How non-banks can ensure compliance with growing regulatory obligations – John Binns talks to Lexology

How non-banks can ensure compliance with growing regulatory obligations – John Binns talks to Lexology

BCL partner John Binns has been quoted in a Lexology Pro Compliance article looking at the obligations on non-financial businesses and non-banks in financial crime regulations around the world, and analyses how compliance teams can ensure they are meeting them.

Here’s an extract from the article feature quotes from John Binns:

Financial criminals increasingly target non-financial companies for money laundering, terrorism-financing and other financial crime, in sectors where regulation is perceived to be lighter. A 2016 study indicated that 20 % to 30% of all proceeds from crime are laundered in the non-financial sector[1], and in 2019, the European Commission deemed the non-financial sector’s exposure to money laundering risks as “significant to very significant overall.”

However, concerns remain that regulations continue to prioritise financial institutions, or even just banks, placing the onus on compliance teams to interpret how financial crime legislation applies to other types of companies.

“We have reached a moment now where it makes sense to broaden out the expertise in, and the responsibility to tackle, financial crime, to recognise the fact that it’s increasingly not just about money, in the sense of fiat currencies in traditional bank accounts,” says John Binns, a partner specialising in white-collar crime at BCL Solicitor’s London office. “Arguably that shift in mindset is coming too late, so that we’re having to adjust systems that were created with banks in mind (like the system for submitting suspicious activity reports) to fit a broader range of companies.”

So how can compliance teams at other types of companies ensure they have identified and met their company’s obligations under financial crime legislation?

“Failure to prevent” charges

The first problem is the language used in the regulations heavily reflects the interests of financial businesses. While regulations do need to be detailed and specific, companies will have very different perspectives on financial crime, depending on the nature of their business. A company’s financial risk matrix will depend upon its operations. “There is no shortage of guidance out there, but there will frankly always be a challenge in making it fit to the particular needs of your business,” Binns says.

Binns points out that most of the UK’s regulations to combat financial crime are derived from EU directives, which are written to protect the financial system, but he says “they have increasingly bound various non-financial firms as well, almost as an afterthought.” The direction of travel in the US, EU and UK legislation now is to place ever more burdens even on non-regulated companies, via “failure to prevent” offences: a corporate criminal offence for vicarious liability, where a company can be prosecuted for an employee’s misconduct. The EU’s fifth anti-money laundering (AML) directive has imposed further obligations, such as stricter customer due diligence, on traders in high-value goods, like artwork, and the upcoming sixth directive is expected to extend criminal liability for money laundering to include companies and partnerships in situations where those persons have failed to prevent illegal activity. In 2019, the UK’s Serious Fraud Office proposed that legislative changes be introduced so that a company could be found guilty  if a person associated with the business commits an offence intending to obtain or retain business (or a business advantage) for the company, or otherwise benefit it financially. The UK government’s Treasury Committee reported that these proposals come close to introducing corporate vicarious liability by rendering the company responsible for the actions of individual employees. But Binns highlights that “the banks have had more time and resources to strengthen their compliance function, to the extent that they now have a seat at the table in making policy on economic crime.” Thus, the onus is increasingly falling on compliance teams in non-financial businesses to interpret and understand regulations that were not written for them.

This article was originally published by Lexoglogy on 04/08/2020. You can read the full version on their site.

John Binns is a partner at BCL specialising in all aspects of business crime, with a particular interest in confiscation, civil recovery and money laundering under the Proceeds of Crime Act 2002 (“POCA”). His business crime experience includes representing suspects, defendants and witnesses in cases invoking allegations of bribery and corruption, fraud (including carbon credits, carousel/MTIC, land-banking, Ponzi and pyramid scheme frauds), insider trading, market abuse, price-fixing, sanctions-busting, and tax evasion. He has coordinated and undertaken corporate investigations and defended in cases brought by BEIS, the FCA, HMRC, NCA, OFT, SFO and others.