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The Netherlands | News
Anti-bribery guidelines
The Public Prosecution Service issued two sets of guidelines on the investigation and prosecution of corruption in the Netherlands. Both guidelines took effect on 1 August 2011 and underline an increased focus on tackling corrupt practices in the Netherlands. The Public Prosecution Service has appointed a specialised public prosecutor to prosecute corrupt practices in accordance with these guidelines.
Bribery of public officials in the Netherlands
The guidelines describe factors relevant in detecting and prosecuting bribery of public officials in the Netherlands. For instance, in determining whether a gift constitutes criminal conduct several factors should be considered, including:
- the initiative to make the gift
- the value of the gift and the extent to which the gift is socially accepted
- the degree to which the public official could know that his actions were prohibited
- the secrecy of the gift
- whether the gift was of an incidental nature
- the nature of the relationship between the person making the gift and the recipient
- the possibility of other criminal prosecution
- the consequences of the public official's actions
Bribery of public officials abroad
Bribery of a Dutch public official by a foreigner and bribery of a foreign public official by a Dutch national are both prohibited in the Netherlands. The guidelines include jurisdiction-related matters and the relevant factors in deciding whether to prosecute corrupt practices involving foreign officials. Factors that are considered relevant in deciding not to prosecute, include:
- the matter concerns action or inaction to which the public official was already obliged
- the payment does not have any anti-competitive effect
- the matter concerns, in absolute or relative terms, small amounts
- the gift is entered in the company's books and records in a transparent manner and is not concealed
- the foreign official took the initiative with regard to the gift
As from 1 April 2010, the fine for bribing public officials is raised from category 4 to category 5. Furthermore, bribery is a criminal offence for which a confiscation claim can be instituted. The assumption is that confiscation will be sought when the advantage obtained has been estimated at a minimum amount of EUR 500.
Guidelines on coercive measures against journalists
The effective period of the guidelines on coercive measures against journalists is extended until the end of November 2011. The guidelines explain the application of coercive measures by the Public Prosecution Service and contain criteria for assessing whether the use of such measures against journalists is appropriate. Examples of such measures are orders to hand over documents, search and seizure of information, obtaining details of telecommunication and recording phone calls.
Consultation on amendments to anti-money laundering law
The evaluation report of the Financial Action Task Force ("FATF"), published on 25 February 2011, has led the Ministry of Finance and the Ministry of Security and Justice to propose amending the Dutch Act on the Prevention of Money Laundering and Terrorist Financing on a number of points. Market parties were invited to provide input on the bill until 11 September 2011.
The majority of shortcomings found by the FATF concern client due diligence. Hence, most of the proposed amendments relate to this specific aspect of the Act:
- in all instances organisations will have to identify the beneficial owner or, alternatively, establish that a beneficial owner does not exist
- when an individual presents himself as a client, organisations must verify if the individual acts on his own behalf or on behalf of others
- if the client is a legal entity, the organisation must know which individuals may legally represent the entity
- rules are proposed for the interaction with trusts. The exemption from carrying out client audits that applies to trust offices will be limited to designated trust services
- organisations must consider whether a notification of an unusual transaction is required when the client and the beneficial owner cannot be identified, their identity cannot be verified, or the purpose and intended nature of the business relationship cannot be established
The Act will additionally be clarified or amended on a number of other aspects, including:
- the definition of 'transaction' will be changed to clarify that an organisation must always report a transaction if it establishes that a transaction of a client, or of a third party for the benefit of the client, is unusual. In principle it will not be relevant when the unusual transaction took place
- under the existing rules a person who has ceased to be active as a politically exposed person ("PEP") for at least one year will no longer qualify as a PEP. This period will be extended to five years. The PEP measures apply to all foreign PEP, even if they do not reside in the Netherlands. Finally, the PEP measures will also apply where the beneficial owner rather than the client is the PEP
- the scope of the Act is extended to all registered property
- advice or assistance in respect of the purchase or takeover of a part of a business will also fall under the notification requirement
- advice or assistance in respect of the creation of a right of mortgage without any additional transfer will be included as a notifiable service for legal professionals
AFM to use mystery shoppers
The Netherlands Authority for the Financial Markets ("AFM") has announced its intention to use mystery shoppers during supervisory investigations. Mystery shopping is used to investigate the provision of financial services in practice without the investigated party being aware that it is dealing with the regulator. According to the AFM, a pilot has shown that this method can be effective to verify whether financial undertakings are complying with the Financial Market Supervision Act ("FMSA").
AFM fines MF Global and one of its traders for market manipulation
On 27 May 2011, the AFM imposed two administrative fines of EUR 192,000 each on MF Global UK Limited for violation of the prohibition on market manipulation (Section 5:58 paragraph 1 sub d FMSA). According to the AFM, MF Global, through one of its employees, disseminated false and misleading information about a contemplated rights issue by Fortis on 15 July and 15 September 2008. The employee was given two fines of EUR 12,000 each.
The information originating from MF Global was distributed via Bloomberg to clients in the Netherlands and abroad and was repeated in the press. According to the AFM, the information was presented as facts rather than opinions of an individual trader and was circulated in a very sensitive financial-economic context. The AFM among other things blamed MF Global for failing to prevent the violations and intervene after the information was sent by the employee.
Both MF Global and the employee filed an objection against publication of the fines with the Rotterdam Court in interlocutory proceedings. The Court dismissed the objections in its decision of 23 September 2011.
Supreme Court rulings on insider trading
On 5 July 2011, the Supreme Court issued a number of decisions on the prohibition on insider trading.
Intent of the instigator (Landis)
In the first case, the defendant was fined as he instigated the insider trading by two other parties by providing information on a contemplated private placement of Landis shares in 2001. At that time, the defendant was chairman of the board of directors of Landis and had requested the two other parties to buy Landis shares at a certain price. The Supreme Court upheld the decision of the Amsterdam Court of Appeal that the defendant was guilty of intentionally instigating insider trading, albeit that the fine and the term of the imprisonment in case of non-payment of the fine were reduced in view of the length of the proceedings.
For instigation to exist, the instigator must have intent with regard to both the criminal act and the instigating conduct. In sum, the Supreme Court rejected the argument of the defendant that there was no intent present as he could not know that the information was undisclosed and price-sensitive, ruling that the intent of the instigator does not have to be directed at these elements. Furthermore, the Supreme Court confirmed that it is not required that a financial or any other direct or indirect advantage is gained for the use of price-sensitive information to constitute a criminal offence. As to the causality between the price-sensitive information and the transaction, the Supreme Court ruled that causality exists when a defendant had price-sensitive information at the moment that he executed or secured the transaction.
VPV
In this case, two directors of Veer Palthe Voûte ("VPV"), a private bank and asset management firm, were fined for making unlawful use of inside information. In 1999 the two directors of VPV had the intention of making a public offer on all shares of a number of listed holding companies. Before the offer could be made, the directors needed to reach a settlement agreement with the Dutch Ministry of Finance regarding some outstanding tax claims on the targeted holding companies. Negotiations took place from May to December 1999, when a final agreement was reached. The two directors of VPV continued trading in the targeted securities throughout the negotiating process, even after September 1999 when the outline of an agreement was well in sight.
The main question in the subsequent court case initiated by the AFM was whether the information of the directors about the acquisition plan, i.e. the stage of the negotiations with the tax authorities, at the time of the trading qualifies as inside information. According to the Amsterdam Court of Appeal, this was indeed the case. The Court of Appeal ruled that the negotiations with the Dutch Ministry of Finance had, as early as 17 September 1999, reached such an advanced stage that the outlines of a settlement were visible and if this information had been disclosed it would have been foreseeable that this would have affected the price of the relevant shares.
Furthermore, the Amsterdam Court of Appeal ruled that for “making use of inside information” to be legally demonstrated, it is sufficient that the accused party has performed a transaction while having inside information at that time. In this, a causal link between the performance of the transaction and the inside information is not required. The decision of the Amsterdam Court of Appeal was upheld by the Supreme Court, albeit that the fines were reduced to EUR 60,750 and EUR 33,750, respectively, in view of the length of the proceedings.
Act on mutual recognition of default criminal judgments
On 1 July 2011, an EU Framework Decision on the mutual recognition of EU court decisions rendered in the absence of the person(s) concerned was implemented in the Netherlands. This led to amendments to the Surrender of Persons Act (Overleveringswet), the Act on the Mutual Recognition and Enforcement of Criminal Sanctions (Wet wederzijdse erkenning en tenuitvoerlegging strafrechtelijke sancties) and the Code of Criminal Procedure (Wetboek van Strafvordering).
The underlying principle of the EU Framework Decision is that recognition of EU court decisions may be refused if the person concerned was absent during the trial that led to the decision. The Framework Decision subsequently specifies the conditions under which recognition and enforcement should not be refused:
- the person concerned was summoned in person
- the defence was conducted by a duly instructed legal counsel
- the person was made aware of the judgment and the right to a retrial or appeal
International | News
European Court of Justice ruling in IMC Securities v AFM
On 7 July 2011, the European Court of Justice ruled on the interpretation of the market manipulation prohibition in the Market Abuse Directive (2003/6/EC), as implemented in the Netherlands in Section 5:58 paragraph 1 sub b FMSA. More specifically, the ECJ ruled on the meaning of the term "secure" in the Directive (translated as "houden" in the Dutch-language version) and the question whether the price must maintain an abnormal or artificial level for a certain period or whether it is sufficient that such a price level is simply brought about. The question was referred by the Administrative Court for Trade and Industry in a case where the AFM had levied a fine on the trading firm IMC for market manipulation. IMC had placed purchase orders for shares to trigger a "stop loss order", enabling it to buy the shares at a lower price.
The ECJ concluded that it is not required that the price maintains an abnormal or artificial level for more than a certain duration. As such, bringing about an abnormal or artificial price level is sufficient for the ban on market manipulation to apply. This implies that the AFM or the Public Prosecution Service only needs to prove that an artificial price level has been caused without addressing the time frame.
First charged under the UK Bribery Act and FSA fine
An administrative court clerk is expected to be the first person to be prosecuted under the UK Bribery Act. The UK Bribery Act 2010 entered into force on 1 July 2011 and reforms the criminal law to provide a new scheme of bribery offences. The UK Crown Prosecution Service decided to prosecute the court clerk for requesting and receiving a bribe intending to improperly perform his functions. He will be charged on 14 October 2011. The clerk allegedly promised an individual that he could influence the course of criminal proceedings in exchange for GBP 500. The maximum sentence for the offence is ten years' imprisonment.
On 21 July 2011, the Financial Services Authority ("FSA") stressed its focus on compliance with regulatory obligations in relation to bribery and anti-corruption risks by levying a record fine of GBP 6.895 million on Willis Limited, a UK insurance and reinsurance brokerage firm. According to the FSA, the failings in Willis' anti-bribery and corruption systems and controls created an unacceptable risk that payments made by Willis to overseas third parties could be used for corrupt purposes.
Foreign Account Tax Compliance Act (FATCA)
US legislators adopted the Foreign Account Tax Compliance Act (the "FATCA") on 18 March 2010. This act will enter into force on 1 January 2013 and aims to prevent tax evasion by US taxpayers. To comply with the FATCA, foreign financial institutions are obliged to enter into an agreement with the IRS. Under this agreement, foreign financial institutions will be obliged to (i) undertake certain customer due diligence procedures and (ii) report annually to the IRS regarding the accounts of their US customers. If account holders do not comply with the FATCA requirements, the foreign financial institutions are obliged to withhold and then pay to the IRS 30 percent of any payments of US source income. Although the FATCA was enacted in 2010, many details of the new reporting and withholding requirements pertaining to foreign financial institutions still have to be developed through US Treasury regulations. These regulations are expected to be proposed in December 2011.
The FATCA requirements could impose a significant compliance burden on European financial institutions active in the US. The goals the FATCA pursues are, however, partly similar to those of the EU Savings Tax Directive, which provides for an exchange of information between tax authorities of EU member states. The Council of the European Commission is currently exploring how the FATCA requirements regarding the exchange of customer details relate to the EU Privacy Directive.
EU 2011 criminal law strategy – guidance for member states
On 21 September 2011, the European Commission issued a guidance on a coordinated criminal law policy for EU member states. This guidance stems from the 2009 Lisbon Treaty and sets out a new strategy on how the EU and the member states can work together to put in place a coherent and consistent EU criminal policy. Common principles for EU countries include:
- criminal law must remain a last resort
- sanctions should be limited to particularly serious offences
- new criminal law measures must respect fundamental rights
- criminal law measures and sanctions must be backed up by clear factual evidence, proportionate to the crime and taken at local, national or EU level as appropriate
Minimum rules on criminal law should prevent criminals who operate across borders from escaping prosecution. These minimum rules relate to:
- 'Euro crimes' such as terrorism, trafficking in human beings and sexual exploitation of women and children, illicit drug trafficking, illicit arms trafficking, money laundering, corruption, counterfeiting of means of payment, computer crime and organised crime
- criminal law for the enforcement of EU policies
- protection of EU public money