Sinner or Saint

December 13, 2019 4 minute read

Ericsson receives FCPA fine, the Vatican investments are scrutinized, and the Deutsche Bank investigation comes to a close.

We share our financial regulatory highlights from the week of 9 December 2019.

FCPA Gives Its Largest Fine This Year

Ericsson has been hit with over $1 billion in fines for violating the Foreign Corrupt Practices Act (FCPA), the US Department of Justice announced last Friday, December 6. On the same day, Ericsson’s Egyptian subsidiary also pleaded guilty to one count of violating the FCPA.

The multinational telecommunications company confessed to conspiring to bribe officials, falsifying records to conceal those bribes, and failing to implement internal controls. The criminal misconduct spanned from 2000 to 2016 and affected operations in five countries. Ericsson’s Egyptian subsidiary has also pleaded guilty to one count of violating the FCPA.

The longest-running scheme took place in China, where Ericsson subsidiaries paid millions of dollars to third parties to secure contracts with state-owned companies. Some of those funds were used to finance a slush fund through which government officials were showered with gifts, travel and entertainment. Additional funds were funneled to providers through sham contracts and payments for services that were ultimately never performed. Similar schemes played out in Djibouti, Vietnam, Indonesia and Kuwait.

The settlement is the result of two separate investigations by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). Ericsson will pay a criminal penalty of $520 million to the DOJ in exchange for a three-year agreement whereby criminal charges have been deferred and will eventually be dismissed. Ericsson will also pay a fine of $540 million to the SEC for related charges.

While the total amount may not be the largest ever imposed by US authorities under the FCPA — that honor, to the tune of $1.78 billion, goes to Brazilian oil company Petrobras — it marks the largest so far in 2019. It just serves as further evidence of how US authorities have stepped up their enforcement actions this year.

Sinner or Saint

Vatican authorities are investigating a hedge fund with links to the Vatican’s Secretariat of State for possible money laundering ties.

The fund in question is Centurion Global Fund, which has raised around €70 million in capital — two-thirds of which has come from the Vatican, allegedly in part through worldwide Peter’s Pence collections. These donations, intended to support the Holy See and humanitarian initiatives, may have been invested in real estate ventures, eyewear and other lifestyle products, utilities, and films such as “Rocketman,” the Elton John biopic, and “Men in Black: International.”

Rather interesting investments aside, the fund’s relationship with a small Swiss bank also merits attention. Banca Zarattini, which holds all of Centurion Global’s investment funds, has been linked to a $1 billion money-laundering investigation connected to the Venezuelan president and state-owned oil company.

These revelations follow a recent inquiry into the Secretariat of State’s $200 million investment in property in London’s Chelsea neighborhood in October. While the investment was financed through a short-term loan — not Centurion Global or Peter’s Pence collection money — part of the funding reportedly came from BSI, a Swiss bank with lax financial crime and fraud safeguards. Due to its failure to address possible money laundering activities, Swiss financial authorities forced the bank to shutter its doors in 2017.

The investigations are ongoing, and the exact nature of the Vatican’s involvement, or knowledge, of these suspicious ties is unknown. It does, however, underscore the importance of understanding who you’re doing business with (and who they’re doing business with). Connections aren’t always straightforward, but failure to do proper due diligence can expose companies and organizations to reputational damage and other consequences.

Closing A Chapter

Frankfurt prosecutors hit Deutsche Bank with a €15 million fine this week for insufficient anti-money laundering controls.

The move concludes a probe into the bank’s alleged involvement in a German tax evasion scheme. Specifically, the probe examined how Deutsche Bank’s Virgin Islands subsidiary, Regula, may have helped German customers dodge tax bills through offshore accounts — an investigation that featured a raid involving 170 law enforcement personnel last November and subsequent raids in the early part of this year. 

While the overarching investigation has been far-reaching, that of Deutsche Bank’s involvement focused heavily on the actions of two employees in particular. The criminal investigation into these two employees has been dropped due to insufficient evidence, although the wider one into the bank’s customers that are suspected of tax evasion will continue.

The fine itself is relatively small, as no criminal wrongdoing has been found. It does, however, reflect the bank’s negligence, lack of oversight and failure to report suspicious transactions in a timely fashion. 

A light fine doesn’t mean the bank hasn’t suffered losses, though. News of the investigation has hit the bank hard financially, and it has spent much of this year battling the aftermath in the court of public and investor opinion. This just goes to show that a fine isn’t always the worst risk banks run when they have compliance gaps. While no criminal misconduct has been proven, Deutsche Bank will continue to face an uphill battle to repair its reputation and ensure it’s meeting its compliance obligations in the future.

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