Russian President Putin Dismisses Prosecutor General Yury Chaika, Obtains Parliamentary Approval of Successor

On January 20, the Russian news service Interfax reported that Russian President Vladimir Putin proposed that the Russian Federation Council —  the upper chamber of the Russian Parliament — dismiss Yuri Chaika as Prosecutor General of the Russian Federation, in connection with Chaika’s transfer to another unspecified post.  Interfax also stated that according to the Kremlin’s press service, President Putin proposed Igor Krasnov, Deputy Chairman of the Russian Federation’s Investigative Committee, to succeed Chaika, and submitted Krasnov’s name to the Federation Council.

Chaika, who served as Prosecutor for nearly 14 years, was considered “one of the most powerful law enforcement figures in the country.”  Among other cases that he supervised, Chaika oversaw the posthumous tax-evasion prosecution of Russian lawyer Sergei Magnitsky, which died in 2009 after 11 months in Russian custody after he reported fraud by Russian officials.

A prosecutor since 1997, Krasnov reportedly served from 2006 to 2007 as investigator in the Prosecutor General’s central office, then moved in 2007 to the Investigative Committee as a senior investigator for particularly important cases under the Chairman of the Investigative Committee.  He is credited with investigating a number of high-profile criminal cases, including the attempted assassination of Russian politician Anatoly Chubais and the assassination of Russian physicist and Putin opponent Boris Nemtsov.  In 2016, Krasnov became Deputy Chairman of the Investigative Committee, and in 2017 was given the rank of lieutenant general of justice.

According to Interfax, Vladimir Poletaev, First Deputy Head of the Federation Council Committee on Constitutional Legislation, predicted quick action by the Parliament on Krasnov’s nomination.  As predicted, the lower house approved Krasnov on January 21, and the upper house on January 22.

Note:  The firing marks the second time in recent days that the President of a major nation with widely reported corruption problems has taken action against senior prosecutors.  South Korean President Moon’s actions, however, are evidently directed at reining in the power of prosecutors and police to investigate corruption effectively.  President Putin’s actions, by contrast, appear to be part of a series of political moves – including his submission of a package of constitutional amendments to the Parliament – that are calculated to enable him to retain power even after his fourth term as president ends in 2024.

These latest moves do not necessarily signal a trend toward greater high-level corruption in the Russian government.  Even so, risk and compliance teams for entities doing business in Russia should closely follow the progress of Putin’s constitutional amendments, and watch for future actions by Krasnov that could assist Putin in his quest for future power or in quelling further internal opposition to that quest.

South Korean President, Justice Minister Seek to Punish Prosecutors for Corruption Investigations

Within the last two weeks, a series of high-level developments in South Korea have provided disquieting indications that the administration of South Korean President Moon Jae-in is intent on punishing Prosecutor General Yoon Seok-youl and other prosecutors who have taken on corruption investigations of South Korean officials, and on carrying out a program of reducing the powers of police and prosecutors to investigate corruption:

  • January 1:
    • In a New Year’s message, President Moon declared that “no institutional authority exists above the people,” stating that he would “not stop pursuing legal and institutional reforms until institutions of authority are trusted by the people.” He also stated that he “hope[s] that institutions of authority will lead the way in reforming themselves,” and that he “will also do everything in [his] power according to the Constitution as a President elected by the people.”
    • Subsequently, an unnamed senior official in the “Blue House” (the executive office of the President) explained that President Moon is “saying that he will be exercising presidential authority, including appointment powers, in the event that prosecutors fail to reform themselves and obstruct the senior official investigation agency [that the South Korean National Assembly recently approved] or the changes to the prosecutors’ and police’s investigation powers.” Another official, when asked whether President Moon’s statement about “doing everything in his power according to the Constitution” meant that the President would be exercising appointment authority, replied, “He’s not limiting it [to that].”
    • President Moon also approved the appointment of Choo Mi-ae as Minister of Justice. In a subsequent conversation, President Moon reportedly told Minister Choo, “With the legal regulations stipulating that the Minister of Justice is the final oversight authority for prosecutorial duties, I hope that you will be appropriately directing prosecutorial reform efforts in the spirit of those regulations.”  Minister Choo herself stated that “[p]rosecutors hold authority for investigations and indictments, and they do not win trust when they just poke away to get the result they want while ignoring human rights. The role of the prosecutors’ is to accurately assess the crime and punish it duly while respecting human rights.”  Her remarks reportedly referred to alleged “dirt-digging” tactics that the Seoul Central District Prosecutors’ Office in its investigation of former Minister of Justice Cho Kuk, formerly a close aide to President Moon, and his family and acquaintances in 2019.
  • January 8:
    • The South Korean Ministry of Justice announced the appointments of 32 officials, including the reassignment of three prosecutors who had been investigating scandals involving President Moon’s aides. Two of those aides, according to The Economist, were assigned to locations that are “traditional place[s] of banishment.”
  • January 9:
    • The office of South Korean Prime Minister Lee Nak-yon issued a statement indicating that it had told Minister Choo “that it was ‘regrettable Yoon declined the justice minister’s request to propose opinions’ for the appointments,” and that Minister Choo should “make a right judgment call and come up with a needed step.”
    • At a parliamentary session, Minister Choo reportedly blamed Prosecutor General Yoon “for forcing her hand by not submitting a reorganization plan for his department that she said she requested,” adding that he “disobeyed my order to make reassignment proposals.”
    • Bloomberg also reported that a press camera captured an image of Minister Choo’s text messages, showing “that she was asking her ministry to look up punishment law clauses because she wants to exercise her authority as the supervisor. She didn’t identify who she wants to punish.”
    • The Prosecutor General’s office reportedly “sent prosecutors to a presidential committee overseeing national development . . . to search for evidence relating to alleged election interference.”
  • January 10:
    • A Presidential spokeswoman said that Prosecutor General Yoon had sent investigators to the President’s office to request “crime-relevant materials,” but that the Blue House “rejected the request.”
  • January 12:
    • South Korean television channel Channel A reported that an unidentified government official stated that President Moon “wants to punish” the Prosecutor General “for disobedience.” The official also said that Prosecutor General Yoon “should be held ‘accountable for his wrongdoing’,” and that “We’re currently reviewing which law clauses can be applied to his case.”
  • January 14:
    • At his New Year’s press conference, according to Bloomberg, President Moon “faced a barrage of questions about purges of prosecutors.” He defended the decision to reassign the three prosecutors, and “deflected questions” about whether Prosecutor General Yoon still had his confidence.  He also asserted that “[t]he people are demanding reform in the prosecution because they feel it is acting on authority that exceeds the law . . . . The people applaud the prosecutors’ investigation, but in the process they see cases of uncontrolled investigative rights or publicizing the facts of suspected crimes that lead to media manipulation.”  According to the Yonhap News Agency, President Moon also “stressed that his administration’s prosecution reform drive is not related to ongoing investigations into high-profile scandals” involving current and former officials in his administration,  or to the reassignment of the prosecutors.

Note: While President Moon has characterized his administration’s recent actions as part of his “legal and institutional reforms,” they can also be viewed as a systematic effort to weaken the independence and authority of prosecutors whose corruption prosecutions have embarrassed the South Korean government.  These developments also come at a critical time for President Moon’s ruling party, the Democratic Party, which will be facing parliamentary elections in April 2020.  Any electoral setback, as Bloomberg reported, would weaken President Moon’s hand.

For these reasons, risk and compliance teams in companies doing business in South Korea should closely monitor developments with the Prosecutor General and the “reform” legislation for which President Moon has been pressing.

Patient’s Post-Surgery Death Leads to Controversy Over Alleged “Witch-hunt” for Whistleblower

On January 17, The Times reported that substantial controversy has arisen relating to the death of a woman who had undergone surgery at the West Suffolk Hospital in Bury St. Edmunds, England.  After an anonymous letter to the woman’s husband alleged errors in the woman’s surgery, the hospital reportedly asked its staff “to provide fingerprints and examples of their handwriting to try to establish whether they had written [the] anonymous letter.”

In 2018, the woman, Sue Warby, died five weeks after bowel surgery at the West Suffolk Hospital.  In October 2018, after the anonymous letter was sent to Mrs. Warby’s husband, Jon Warby,

Suffolk police and the hospital started investigations into the source of the letter at the request of the coroner.

The hospital, which insists that an investigation into Mrs Warby’s care was already under way, asked staff to provide fingerprints and handwriting samples. It is said to have spent £968 on a handwriting expert and £1,512 on a fingerprint expert.

The hospital stated that it had already begun an investigation into Mrs. Warby’s case at the time that Suffolk Police began their investigation.  According to The Times, however, “[i]n a staff meeting the hospital warned that ‘any refusal to provide consent . . . would be considered evidence which implicates you as being involved in the writing of the letter’.”  A union spokesperson described the hospital’s actions in the circumstances as a “witch-hunt.”

Although the hospital “denied that staff were threatened with disciplinary action if they did not offer fingerprints,” it reportedly apologized to them.  In addition, the West Suffolk NHS Foundation Trust stated that it has no intention of pursuing fingerprint requests further.

Nigel Parsley, the senior coroner for Suffolk, indicated that based on investigations into the anonymous letter’s claims “there had been problems involving an arterial line fitted to Mrs Warby in surgery.”  Mr. Warby himself said that that he was told during his wife’s operation that

an arterial line was fitted with an intravenous infusion to keep it clear but that she was incorrectly given glucose instead of saline. “I asked what the effect of this could be and the consultant told me brain damage or death,” he said.

When a spokesman for Downing Street was asked whether the measures that the West Suffolk Hospital had taken were appropriate, he replied, “Public safety is our priority. Mistakes should be used to learn from and improve. No one should be prevented from speaking up. Whistleblowers perform a vital service for the NHS. They must have a safe and open culture to do so.”

The Care Quality Commission, an executive public body of the United Kingdom Department of Health and Social Care, is preparing an inspection report that will include findings on the Warby matter.  That report is expected to be published before mid-February 2020.

Note:  Compliance officers at hospitals and other medical facilities should use this controversy as an opportunity to train their institutions’ management and staffs in how to handle whistleblower allegations with care.  Even if the Suffolk Police itself had an interest in identifying the author of the letter to facilitate its investigation, the hospital’s reported actions – particularly the threat of inferring culpability from a staff member’s refusal to consent – strongly suggests an internal culture antipathetic to whistleblowers.

For their part, the hospital and its trust should take the Downing Street statement as a strong indication that they need to review and revise their procedures for handling whistleblower complaints.  No hospital should ever create an impression within its staff that reporting of a problem with patient care should be met with bullying, intimidation, or efforts to expose the whistleblower, rather than prompt and evenhanded inquiry into the report.

Angolan Justice Minister Announces Recovery of More Than $5 Billion Stolen from Angolan Government

On December 17, Reuters reported that Angolan Minister of Justice Francisco Queiroz announced that in 2019 Angola had recovered more than $5 billion that had been stolen from state funds, both in Angola and elsewhere.  Speaking at the Conference of States Parties to the United Nations Convention against Corruption in Abu Dhabi, Queiroz reportedly stated that the money, which included $3 billion stolen from Angola’s sovereign wealth fund, “had been siphoned off by corruption and money-laundering.”

While Queiroz did not specify how the money was stolen, he declared that “[w]e have argued insistently that these important resources should be returned unconditionally to the countries from which they were illegally withdrawn in order to be used to improve the quality of life of our populations.”  In a separate statement, the Angolan Government disclosed that “a business partner” had returned more than $3 billion allegedly stolen from the sovereign wealth fund.

Queiroz also stated, according to the Angolan Government’s website, that the Government, led by President João Lourenço, “has chosen the fight against corruption and impunity as the main axes of the political agenda. As a result, he said, a genuine crusade against corruption and related phenomena is under way, with a greater focus on crimes involving managers and public officials.”  He added “that as a result of prevention, through campaigns of moralization, awareness and education, programs in the media, there is an awareness of the evil that represents corruption in the country.”

N.B.:  Queiroz’s announcement provides a notable benchmark for the Angolan government’s efforts against deeply entrenched corruption since 2017, when Lourenço succeeded José Eduardo dos Santos as Angola’s President after nearly four decades of dos Santos’s autocratic rule.  Thus far, Lourenço’s campaign has included the ouster of dos Santos’s son José Filomeno dos Santos as head of the sovereign wealth fund and dos Santos’s daughter Isabel dos Santos as head of the state-owned oil company Sonangol, as well as the head of the Angolan army and the head of Angola’s foreign intelligence agency.  More recently, on December 9 José dos Santos appeared before the Angolan Supreme Court, together with three co-defendants, on charges of money laundering and embezzlement.

Lourenço’s early anti-corruption actions may have left some observers skeptical that his campaign was more of a vendetta against the dos Santos regime and less of a genuine systematic anti-corruption campaign.  With these latest developments, however, there is reason to hope that that campaign is sincerely intended and sustainable.

FINMA Issues New Risk Monitor Identifying Key Risks for Financial Institutions

On December 10, the Swiss Financial Market Supervisory Authority (FINMA) announced that it is publishing a Risk Monitor report for the first time.  FINMA stated that previously the Risk Monitor has been solely an internal instrument that it used as part of a risk-assessment tool, but that it would issue the Risk Monitor annually in the future.

This Risk Monitor, in FINMA’s words, “provides an overview of what FINMA believes are the most important risks currently facing supervised institutions and describes the resulting focus of its supervisory activity.”  The new Risk Monitor identifies six principal risks for its supervised institutions and the Swiss financial center:

  1. The persistent low interest-rate environment.  The Risk Monitor stated that

[p]ersistently low interest rates in both Switzerland and the European Union (EU) over both short-term and long-term horizons are having a detrimental impact on the profitability of supervised institutions. This situation increases the risk of asset price bubbles and sudden reversals and may potentially undermine the viability of certain business models.”

The Risk Monitor also commented that “if interest rates were to stagnate at their current low levels for a very long time, this would pose a risk to certain business models. This is particularly true of banks focused on the interest margin business and life insurers.”

2. “[A] possible correction on the real estate and mortgage market, especially in the investment property segment.” The Risk Monitor observed that “[t]he sharp rise in vacancy rates for investment properties, combined with the ongoing boom in construction activity, is exacerbating the risks in the Swiss real estate and mortgage market.”  It added that “[p]revious crises have shown that financial institutions which expand their activity in the late phase of an economic cycle are particularly exposed to the risks of an ensuing economic downturn.”

3. Cyberattacks. The Risk Monitor highlighted the fact that “[t]he high and ever-growing dependency on and interconnectivity of information and communication technologies give rise to pronounced vulnerabilities among Swiss financial institutions.” It cited, as one example, that

outages of and disruptions to IT systems, particularly those resulting from cyberattacks, can jeopardise the availability of critical services and functions.  Depending on the nature of the cyberattack in question, this can have repercussions for individual financial institutions and threaten the functioning of the Swiss financial centre as a whole.

Recognizing that “[t][he number and intensity of cyberattacks are growing strongly,” the Risk Monitor also stated that “[a] successful cyberattack can have serious consequences for the functioning of the Swiss financial centre,” particularly if an institution that provides integrated or interlinked services (e.g., a systemically important financial institution) were successfully attacked.  Such an attack, the Risk Monitor warned, “could prove damaging both to other financial institutions and the Swiss economy as a whole. The reputational damage would be significant, and confidence in the Swiss financial centre would be affected.”

4. What FINMA termed “a disorderly abolition of LIBOR benchmark interest rates.” Because LIBOR benchmark interest rates continue to be widely used in financial instruments,” the Risk Monitor identified “[i]nadequate preparation for the replacement of LIBOR interest rates (envisaged by the end of 2021), including Swiss franc LIBOR,” as a key risk.

5. Money laundering. The report commented that the fact that the Swiss financial center “is a leading global crossborder wealth management hub for private clients   . . . makes it particularly exposed to money-laundering risks.”  It  took note of two specific concerns.  First, in light of the spate of recent corruption scandals involving entities such as 1 MDB and Petrobras, it stated that “the risks for financial institutions involved in the cross-border wealth management business remain high.” It also warned that the complexity of the structures involved in bribery and corruption, “particularly when domiciliary companies are used, can increase the risk of money laundering.”  Second, it specifically stated that

the financial industry also faces new risks in the area of blockchain technology and the cryptoassets that are attracting growing interest from clients. Although these new technologies promise efficiency improvements in the financial industry, they also accentuate the threats posed by money laundering and the financing of terrorism due to the greater potential anonymity they involve, as well as the speed and cross-border nature of the transactions. Malpractice by the financial institutions active in FinTech could significantly damage the reputation of the Swiss financial centre and slow down the development of digitalisation.

6,  Increased impediments to cross-border market access, particularly in the EU. Given the “trend towards tougher market access rules for foreign providers in a number of jurisdictions,” which “is occurring against a backdrop of increasing friction in international trade and uncertainties relating to Brexit,” the report stated that “[f]or Swiss financial institutions, this gives rise to legal uncertainties and risks, as well as the possibility of additional costs.”

In addition to these six principal risks, the Risk Monitor report identified other long-term risks.  It described “the financial risks arising from climate change as one of the most important long-term risks,”  but included comments about other long-term risks such as “an ageing society, the increasing individualisation of insurance based on big data, and risks for wealth management in a market with falling values of financial instruments.”

N.B.:  Risk and compliance teams at financial institutions with international operations should value the public issuance of the Risk Monitor for three reasons.  First, it provides them with an unprecedented level of insight into the thinking of FINMA about key risks in the financial sector, even if the report understandably focuses on risks affecting Swiss institutions and the Swiss financial  center.  Second, it also gives them a new source of analysis and perspectives that should be incorporated into their risk assessment processes.  Third, they should welcome FINMA’s willingness to make its own risk-assessment process more transparent and to commit to doing so in future versions of the Risk Monitor.

Some in the fintech sector may be surprised by the Risk Monitor’s admonitions concerning blockchain technology.  In separate remarks on December 10, however, FINMA Chief Executive Officer Mark Branson took pains to explain to reporters that FINMA wants to give blockchain developers “a chance and we have done a lot to remove unnecessary barriers to enable projects based on digital currencies.”  At the same time, Branson said, “we are also not starry-eyed as these new business models come with new risks, or old risks in new shapes.”

Institutions under FINMA’s authority should therefore be prepared, if they intend to push for greater adoption of blockchain technology, to present specific factual information and analysis to FINMA demonstrating how those institutions intend to modify their risk assessments and compliance programs to mitigate those “new risks” or “old risks in new shapes.”