GRECO Report Finds “Very Low Level of Compliance” by Germany on Corruption Prevention for Certain Officials

On August 12, the Council of Europe announced that the Council’s Group of States Against Corruption (GRECO) issued a report with regard to corruption prevention pertaining to members of parliament, judges and prosecutors in Germany.  The report found that Germany had an “overall very low level of compliance” with recommendations that GRECO had made in 2015.

In its 2015 Fourth Round Evaluation Report on Germany, GRECO made eight recommendations concerning corruption prevention pertaining to German members of parliament, judge, and prosecutors.  These recommendations addressed a range of issue including ethical principles and rules of conduct; prohibition or restriction of certain activities; supervision and enforcement; and advice, training, and awareness.  The 2019 report addressed five of those recommendations that were still pending:

  1. Improving Transparency of the Parliamentary Process: GRECO had recommended “that the transparency of the parliamentary process be further improved, e.g. by introducing rules for members of parliament on how to interact with lobbyists and other third parties seeking to influence the parliamentary process.”  GRECO credited Germany with publishing, on the website of ministries, comments received by stakeholders from the private sector and civil society on draft legislation.” It deemed that action “a significant step in improving transparency of the legislative process on side of the Federal Government.”  At the same time, GRECO pointed out “that the recommendation specifically calls for the transparency of the parliamentary process to be improved,” and that a number of the concerns GRECO has outlined in the 2015 Report “remain unaddressed.”  It found that this recommendation “remains partly implemented.”
  2. Conflict of Interest: GRECO had recommended “that a requirement of ad hoc disclosure be introduced when a conflict between specific private interests of individual members of parliament may emerge in relation to a matter under consideration in parliamentary proceedings,” and that that members of parliament “be provided written guidance on this requirement – including definitions and/or types of conflicts of interest – as well as advice on possible conflicts of interests and related ethical questions by a dedicated source of confidential counselling.” It stated that this recommendation has not been implemented since the original recommendation.
  3. Declarations of Interest: GRECO had recommended that “the existing regime of declarations of interests be reviewed in order to extend the categories of information to be disclosed,” and that “that consideration be given to widening the scope of the declarations to also include information on spouses and dependent family members.” It recognized, in a more extensive analysis, that several parts of the recommendation had been implemented, but that overall the recommendation remains partly implemented.
  4. Supervision and Enforcement: GRECO had recommended that “appropriate measures be taken to ensure effective supervision and enforcement of the current and future declaration requirements, rules on conflicts of interest and other rules of conduct for members of parliament . . . .”
  5. Transparency in Judges’ Secondary Activities: GRECO had recommended that “appropriate measures be taken with a view to enhancing the transparency and monitoring of secondary activities of judges.” It noted that the German Court of Audit had reviewed secondary activities at one high-level federal court, and that that court “improved its monitoring of secondary activities where necessary.”  It also approved of the adoption of a new code of conduct for justices of the Federal Constitutional Court, and the publication of  a new code of conduct has been adopted and that information on income received as a result of attending events or contributing to publications by justices of the Federal Constitutional Court.  As those improvements were restricted to two federal courts, GRECO concluded that the recommendation remains partly implemented.

GRECO concluded that, notwithstanding positive steps that Germany had taken with regard to some of the recommendations, “the overall very low level of compliance with the recommendations is ‘globally unsatisfactory’” within the meaning of Rule 31 of GRECO’s Rules of Procedure.  Accordingly, it asked the Head of the German delegation to GRECO to provide a report on the progress in implementing the pending recommendations no later than June 30, 2020.

Note: Germany is far from the only GRECO Member State that has been slow to implement GRECO’s recommendations.  In its most recent Annual Report, GRECO reportedly “identified a number of gaps in several countries,” including “the need for codes of conduct for ministers and other top executive functions, lobbying, managing of conflicts of interest, asset declarations, immunities and ‘revolving doors’.”  It also expressed its regret that 14 Member States, including Germany, had not yet ratified the Council of Europe’s Civil Law Convention on Corruption “despite its importance for the public, private and not-for-profit sectors in ensuring effective remedies in domestic law for people who have suffered damage as a result of acts of corruption.”

UK National Crime Agency Obtains Eight Freezing Orders on Accounts Totaling £100 Million

On August 14, the United Kingdom National Crime Agency (NCA) announced that it had obtained Account Freezing Orders (AFOs) on eight bank accounts containing a total of more than £100 million, which the NCA said “is suspected to have derived from bribery and corruption in an overseas nation.”

The NCA stated that the AFOs, which it obtained on August 12, “represent the largest amount of money frozen using AFOs since they were introduced under the Criminal Finances Act 2017.”   It also noted, without further explanation, that “[a]pproximately £20m held by a linked individual was frozen following a hearing in December 2018.”

Note: Under section 362J of the Proceeds of Crime Act 2002 (as amended by the Criminal Finances Act 2017), when the High Court makes an unexplained wealth order (UWO) with respect to any property, on application of the enforcement authority that applied for the UWO, the court may make an interim freezing order.  That order “prohibits the respondent to the unexplained wealth order, and any other person with an interest in the property, from in any way dealing with the property.”  The court may issue the order “if the court considers it necessary to do so for the purposes of avoiding the risk of any recovery order that might subsequently be obtained being frustrated.”

While the NCA release indicates that these AFOs represent the largest amount of money frozen via the AFO process, they are evidently not the first AFOs that the NCA has obtained.  The NCA briefly mentioned that previously in 2019,

in unrelated cases, the NCA secured an account forfeiture order against more than £400,000 held in frozen bank accounts belonging to a Moldovan national. Another forfeiture order was granted on money held in an account belonging to the niece of Syrian ruler, Bashar al-Assad.

The latter reference is to a forfeiture order that the NCA announced in May 2019, pertaining to 22-year-old Aniseh Chawkat.  During 2017 and 2018, while Chawkat was studying in London, the NCA stated that 56 six cash deposits totaling more than £150,000 were paid into Chawkat’s account at Barclays branches across England, even though Chawkat reportedly had no identifiable source of income.  In addition, the NCA found that Chawkat had rented a London flat for more than £60,000 per year.

As her uncle and both of her parents were subjects of international sanctions, the NCA obtained an AFO on her account in November 2018, and the forfeiture order in May 2019.  With regard to the forfeiture order, the NCA asserted that the financial activity connected to Chawkat “is consistent with the use of an informal value transfer system which may result in the laundering of criminal cash and, in this particular case, had the effect of circumventing EU financial sanctions designed to restrict the use and availability of Syrian regime funds.”

Australian High Court Rejects Glencore Suit to Bar Australian Tax Office from Using Paradise Papers Documents

On August 14, in Glencore International AG v. Commissioner of Taxation, the Australian High Court unanimously dismissed a civil action by companies within the multinational commodities trading and mining firm Glencore, which had sought to enjoin the Australian Tax Office (ATO) from making any use of certain Glencore-related documents that were among the so-called “Paradise Papers” (“Glencore documents”) and to compel the ATO to deliver up the Glencore documents.

Glencore had alleged that the Glencore documents were documents stolen from the Bermuda law firm Appleby, which Appleby had created for the purpose of providing Glencore with legal advice.  Accordingly, Glencore “asserted that the Glencore documents are subject to legal professional privilege and have asked the defendants to return them and to provide an undertaking that they will not be referred to or relied upon.”

The High Court first declared that “[t]here is no issue about the Glencore documents being the subject of legal professional privilege.”  Since the ATO obtained the Glencore documents as a result of the Paradise Papers’ public disclosure, the Court stated that those documents “are in the possession of the defendants and may be used in connection with the exercise of their statutory powers unless the plaintiffs are able to identify a juridical basis on which the Court can restrain that use.”

The High Court, however, made clear that under Australian law, documents which are subject to legal professional privilege are exempt from production only if they are sought “by court process or statutory compulsion.”  Although Glencore argued that the legal professional privilege was “a fundamental common law right” for which it could sue the ATO, the Court held that it was not a legal right which is capable of being enforced, but “only an immunity from the exercise of powers which would otherwise compel the disclosure of privileged communications.”  In its view, Glencore’s argument “seeks to transform the nature of the privilege from an immunity into an ill-defined cause of action which may be brought against anyone with respect to documents which may be in the public domain.”

The High Court further stated that actions for the recovery of privileged material were confined to situations where there may be a breach of confidence, and “the basis for an injunction is the need to protect the confidentiality of the privileged document.”  As the ATO had not sought to breach attorney-client confidentiality, the court dismissed Glencore’s argument for further expanding the scope of the privilege, holding that “[p]olicy considerations cannot justify an abrupt change which abrogates principle in favour of a result seen to be desirable in a particular case.”

Note:  This decision establishes an important precedent in Australian law.  It also could prove to be influential with courts in other common-law countries, as they address whether law enforcement agencies in those countries may use “Panama Papers” or “Paradise Papers”-type leaked documents to prosecute cases against individuals or companies.  But because the details of attorney-client privilege law can vary substantially from country to country, it is far from certain that Glencore will be the final word on the subject.

Monetary Authority of Singapore Increases Anti-Money Laundering Scrutiny

On August 13, Reuters reported that a senior official of the Monetary Authority of Singapore (MAS) stated that the MAS “is raising its guard against money launderers increasingly using onshore shell companies to mask their transactions.”

In an interview with Reuters, Valerie Tay, head of the MAS’s anti-money laundering (AML) unit, said that over the past year, banks in Singapore had closed accounts of several onshore shell companies they detected unlawful transactions.  However, when the MAS looked more deeply into the risks, Tay noted,

we realised that while criminals may still be using offshore companies, actually they have shifted to using onshore companies to evade detection. . . . And that’s when we started to be concerned. Because when the modus operandi of criminals shifts to evade detection and the industry isn’t vigilant enough, the criminals can get their way.

Tay also reportedly said that “red flags at shell companies included disproportionately large or high-velocity transactions and unusual patterns in dealings.”  Accordingly, she stated, the MAS has told banks to “actively look for shell companies that can be abused for illicit financing.  So there’s a supervisory expectation for pro-active detection and disruption of illicit finance.”

The origins of the MAS’s heightened attention to money laundering can be traced to 2015, when Singaporean authorities found that certain funds associated with 1MDB had been laundered through Singapore’s banking system.  That, in Tay’s words, “was a wake-up call for everyone,” which led to a spate of MAS enforcement actions.

Note: Until fairly recently, Singapore had been viewed by some as “an increasingly popular haven for money laundering and tax evasion.”  But several developments since 2013 — including a substantial increase in the number of Suspicious Transaction Reports filed and the 1MDB scandal – led to more vigorous governmental responses, such as the MAS’s shuttering and fining of various banks and the enactment of increased criminal penalties for money laundering and terrorist financing.  In addition, since the release of the Panama Papers in 2016, the MAS has taken note of the fact that, as Tay put it, “foreign criminals have turned their attention to using Singapore shell companies for nefarious activities.”  The MAS will need to use all of the tools at its disposal, such as the public-private AML/CFT Industry Partnership and its oversight and enforcement authority, on a sustained basis if it is to have a substantial effect on that problem.

UAE Court Sentences Abraaj Group Chief Executive Naqvi in Absentia to Three Years’ Imprisonment

In the latest chapter in the lengthening saga of the collapsed private equity firm Abraaj Group, on August 12 Bloomberg reported that a court in Sharjah, United Arab Emirates (UAE) sentenced Arif Naqvi, Abraaj’s Chief Executive and founder, in absentia to three years’ imprisonment.  The sentencing occurred in a case relating to low-cost air carrier Air Arabia.

In June 2018, after Abraaj had filed for provisional liquidation in the Cayman Islands, Air Arabia disclosed that “it had an exposure of $336 million to Abraaj through funds and short-term loans.”  That exposure – the largest of any publicly-listed UAE companies — reportedly stemmed from Abraaj’s borrowing money from Air Arabia, on whose board Naqvi had sat at the time.  Abraaj, however, then used the funds to cover shortfalls in one of the Abraaj funds and mislead investors, according to federal prosecutors in the United States.  In July 2018, arbitration proceedings concerning Abraaj and Air Arabia took place.

In January 2019, Air Arabia, which had already filed claims in the Abraaj liquidations, filed a misdemeanor case against Naqvi in a Sharjah court, reportedly making Air Arabia the first publicly-traded firm to initiate legal proceedings against Abraaj.  Subsequently, Air Arabia reported a full-year loss of $166 million “after booking impairments to cover its $336 million exposure to Abraaj.”

Note:  UAE authorities are unlikely to obtain custody of Naqvi for the foreseeable future.  Naqvi is currently in the United Kingdom, challenging his extradition to the United States.  If extradited and convicted in the United States, Naqvi could face a sentence of decades of imprisonment, given the massive amount of the alleged fraud, as well as substantial civil penalties and disgorgement of ill-gotten gains in civil litigation that the Securities and Exchange Commission has filed.