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Swen Scholtyssek / »The increasing importance of compliance« / HANSA-Forum 2018

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Managing risks –

The increasing

importance

of compliance

22nd Hansa-Forum, Nov. 22, 2018


Swen Scholtyssek

Partner, KPMG Law


Managing risks – the increasing importance of compliance

Besides trade barriers, the consequences to the worldwide trade volume and increasing

environment protection standards, there are some some compliance-related trends which

require attention and should remain in scope for the maritime and maritime related business

There are three main topics where we see threats

for the business:

1. New European AML regulation

2. Increased Anti-Corruption enforcement

3. Sanctions and the risks when complying with them

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

2


New European

AML Regulation


Anti-Money-Laundering

Why is it important?

— AML/CTF Anti-Money Laundering / Counter Terrorism Financing

— New regulation: 6th Anti Money Laundering Directive

— Customer screening required on payments from 10.000 €

— It is not sufficient to depend on bank-side screenings

— Applicable to companies trading in goods

— Severe penalties and fines

— Reputational damage

— management board is also liable

How can it be ensured?

— Know your customer : Screening necessary

— You must have a Compliance Management System

— Do not underestimate reputation risk

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

4


Increased

Anti-corruption

enforcement


Corruption perception Index 2017

Source:

Transparency International: https://www.transparency.org/news/feature/corruption_perceptions_index_2017.

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

6


Anti-corruption

— Corruption is a worldwide problem

— Even strong economies are affected

— Powerful enforcements are in effect

— FCPA - Foreign Corrupt Practices Act (since 1977)

— UK Bribery Act (since 2010)

— French Sapin II (since June 2017)

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

7


FCPA

Enforcement:

— US Department of Justice (DOJ)

— US Securities and Exchange Commission (SEC)

Applies to:

— Primary: to US SEC-listed companies

— Any other company in the world which allows any

“actions to promote corruption in the territory of the

United States”,

— Therefore very low level necessary:

— Transactions through US bank accounts /CHIPS

(Clearing House Interpayment System)

— Related phone calls on or e-mails sent from, to or

trough US-territory

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

8


FCPA

Requirements:

— Foreign officials (every natural and legal person)

outside the US

— No matter what level

— Intention of bribery

— Financial or other advantage to the foreign official

Charges:

— Any individual involved may face a prison sentence

— Million dollar fines for companies

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

9


FCPA

In 2017, nearly 2.5 billion USD were paid in fines:

— Telia Company (Uzbeskistan) –

paid 935 million USD

— Keppel Offshore & Marine (Brazil, Singapore)

paid 422 million USD

— SBM offshore (Brazil, Iraq and other countries)

paid 238 million USD

— United Technologies Corporation (Azerbaijan, 2018)

paid 13.9 million Euro

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

10


UK Bribery Act

“The toughest anti-bribery legislation in the world”

— Comparable regulation to the FCPA, but much tougher

— Requires a “close connection” to the United Kingdom, e.g. UK citizenship, habitual residence,

a legal entity was founded under UK laws, any subsidiary of a UK company, trading goods

from or to the UK

— Contains “facilitation payments”

Liability of the management and company

— Personal liablity of the management:

Even if the management did not bribe themselves, it can be held responisble,

if they agreed to or tolerated the bribe (“senior officer”)

— Liability of the company:

Responsibility for the actions of “associated persons” (employees or even third parties).

Liabilty for bribery or attempted bribery can occur anywhere in the world if there

is a “close connection” to the UK.

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

11


Sanctions


The most important sanctioned countries 2018

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

13


Sanctions – different types

Country

related sanctions

— Targeting to weaken

the economy of a

country

— To affect the whole

country

— Export/import and

trade prohibited

— No financial

transactions allowed

— Freezing of foreign

assets

Person

related sanctions

— Targeting individual

legal and natural

entities

— So-called Specially

Designated Nationals

— Are on sanction lists

(“SDN-list”)

— Prohibition of any

services or the

arrangement of

services with these

entities

— No payments to or

from these entities

— No maintenance of

the client-relationship

Goods

related sanctions

— Sanctions related to

special goods

— Might involve

weapons, military and

nuclear goods

— Dual-use goods,

goods that can be

used for civil or

military purposes

— Regulated by several

international or

national treaties or

laws

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

14


Sanctions

— Significant increase of financial sanctions and trade embargoes over the last few years

— The most important sanctions are imposed by the United Nations, the USA and the

European Union

— Other countries (e.g. Russia) impose sanctions, but they are not covered here

— Reasons for sanctions are political and economical

What can happen if you comply with or neglect US sanctions?

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

15


US Sanctions against Iran

History of Iran sanctions

— Iran was sanctioned for several years due to terrorism and its nuclear program

— JCPOA (2015) - lifted many, but not all sanctions

— New US Government

— One-sided-cancellation of the JCPOA in May 2018 by the US

— EU keeps nuclear deal in effect, issues EU-blocking order

— End of the wind-down-periods on Nov 4, 2018

— Full US-sanctions are in effect

What does this mean?

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

16


US Sanctions against Iran

US Sanctions are clustered in

Primary sanctions

— Typically economic sanctions

— Primary addressed to US-persons (UScitizens,

green card holders, US-entities

based in the USA , their foreign

subsidiaries and branches)

— There must be a nexus to the USA, like

goods (from 25% US-content), persons

and US-currency

— US nexus is existent if a transaction is

done in US-Dollar or a US-person was

involved in the process of a business

decision

— Primary sanctions can affect non-USpersons

if they are a contributory for the

sanction violation of the US-person

Secondary sanctions

— Annex to primary sanctions to raise

effectiveness

— Addressed to entities and individuals who

don’t have a geographical or financial

nexus to the US, but who have business

relationships with sanctioned parties

— Violators might become sanctioned too if

they violate US-sanctions and may be

listed on the “Foreign Sanctions Evaders”-

List (FSE)

— Case-by-case decision by OFAC

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

17


US Sanctions against Iran

What do the US sanctions against Iran prohibit?

— No trade with Iran or Iranian entities, or with third parties related to Iran

— No transactions with Iran entities

— No recapitalisation with Iranian banks or financial institutions

— No business with shipping companies from Iran

— No shipping of Iranian goods or on vessels under Iranian flag

— No docking or mooring of vessels in Iranian harbours

— Even in the case of damage, docking in an Iranian harbour might be an issue

— If US-insurance companies are involved, the insurance cover might be at risk

So what do you do? Follow the

US-sanctions?

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

18


US Sanctions vs. EU-Blocking Order

Problem:

The EU-Blocking statute

Reason:

Contents:

Addresses:

Keep the JCPOA in effect - for the remaining countries

— The prohibition to follow US sanctions

— All legal judgements issued in a third country (such as from US courts) are

declared void and do not have to be followed by EU operators

— So-called EU operators: all natural and legal entities who are citizens of or

registered within EU

— All shipping companies ouside the EU, if they are controlled by a EU-person

— All natural persons who are on EU-soil

— EU operators can recover "any damages, including legal costs, caused by

the application of the laws specified in its Annex or by actions based thereon

or resulting therefrom”

— Penalized if violated

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

19


Conflict for affected entities

If they follow the US sanctions

against Iran, they might:

— Break EU and national / local

laws

— Face fines from the EU

— Face civil claims due to national

laws

— Have to report possible damages

resulting from the US sanctions

to the EU-Commission

If they follow The EU-Blocking

Statute, they might:

— Face the (high) risk of being

sanctioned by the US

themselves

— Face imprisonment

— Be fined by OFAC up to million of

USD

— Face freezing of their US assets

and bank accounts

— No business possible in the USA

— But: receive compensation from

the EU (probably)

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

20


Conflict for affected entities

(Partial) Solution:

— Application to the EU-Commission possible

— EU-Commission might allow compliance with

the US sanctions

— Very complicated procedure

— No fast solution

— Check your contracts with Iranian entities to

see if there are applicable sanctions clauses

which might help you to find a possible

solution for civil actions

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms

affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

21


Thank you

for your attention


Contact

Swen Scholtyssek

Lawyer

Partner

Compliance, Governance, Organisation

T +49 40 3609 9457 43

M +49 40 3609 9455 30

F +49 151 22681500

sscholtyssek@kpmg-law.com

KPMG Law Rechtsanwaltsgesellschaft mbH

Ludwig-Erhard-Straße 11-17

20459 Hamburg

www.kpmg-law.de

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there

can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a

thorough examination of the particular situation.

© 2018 KPMG Law Rechtsanwaltsgesellschaft mbH, associated with KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms affiliated with KPMG International

Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The name KPMG and the logo are registered trademarks of KPMG International.​

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