet addressed.

See link to ESMA update

Corporate Advisory

CFTC – Challenging times as new Margin rules approach

As the new non-cleared margin rules approach in March , derivatives users must now be working to modify their existing collateral agreements or draft new ones

“Unfortunately, regulators imposed an unrealistic deadline on the marketplace and seem intent on sticking to that deadline regardless of the effect on the health of the market and market participants,” said Giancarlo, who is in line to head the agency once Donald Trump is inaugurated as U.S. president on Jan. 20.

“As the variation margin deadline approaches, I call on my fellow regulators to determine the market’s readiness and help ease the transition as much as possible to ensure the orderly functioning of the marketplace.”

Australia, Hong Kong and Singapore have already said they would allow a six-month phase-in approach from March, but the EU is heading for a hard deadline.

Giancarlo, who was meeting British regulators during his visit to London, said it was too early to know what needs to be done about a deadline that will affect many trades in a cross-border market.

“The concern I have with the March deadline is some of the smaller firms, asset managers and pension funds, may not be able to get their documentation done in time with some of the sell-side firms,” Giancarlo told reporters.

See article here and here


Corporate Advisory

A period of Deregulation through Reforming the Reforms ?

As Europe battles on with perhaps the most transformational period of regulation ever in the form of MiFID II, the US see signs of reforming the reforms. Will Brexit provide an opportunity for the UK to follow and leave Europe behind? In truth, no body knows, but one thing is for certain. Change, change and opportunity continue across the industry.

So long Dodd-Frank as big sections will be repealed in the next year

Trump will be the next US President. The Republicans will continue to control the Senate and the House of Representatives. Parts of Dodd-Frank and other financial regulation are certain to be repealed. Hold on to your seats.

Just when US financial markets were getting used to Dodd-Frank, the Supplementary Leverage Ratio and money market reform, the election has turned all that on its head. The next year will be marked by more upheaval as Republicans undo major portions of financial regulation enacted in the last eight years.

See full article here

Corporate Advisory

Challenging Times & Painful Measures

Deutsche axes bonuses to pay toxic loans fine

Top bankers to miss out on payouts as lender braces for giant US settlement.

Deutsche Bank is to axe bonuses for senior staff as part of its desperate efforts to pay for a potential $14bn (£11.2bn) legal settlement with American regulators.

John Cryan, the German bank’s Yorkshire-born boss, warned top bankers this month that their bonuses would be seized to help foot the bill for the mis-selling of sub-prime mortgages.

A handful of top-performing executives will receive “retention cheques” — much smaller sums that will be paid out over several years. Junior staff will still receive a bonus, but on a far smaller scale.

“The fine could be partly paid for by bonuses,” said one senior insider.

See full article here