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The Netherlands | News
Market Manipulation and Accepted Market Practices
The Accepted Market Practices Regulation FMSA came into effect on 13 May 2011. Under this Regulation, "liquidity agreements" are exempted from the prohibition on market manipulation. These agreements enable issuers to trade in their own shares through a third party to promote regular trading in these shares and to prevent price fluctuations. The option to exempt certain categories of transactions or trade orders from the prohibition on market manipulation is based on Section 5:58 paragraph 3 of the Financial Markets Supervision Act ("
FMSA"). The Market Abuse Decree FMSA provides that the Netherlands Authority for the Financial Markets ("
AFM") will regularly review the categories of transactions or trade orders for which an exemption is justified and will advise the Minister of Finance on this. The European Securities and Markets Authority ("
ESMA") maintains a
list on its website of accepted market practices in the various member states.
Act on confiscation of criminal proceeds
Legislation broadening the scope for confiscating criminal proceeds took effect 1 July 2011. The aim of the new legislation is to provide the police and the public prosecutor with more effective tools to combat organised crime, including:
- The introduction of an evidentiary presumption, so that if a convicted person is unsuccessful in demonstrating that relevant assets were obtained in a legal manner, such assets are eligible for confiscation by the public prosecutor.
- The seizing of assets from third parties without demonstrating criminal origin. Criminal defendants often try to conceal assets by transferring them to third parties. Under the new legislation, action can be taken to prevent this type of transfer. Under the former law, the public prosecutor had to prove that the assets had a criminal origin. The new legislation does not impose this requirement.
- The investigation of the defendant's assets may be conducted both before and after conviction. The aim of the investigation is to ensure that payment obligations are met.
Access to legal counsel during police interrogations
On 8 June 2011 a draft EU directive regarding the right of suspects to legal counsel before and during police interrogations was sent to the Council and the European Parliament. This directive is the third part of a comprehensive package of EU legislation aimed at strengthening the rights of suspects in criminal proceedings as set out in the so-called Stockholm Program. Previously, a first EU directive was adopted on the right to interpretation and translation. A second EU directive on the right to information of a suspect's rights and charges is currently in progress.
In anticipation of the EU directives a draft bill was proposed in the Netherlands on 15 April 2011. The draft bill inter alia provides for the following:
- A suspect can request legal counsel before interrogation.
- A suspect with a possible sentence of six years imprisonment or more has a right to legal counsel during police interrogations. The suspect can waive this right only after consultation with legal counsel. If the maximum penalty for the crime in question is less than six years imprisonment, a waiver is possible without consulting with legal counsel.
- Investigating officers must not only inform a suspect of the right to remain silent, but also on the right to legal counsel and, if necessary, the right to an interpreter. The suspect must also be informed of the grounds for suspicion and the expected course of the criminal proceedings.
The Dutch legislator has acknowledged that the right of access to legal counsel may lead to undue delays. As investigating officers cannot proceed with an interrogation when waiting for legal counsel, the maximum time permitted to hold a suspect for investigation before deciding upon custody, including the time it takes to interrogate, is extended to nine hours (as compared to the current six hours). The Minister of Public Safety and Justice is aware of the draft bill's possible impact and has ordered an impact analysis of the same. The bill is expected to be introduced by the end of the summer.
Notably, the draft EU directive as proposed on 8 June 2011 prescribes that all suspects have the right to legal counsel during police interrogations. The draft provides that the legal counsel shall have the right to ask questions, request clarification and make statements during interrogations, which shall be recorded in accordance with national law. The draft Dutch bill is less extensive as it only provides for access to legal counsel during interrogations if the maximum penalty for the relevant crime is six year imprisonment or more. As such, the current draft bill may be amended to remove this difference.
AFM and DNB explain enforcement policy
In May 2011, the AFM and the Dutch Central Bank ("DNB") published an explanation of their joint enforcement policy. The explanation highlights the practical circumstances which are relevant in deciding whether a violation has taken place and whether to proceed with enforcement. Amongst other items, the supervisors explain how they supervise compliance with financial laws and regulations, the principles on which their enforcement policy is based, the factors involved in applying available enforcement tools and their accountability for this.
The AFM and DNB mention, among other things, the following practical factors which affect their decision on whether to impose enforcement measures against a violator:
- (Pro-active) disclosure of the violation to the supervisor;
- The violator's initiative to terminate the violation;
- The violator's cooperative attitude towards the supervisor;
- Adequate follow-up to measures suggested by the supervisor; and
- Management involvement with the violation.
Covenant between the AFM and DNB on supervision of rating agencies
In June 2010, the AFM was designated by the Minister of Finance as the competent authority in connection with the EU Regulation on Rating Agencies. In view of this designation, the AFM and DNB have included new provisions relating to rating agencies in their covenant on cooperation and coordination. In addition, the covenant now allows the supervisors to share information (i) without prior notice to the company which supplied the information, and (ii) regardless of whether the information was supplied to meet a statutory obligation. The amendments entered into force on 11 June 2011, with retroactive effect from 7 June 2011.
Expertise Guidelines for (co-)policy makers and the pension sector
As of 1 January 2011, all financial undertakings supervised by DNB and the AFM have to comply with the 2011 Expertise Guidelines for (co-)policy makers. The aim of these guidelines is to clarify how DNB and the AFM interpret the term "expertise" and what aspects their assessment of (co-)policy-makers is focused on. The guidelines also clarify when (co-)policy-makers can or must be assessed, and what information and background checks should be included in the assessment.
The term "expertise" has a broad scope, which includes knowledge, skills and professional conduct. Evidence of the (co-)policy-maker's expertise has to be based on his or her education and training, work experience and competences. In addition to an assessment before appointment, a re-assessment may also take place after appointment. In conducting its assessment, DNB will, amongst other things, take into account the position of the (co-)policy-maker and the size, complexity and risk profile of the financial institution. DNB will also consider the composition of the board as a whole and its collective performance.
In a recent newsletter, DNB further explained the new procedure with regard to pension funds.
DNB expects pension fund boards to be more active in recruiting and selecting new board members. The board has to submit a job profile to the appointing or nominating party and assess if the candidate meets this profile. The profile must demonstrate the knowledge, skills and competences required by the board.
AFM fines for violation of market abuse regulation
Wavin - The AFM imposed an administrative fine of EUR 96,000 on Wavin N.V. ("Wavin") on 9 March 2011 for violation of the obligation to immediately disclose price-sensitive information.
On 3 May 2009, Wavin agreed with CVC Capital Partners ("CVC") on placing convertible shares and bonds with CVC at a substantial discount. On 4 and 5 May, the share price of Wavin increased by 19.86%. According to the AFM, on 5 May 2009 at about 10:44 hours Wavin knew that there were rumours in the market about the imminent transaction with CVC, but did not publish the price-sensitive information until 13:06 hours that day. In the AFM's view, Wavin was not in a position to delay publishing the information because such delay did not serve a legitimate interest of the company and increased the likelihood of misleading the public. Also, according to the AFM the rumours entailed that Wavin could not guarantee the confidentiality of the information. As such, the criteria to delay publishing price-sensitive information as set out in Section 5:25i paragraph 3 FMSA were not fulfilled according to the AFM.
Wavin lodged an appeal against publication of the administrative fine with the Rotterdam Court in interlocutory proceedings. The Court dismissed Wavin's appeal in its decision of 27 April 2011.
C1000 - The AFM fined the CEO of Schuitema (C1000) on 5 May 2011 for disclosing price-sensitive information to third parties during the takeover battle over food retailer Super de Boer.
Pursuant to Section 5:57 FMSA, any person who has access to price-sensitive information pursuant to a profession or position is prohibited from disclosing such information to third parties. On 18 September 2009, a newspaper article reported that Jumbo had launched a public bid for shares in Super de Boer. The CEO of Schuitema gave a presentation at a conference for franchisees of Schuitema five days later and referred to this article at the start of his presentation. He subsequently made several statements referring to Schuitema's possible role in this regard. As such, the CEO allegedly disclosed price-sensitive information to third parties and thus violated the prohibition. Based on the statements of the CEO, an attendee at the presentation decided to contact his broker to put in a purchase order for Super de Boer shares. Previously, the AFM had imposed a fine on this individual. Please see our Newsletter of April 2011 for details.
Pursuant to the new penalty regime (as per 1 August 2009), a violation of the prohibition on disclosing insider information to third parties can be fined with a base amount of EUR 2 million. In the present case, the AFM reduced the fine to EUR 200,000 taking into account the limited gravity and length of the violation, the degree of culpability and the director's financial capacity.
Fortis - The Rotterdam Court on 4 May 2001 handed down its decision in an appeal lodged by Fortis (Ageas) against administrative fines levied by the AFM totalling EUR 576,000 for breaches of the FMSA. The Court ruled that Fortis (i) violated the prohibition on market manipulation, and (ii) failed to immediately disclose price-sensitive information. The fines were upheld by the Court.
Pursuant to Section 5:58 paragraph 1 sub d FMSA it is prohibited to disseminate information which gives, or is likely to give, false or misleading signals as to the supply of, demand for, or the price of financial instruments such as shares, where the person who disseminated the information knew, or ought to have known, that the information was false of misleading. The Court ruled that Fortis violated the abovementioned prohibition because its CEO made certain statements during a presentation with regard to the solvency situation of Fortis. In the Court's view, these statements were misleading because Fortis was planning to take emergency measures which deviated from the original solvency scheme. This information could have influenced a reasonable investor in its investment decisions. As such, Fortis violated the prohibition on market manipulation.
The second basis for the fine imposed concerns the failure to immediately disclose price-sensitive information. The Court states that price-sensitive information is information which would probably be used in a reasonable investor's decision to buy or sell shares. During a bidding process, as took place according to the Court with Deutsche Bank bidding for ABN Amro's subsidiary HBU in June 2008, the fulfilment of the abovementioned criterion should not depend on whether either the bidder or the target is certain that an agreement will be reached. The negotiations and a reasonable chance of consensus are sufficient to constitute price-sensitive information. According to the Court, this criterion was fulfilled in the present case. A listed company can delay making price-sensitive information publicly available if it, among other conditions, can guarantee the confidentiality of the information. An earlier newspaper article, in the opinion of the Court, made clear that Fortis, despite measures taken, could no longer guarantee the confidentiality of the information. As such, Fortis violated the obligation to immediately disclose price-sensitive information according to the Court. Fortis has appealed this decision.
International | News
UK Bribery Act
On 1 July 2011, the UK Bribery Act entered into force. For more detailed information regarding the UK Bribery Act and the official Guidance notes of the UK Ministry of Justice, we kindly refer to our Legal Alert issued on 1 April 2011.
FCPA: an employee of a state-owned corporation as "foreign official"
The broad scope of the Foreign Corrupt Practices Act ("FCPA") has been highlighted in a recent US court ruling. In the criminal case United States v Noriega, the US District Court of the Central District of California upheld a broad interpretation of the term "foreign official" as outlined in the FCPA. The case concerned Lindsey Manufacturing Company and two of its directors, who allegedly paid bribes through an intermediary company to two high-ranking employees of the Mexican state-owned electric utility company, Comisión Federal de Electricidad.
The FCPA prohibits the bribing of a "foreign official", being “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, (…) or any person acting in an official capacity for or on behalf of any such government or department, agency or instrumentality (…)” According to the defendants, a state-owned corporation is neither a department or agency nor an "instrumentality", so none of its employees is a "foreign official". As a result, the defendants argued, the bribes allegedly paid cannot constitute a violation of the FCPA.
According to the Court, however, a state-owned corporation that (i) provides a service to inhabitants of the jurisdiction, (ii) the key officers of which are, or are appointed by, government officials, (iii) is largely financed by the state, (iv) is vested with and exercises exclusive power to administer designated functions, and (v) is widely perceived to be performing official (government) functions, may be an "instrumentality" of a foreign government and its officers may therefore be "foreign officials" within the meaning of the FCPA. Thus, the Court dismissed the defendants' arguments. Both Lindsey Manufacturing and its two directors were found guilty of violation of the FCPA.
FSA Financial crime guide
On 22 June 2011, the FSA issued a consultation paper on a (non-binding) new regulatory guide on financial crime. The comprehensive guide is intended as a practical addition to the currently limited formal guidance issued by the FSA, and to help (UK) regulated entities better understand and meet their legal and regulatory obligations.
The guide contains, among other things, an overview of self-assessment questions and good and poor practices for regulated entities on: anti-money laundering, terrorist financing, fraud, data security, anti-bribery and corruption, sanctions and weapons proliferation financing. Also, the FSA shares it findings on the aforementioned subjects gathered during thematic reviews. This way, regulated entities can compare themselves against their peers' systems, controls, policies and procedures.
Market parties are requested to provide comments on the contents of the guide by 21 September 2011.
Cyber crime
In May 2011, a group of U.S. lawmakers called on SEC Chairman Mary Shapiro to issue guidance and apply enforcement in respect of disclosure requirements of listed companies confronted with (material) cyber crime attacks.
Multinational companies are increasingly being confronted with computer hacking and theft of electronic information. Some of these attacks (such as recently on Sony, Expedia and Epsilon) are performed by organisations targeting customer and credit card data. Other attacks (such as recently on Google, Intel and Adobe) are performed by groups which target a company's intellectual property and confidential information. Cyber crime attacks can result in substantial damage to a company's finances and reputation. They can also affect a company's legal position. Loss of customer and credit card data triggers security breach notifications in various jurisdictions and can result in major (class action) litigation. Loss of intellectual property and confidential information can result in loss of R&D investments and breach of licenses and confidentiality obligations.
Governments are ramping up investigation and enforcement capabilities. In 2010, Europol established an international cybercrime unit. In February 2011, the Dutch Ministry of Security and Justice presented a national cyber security strategy. The Dutch national police have a national high-tech crime unit with extensive expertise. In June 2011, the German government launched a National Cyber Defense Center.
Sanctions orders
In connection with the current situation in the Middle East, the Ministry of Foreign Affairs has published a number of sanctions orders in recent months:
- Syria Sanctions Order 2011: The measures include an arms embargo, a ban on selling equipment that can be used for internal repression, travel restrictions and the freezing of bank balances for individuals responsible for the violent repression in Syria. The order took effect on 8 June 2011.
- Egypt Sanctions Order 2011: The bank balances of a number of key individuals of the former regime are frozen. The order took effect on 14 April 2011.
- Amendment of the Iran Sanctions Order 2010: The amendment provides for the freezing of bank balances and financial assets of certain individuals responsible for serious human rights violations. The order took effect on 8 June 2011.
- Amendment of the Libya Sanctions Order 2011: The amendments relate to a no-fly zone over Libya, a ban on landing aircraft on Libyan territory and a ban on operating air services from or to Libya. Libyan aircraft are also banned from flying over or landing on European territory. The amendments took effect on 28 April 2011.
The Ministry of Foreign Affairs is keeping a list specifying effective sanctions orders for each relevant country.