Financial Crime Time ' Your Update From RPC: 2021 Q2

Published date08 July 2021
Subject MatterCorporate/Commercial Law, Government, Public Sector, Criminal Law, Technology, Corporate and Company Law, Money Laundering, White Collar Crime, Anti-Corruption & Fraud, Fin Tech
Law FirmReynolds Porter Chamberlain
AuthorMr Adam Craggs, Michelle Sloane and Alice Kemp

Welcome to the latest edition of our round-up of news making the headlines in the world of financial crime and compliance. Our aim is to give you an easily digestible, bite-sized overview of issues that may affect your business.

1. Cum-Ex update

Recent legal developments have brought the CumEx trading scandal into sharp focus in the UK.

In Financial Crime Time Q.1 2021, we reported on the Danish State's progress in charging those they allege to have been involved in causing a '1.5 billion loss to SKAT, the Danish tax authority, by exploiting certain 'loopholes' in the Danish withholding tax system. Under Danish law, a company that declares dividends is required to withhold a 27% dividend tax that it must then pay to SKAT. Non-Danish shareholders are exempt from this rule to avoid double taxation. Exempt shareholders must apply for repayment of tax already paid. SKAT allege that complex circular share trading schemes were entered into in order to conceal the true owner of the shares and enable multiple parties to claim withholding tax refund for a single deduction of withholding tax on the issue of dividends.

SKAT allege that Mr Sanjay Shah, and his company Solo Capital Partners, masterminded this "fraudulent" scheme, while Mr Shah and his companies say that they simply exploited a legal loophole in the system. Mr Shah has been charged in Germany with 55 counts of money-laundering of profits from alleged tax fraud in Denmark.

In what is considered a novel approach by some, SKAT brought a civil claim in the English High Court for '1.5 billion which it alleged derived from Cum-Ex trading between August 2012 and July 2015, in particular by companies related to Mr Shah.

In dismissing SKAT's claim, the High Court said that the claim was not for a civil debt owed by the various defendant companies, but an attempt to enforce the tax law of a foreign state and was therefore prevented by the principles of the rule of law set out in Dicey Rule 3.

SKAT has been given permission to appeal to the Court of Appeal.

On 1 June 2021, a former executive at MM Warburg was sentenced by the Cologne regional courts to five and half years in prison on five counts of tax evasion and ordered to repay '100,000 of the proceeds of crime related to his involvement Cum-Ex trading, becoming the first individual to be jailed in relation to the Cum-ex scandal. Several other German banks linked to Cum-Ex trading have been raided in recent months by the German authorities.

2. UK's new anti-corruption sanctions regime

As part of its post-Brexit sanctions policy, the UK has implemented a new Global Anti-Corruption Sanctions Regime. Aimed at enhancing the powers of the UK to address individuals and companies alleged to be involved in corruption, the regime came into force on 26 April 2021, and expands on the Human Rights Sanctions Regime introduced in July 2020.

These sanctions have the usual suite of powers, including travel bans and asset freezes. They target individuals suspected of being linked to serious corruption, including bribery or misappropriation of property by public officials, enabling national security threats or terrorism, and corruption that deprives citizens of "vital public resources", amongst other things. Whether corruption is 'serious' is determined by matters such as the value of bribes or assets involved, whether the corrupt conduct is systematic, and the duration of the activity.

Twenty-two individuals have so far been designated, including 14 Russian nationals, accused of misappropriating $230 million of Russian state assets via a fraudulent tax scheme, three members of a South African family and an associate, a Sudanese business person and three South American public officials.

This regime, as with other sanctions imposed by the UK under the Sanctions and Anti-Money Laundering Act 2018, contains powers under which designated persons may challenge the sanctions imposed and they may be varied or revoked, if...

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