The Tide of Change Laps at Wall Street

Later today at New York University’s Law School, Obama’s new Deputy Attorney General, Sally Q Yates, will unveil a memo setting out a new policy for US federal prosecutors investigating corporate crime.   Its contents will chill many corporate executives to their boots.  The memo prioritises the pursuit of individual employees – not just their companies.  The plan is that prosecutors should no longer settle for substantial payments from the company alone.

Yates is a tough cookie.  A career prosecutor, she spent 1994 to 2002 as Chief of the Fraud and Public Corruption Section of the US Attorney’s office, supervising all of the office’s white collar cases.  Since her May 2015 appointment to the Deputy post she has sunk her teeth into the problem of corporate crime resulting in the new memo which was  trailed yesterday by the US Attorney General, Loretta Lynch.  Its contents are potentially a game changer.

Companies under suspicion of criminality which commission their own internal investigations will now be expected to name names. Considerable pressure will be brought to bear on corporations to hand over evidence against senior staff.

UK bankers and corporate executives should think on the scope of US jurisdiction.  Not only can they face extradition to the US but there is a new adversarial spirit across the Atlantic.  This could have transformed the US Attorney’s investigation of the French bank, BNP Paribas, which ended last year in a record $8.9billion in penalties for breaching US sanctions.  There the bank reportedly withheld records concerning individual executives until limitation periods had expired.

There is a reason for all this.  The public appetite for vengeance on those thought responsible for the 2008 crash, austerity and the growing income gap is impacting on the political class.  The astonishingly successful campaigns run by Jeremy Corbyn and Bernie Sanders expose the unstable footings of the existing order.

Even Hilary Clinton promised in July to “prosecute individuals as well as firms when they commit fraud”, so if the US polls are correct the new policy is likely to survive the length of time required to investigate and bring a tranche of corporate executives before the courts.

FCA Director Martin Wheatley too tough? Whose Porridge is Just Right?

George Osborne is still looking for just the right amount of toughness. As part of his Goldilocks routine he seems to have concurred with the city view that FCA Chief Executive Martin Wheatley, who stands down this weekend, was much too hard.

This seems a bit harsh on Wheatley, bearing in mind that Osborne declined to renew SFO Director Richard Alderman’s tenure in 2012 amid accusations that he was much too soft. Alderman thus joined a long list of senior staff in the public sector who left their posts in recent years when they were just too damned soft. Some were pushed, some jumped, and some did not have their terms renewed. Think Brodie Clark of the Border Agency, who fell foul of Teresa May or Cynthia Bower of the CQC.

Many of these appointments were made under New Labour who, in retrospect, do look very soft on regulation generally, and particularly so in relation to financial crime. George Osborne has repeatedly declared his intention to be far tougher on financial crime, but evidently that can go too far.

A tricky job for David Green, then, the current director of the SFO who took over from Alderman almost four years ago. He is thought to have done very well pulling the SFO back from the brink of self-immolation, as the number of dawn raids fell to zero, the conviction rate dropped, and companies were encouraged to investigate their own suspicious conduct (with the unsurprising result that many gave themselves a clean bill of health).

At a speech on Monday this week to the Cambridge Economic Symposium Green listed the achievements of the SFO, which has now ramped up the number of serious frauds it is investigating and has achieved some signal successes recently.

He also called for another very significant change in the law, adding his voice to the growing demand for companies to face a tougher criminal test “moving away from the identification principle of corporate criminal liability in English law and embracing something closer to vicarious liability, as in the USA”. Did he go too far for Osborne’s liking? Only time will tell.

 Let’s hope Green’s porridge is just right.

Important New Money Laundering Advice from CPS – Head for the Islands!

Following revelations in May from the US Department of Justice concerning the Cayman Islands link to the FIFA corruption scandal, questions have surrounded law enforcement on the islands.  I covered these in my blogs of 28th and 31st May 2015 and comments in the Financial Times and City AM

Last week saw the publication of a long awaited report by Claire Wetton of CPS on her review of criminal justice procedures in the Cayman Islands.   The Islands host the fifth largest banking sector in the world, so this is a matter of some consequence to the financial world.

Wetton’s report starts well  “The improvement in prosecutorial capacity generally but particularly that relating to serious financial crime, money laundering, asset recovery and drug trafficking is of benefit to the government of the CI and the UK.

Its readers may therefore have expected a recommendation for substantial new powers, perhaps a memorandum of understanding with the UK’s Serious Fraud Office, and additional financial support for the 300 strong Cayman Police Force.

But no.  The CPS recommendations consists of baby steps such as

  • Ensure the work of a police officer who leaves is handed over to someone else
  • Amend the traffic ticket process                     .  .   .  and best of all  .  .  .  .
  • Divert more offenders from the criminal justice system

So much for UK determination to eradicate financial crime from the international financial system,  proclaimed so often by George Osborne.

What can we conclude from this?  That this is the smack of firm government in the Cayman Islands, or is it maybe a bit of a joke?

The writing is on the wall for money launderers.  Head for the Cayman Islands!