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The Netherlands | News
AFM imposes first fine on a director
On 17 February 2011, the Netherlands Authority for the Financial Markets ("AFM") levied an administrative fine on a brokerage service company O&B Finance Nederland B.V., and a director of a company controlling O&B Finance Nederland B.V. for violation of the Door-to-Door Sales Act (Colportagewet). Although the AFM and the Dutch Central Bank ("DNB") have had the authority to impose administrative sanctions on directors since 1 July 2009, this is the first time the AFM has fined such an individual for a violation.
The AFM and DNB are authorised to levy administrative sanctions, including fines, on individuals such as board members and other officers who exercised actual control over offences committed by legal entities or who gave instructions for that purpose. Offences which have occurred as of 1 July 2009 are subject to such sanctions. Several criteria must be met for an individual to be deemed having exercised actual control over offences committed by the legal entity. Most importantly, the individual must have had knowledge of the violation and the authority to take appropriate measures to prevent the offence from being committed, but failed to do so and accepted the risk that the offence could occur.
In respect of O&B Finance Nederland B.V., the AFM decided to fine not only the company but also the director based on the following facts:
(i) the director was aware of the violation because the AFM had raised concerns about possible violations by the company during an inspection visit
(ii) the director was also the CFO of the company and had the authority to take measures to prevent the violation
(iii) the director had failed to take measures to end the violations.
We also refer to our Legal Alert on the new penalty regime for companies and management under Dutch financial supervision laws, of August 2009.
AFM imposes fine for insider trading (Super de Boer)
On 2 March 2011, the AFM levied an administrative fine on an individual for violation of the prohibition on insider trading during the takeover battle over food retailer Super de Boer.
The individual had attended a congress for employees and entrepreneurs of Schuitema (renamed C1000), a rival food retailer, in September 2009. Shortly after a speech of a director of Schuitema on the implications of the public bid on the shares in Super de Boer by Jumbo, the individual contacted a broker to put in a purchase order for Super de Boer shares. According to the AFM the aforementioned speech contained information of a precise nature which was not public and which, if it were made public, would have a significant influence on the share price of Super de Boer. As such, the individual made use of information about a public bid by Schuitema, while he knew or should have reasonably suspected that he had inside information at that time.
Pursuant to the new penalty regime (as per 1 August 2009), a violation of the insider trading prohibition can be fined up to a maximum amount of EUR 4 million (base amount: EUR 2 million). In the case at hand, the AFM reduced the fine to EUR 114,000, mainly taking into account the limited financial means of the offender.
Recent case law on publication of price-sensitive information (Super de Boer)
On 30 March 2011, the Utrecht District Court delivered its decision in yet another case relating to the acquisition of food retailer Super de Boer by its rival Jumbo in 2009. The Dutch Association of Shareholders (Vereniging van Effectenbezitters) had initiated legal proceedings against Super de Boer, arguing that the company had not immediately published any price-sensitive information about the takeover bid.
Jumbo had initiated takeover negotiations with Super de Boer's management on 4 September 2009, after reaching an agreement in principle with Super de Boer's largest shareholder, Casino. In view of these negotiations, it was decided by Super de Boer not to immediately disclose the (price-sensitive) information to the public. Notwithstanding an increase in the trading volume of its shares after 4 September 2009, the takeover negotiations were not disclosed to the public until 18 September 2009.
Pursuant to Section 5:25i sub 3 of the Financial Markets Supervision Act such a delay in making available price-sensitive information to the public only applies if (among other conditions) the listed company can guarantee the confidentiality of the information. As such, the obligation to immediately disclose price-sensitive information comes back into effect if the confidentiality of the information (despite any measures taken) is no longer assured.
The extraordinary trading volume of Super de Boer shares in combination with the price-sensitive information made it, in the opinion of the Court, sufficiently likely that the confidentiality of the price-sensitive information was in fact no longer assured. As such, Super de Boer acted wrongfully against its shareholders by not immediately disclosing the price-sensitive information and is therefore liable for any damage suffered.
AFM and DNB: strengthened governance and limitation of liability
The Minister of Finance has recently announced further measures to strengthen the supervision over the AFM and DNB within the "twin peaks" supervisory framework, in which both supervisors are independently entrusted with the enforcement of legislation for the financial sector.
In his report 'Supervision from a distance' of 10 February 2011 the Minister defines the following supervisory principles: selectivity, decisiveness, cooperation, independence, transparency and professionalism. Supervision from a distance implies that the supervision on the AFM and DNB by the Minister of Justice takes the internal checks and balances within both supervisors as a starting point. Proper governance is substantiated by means of an appointment of a specific board member responsible for supervisory policy matters. In addition, AFM and DNB board members will be subject to continuing reliability and suitability tests.
In a letter to the chairman of the Second Chamber of the Dutch parliament, the Minister of Finance recommends introducing limited liability of the AFM and DNB. The Minister argues that limiting liability explicitly to wilful misconduct or gross negligence should enhance and encourage more open and critical supervision. Furthermore, a limitation of liability would be more in line with surrounding EU member states and recommendations of the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors (IAIS) and the International Organisation of Securities Commissions (IOSCO). A legislative bill is currently expected to be submitted this August.
Meanwhile, both the AFM and DNB have published their supervisory themes 2011.
AFM procedure for viewing and copying digital data
The AFM's revised procedure for viewing and copying digital data took effect on 24 February 2011 and replaced the 2006 procedure, which no longer met current practice. The revised procedure sets out how AFM supervisors will carry out their powers to inspect and copy business data and documents. The procedure also governs the gathering of (digital) information in situations other than an on-site investigation. The company which is being investigated must cooperate with such information-gathering process.
The new procedure retains the existing safeguards aimed at keeping private digital data outside the scope of the investigation. In addition, safeguards for legally privileged information have been reinforced by the introduction of a privilege officer, whose task is to assess if a company is making a valid claim that data and documents are privileged. The privilege officer is not involved in the investigation. If a company disagrees with the officer's assessment, it may submit the issue to the courts.
Pension fund litigation
Recently, two cases were taken to court by a pension fund in an attempt to avoid following the instructions of the DNB in relation to their investment policies in place.
In the first case Stichting Pensioenfonds Vereenigde Glasfabrieken invested approximately 13% of its total funds in gold. DNB argued that such exposure to gold does not correspond with pursuing an investment policy in line with the "prudent person" rule. Hence, DNB instructed the pension administrator to reduce the exposure to 1-3% of total funds. The District Court of Rotterdam ruled in interlocutory proceedings on 8 February 2011 that the pension fund indeed acted in conflict with the Pensions Act and therefore rejected its appeal.
The second case concerns a company pension fund struggling with an insufficient coverage ratio, namely Stichting Pensioenfonds SDB, which argued that DNB should approve its recovery scheme as the affiliated company was willing to provide two subordinated loans. DNB instructed the pension fund to draw up an alternative recovery scheme, arguing that the subordinated loans did not qualify as equity capital. The District Court of Rotterdam rejected the pension fund's appeal.
These proceedings mark DNB's commitment over the last few years to enforce pension regulations, especially with a view to ensuring prudent investment policies in line with the prudent person rule.
Actions against financing of terrorism and money laundering
FATF urges the Netherlands to introduce a separate offence for the financing of terrorism
The Financial Action Task Force on Money Laundering (FATF) has evaluated the level of compliance by the Netherlands with the FATF's 40 anti money laundering recommendations and its nine special recommendations on combating the financing of terrorism.
One of the points that the FATF is critical of concerns the fact that the financing of terrorism is not an autonomous criminal offence under Dutch law. It is only criminalised on the basis of the offence of "preparation to commit a serious crime" or "participation in a terrorist organisation". Meanwhile, the Minster of Security and Justice has announced his intention to add the financing of terrorism as an autonomous offence to the Dutch Criminal Code and will submit a bill to that effect before the end of 2011. This introduction will bring the Netherlands in line with other countries that have already criminalised the financing of terrorism as a separate offence.
In its evaluation, the FATF also points to shortcomings in the client screening that institutions have to carry out under the Dutch Money Laundering and Terrorist Financing Prevention Act. These shortcomings are partly caused by the discrepancy between the FATF's recommendations and European regulation. The Minister of Finance is preparing a bill amending the Act to address this issue.
Lastly, the FATF is critical of the effectiveness of the Financial Intelligence Unit Netherlands, previously the Office for the Notification of Unusual Transactions. The FIU Netherlands is the government agency to which unusual transactions are notified. The criticism is partly related to the fact that the Netherlands has a different notification system from most other countries and partly to the level of operational analysis. Other elements of criticism focus on the organisational structure and independence of the FIU Netherlands.
Minister of Finance publishes new guidelines on prevention of money laundering and financing of terrorism
The Minister or Finance has introduced new guidelines for the implementation of statutory duties to prevent money laundering and financing of terrorism. The guidelines aim to contribute towards the development of internal preventative procedures within financial institutions. The guidelines address, among other things:
- The client screening based on a risk-orientated approach. Institutions must screen clients before providing services. The screening can be adjusted according to the risk posed by a certain type of client, relationship, product or transaction.
- Notification of unusual transactions. An unusual transaction can be an indication of money laundering or terrorism financing; the notification duty is further defined by indicators which describe situations in which a transaction must be deemed unusual.
- Sanctions of the United Nations and the European Union and supervision of compliance with sanction regulations.
Unless clearly stated otherwise, these general guidelines replace previous publications of the Ministry of Finance with regard to notification and identification requirements. The Ministry of Finance has also asked the relevant supervisors to develop specific guidelines for the various types of institutions.
The guidelines do not form a legally binding document but intend to help institutions interpret in practice their statutory obligations in combating money laundering and preventing the financing of terrorism.
Europe | News
UK Bribery Act – entry into force delayed
On 30 March 2011, the UK Minister of Justice announced that the entry into force of the UK Bribery Act has been delayed until 1 July 2011. It was pronounced earlier that the Act would come into force this April. Simultaneously, the official Guidance notes on the UK Bribery Act were published.
The UK Bribery Act applies to both UK companies and foreign companies and has a broad scope. As such, the Act is also relevant for Dutch corporates and financials with business operations (such as a UK branch, plant or distribution network) in the UK, even if offences take place in a third country and are unrelated to UK operations.
In short, the Bribery Bill reforms the criminal law to provide a new scheme of bribery offences that will enable courts and prosecutors to respond more effectively to bribery at home or abroad. The Act creates four offences:
- two general offences covering the offering, promising or giving of an advantage, and requesting, agreeing to receive or accepting of an advantage
- a discrete offence of bribery of a foreign public official
- a new offence of failure by a commercial organisation to prevent a bribe being paid for or on its behalf (it will be a defence if the organisation has adequate procedures in place to prevent bribery).
The Guidance notes provide practical guidance on procedures which organisations can put into place to reduce their exposure to bribery by people associated with them. The UK Minister of Justice has underlined that combating bribery requires a common-sense, proportionate and risk based approach.
The Guidance notes set out six principles for anti-bribery procedures: (1) proportionate procedures; (2) top-level commitment; (3) risk assessment; (4) due diligence; (5) communication; and (6) monitoring and review.
The detail of how Dutch corporates and financials with operations in the UK might successfully implement these principles into their existing compliance procedures will vary, but the notes emphasize that the outcome should be "robust and effective anti-bribery procedures".
EU sanctions against Libya and Tunisia
Further to the recent development in Libya, the Council of the European Union adopted new sanctions measures against Libya on 2 March 2011. The EU Regulation (204/2011) entered into force on 3 March 2011.
EU Regulation 204/2011 provides for an embargo on arms, a ban on equipment for internal repression, as well as restrictions on the admissions and the freezing of funds and economic resources of certain persons involved in serious human rights abuses against persons in Libya, including by being involved in attacks, in violation of international law, on civilian populations and facilities. EU Regulation 204/2011 was amended on 25 March 2011 (regulation 296/2011). The most important amendment involves the obligation to freeze the funds and economic resources of the persons, entities or bodies designated in Annexes II or III of Regulation 204/2011. Such freeze will not prevent non-designated persons, entities or bodies, in which the designated person, entity or body has a stake, from continuing to conduct legitimate business insofar as this business does not involve making available any funds or economic resources to a designated person, entity or body.
New EU sanctions measures were also introduced against certain persons, entities and bodies in view of the situation in Tunisia. On 4 February 2011, the Council of the European Union adopted Regulation 101/2011, providing for the freezing of funds and economic resources of the persons responsible for the misappropriation of Tunisian State funds, and persons associated with them. EU Regulation 101/2011 entered into force on 5 February 2011.
The EU sanctions measures against Libya and Tunisia are directly applicable in all 27 member states, though they must be enforced by the member states pursuant to national implementing laws. Consistent with other EU sanctions regulations, the sanctions against Libya and Tunisia will apply to any EU nationals or entities organised under the laws of an EU member state (irrespective of where they are operating), any person or entity acting within the jurisdiction of an EU Member State, or on board any aircraft or vessel under the jurisdiction of a Member State.
Preliminary questions on inside information disclosure
The German Bundesgerichtshof has recently referred questions to the European Court of Justice ("ECJ") on the question when (premature) information regarding an uncertain event amounts to inside information that must be disclosed to the market.
Under EU rules, for 'inside information' to exist the information has to be of a precise nature. Information is deemed to be of a 'precise' nature if it indicates a set of circumstances which may reasonably be expected to come into existence. Such information must be disclosed immediately. The Bundesgerichtshof has asked the ECJ at what point in time it is reasonable to assume that a set of circumstances will come into existence. The Bundesgerichtshof has also asked the ECJ if there is a duty to immediately disclose the steps preceding a future event (such as the signing of a letter of intent for a proposed acquisition), even if it is as yet uncertain whether that future event will actually occur. In referring this question, the Bundesgerichtshof appears to be reconsidering its earlier position that inside information does not have to be disclosed until there is a reasonable expectation that the event will actually take place.
These questions have arisen in a case where investors allege that they were informed too late about the departure of a company's CEO. Their relevance however extends to other cases considering uncertain future events, including in a merger context (e.g. a possible public bid or a takeover).