The Netherlands | News
Bill limiting liability of financial supervisors
Legislation currently in force provides no special liability regime for financial supervisors. Their liability is assessed on the basis of the general liability rules of the Dutch Civil Code. The government believes that for the Dutch supervisors, the Dutch Central Bank ("DNB") and the Netherlands Authority of the Financial Markets ("AFM"), to duly carry out their supervisory roles, an explicit statutory limitation of liability is needed. A bill to that effect was submitted to parliament on 3 November 2011. Pursuant to the bill, the law will be amended so as to limit any liability to wilful misconduct and gross negligence.
Introduction of suitability test for daily policy makers
A bill was adopted by parliament on 20 December 2011 introducing a suitability test for (daily) policy makers of financial institutions and trust offices in the Netherlands. This bill follows from, inter alia, the findings of the De Wit (the financial system) and Scheltema (downfall of DSB bank) Commissions.
The primary changes to the existing testing framework for (daily) policy makers by the AFM and/or DNB (as set out in the Financial Market Supervision Act and the Trust Offices Supervision Act) are:
- the former expertise test for (daily) policy makers is replaced by a suitability test
- introduction of a suitability test for supervisory directors of financial institutions and trust offices regulated in the Netherlands
- implementation of a set of consultation and (binding) recommendation rules for regulated entities that are supervised by both DNB (prudential supervision) and the AFM (market conduct supervision)
According to the explanatory notes to the bill, the term 'suitable' includes not only the knowledge and experience of (daily) policy makers, but also the skills and professional behaviour of such persons. Whether a person is found suitable by DNB and/or the AFM also depends on the expertise of the (supervisory) board as a whole.
Suspects to receive letter of rights in criminal proceedings
The European Parliament adopted a measure (Directive IP/10/989) on 13 December 2011 to set common EU standards in criminal cases: suspects are to receive a letter of rights listing their basic rights during criminal proceedings. This measure is the second part of a comprehensive package of EU legislation aimed at strengthening the rights of suspects in criminal proceedings as set out in the "Stockholm Program". Previously, a first directive was adopted on the right to interpretation and translation. Notably, a draft third directive on the right to legal counsel was already sent to the Council and the European Parliament last year.
More specifically, the following innovations are introduced by this (second) directive:
- suspects will be informed of their rights following arrest
- they will be given a letter spelling out their rights in writing
- the letter of rights will be easy to understand, without legal jargon
- the letter of rights will be made available in a language the suspect understands
- the letter of rights will contain practical details about the person's rights
This draft (second) directive is yet to be adopted by the Council. This is expected to take place in the next few weeks.
Revision of preliminary criminal investigation phase
Two new Acts were adopted by parliament on 29 November 2011 amending the Dutch Criminal Code and the Code of Criminal Procedure as part of a legislative process aimed at a complete revision of the preliminary investigation phase in criminal proceedings. The date on which both Acts enter into force has not yet been determined.
Act reinforcing the position of the examining judge
This Act responds to a trend in which the Public Prosecution Service has been granted more involvement and independent powers in criminal investigations. As a result, the examining judge has become considerably less involved in the preliminary investigation phase and the number of judicial preliminary investigations has decreased by 80% in a few years. Nonetheless, a balanced gathering of evidence remains crucial and for that reason legislators have decided to reinforce the position of the examining judge.
Under this new Act, the role of the examining judge is given a new structure and the relationship between the public prosecutor and the examining judge is more clearly expressed. The intention is that the examining judge no longer operates as an investigating judge but as a "judge in the preliminary investigation". The public prosecutor leads the preliminary investigation and the examining judge supervises how the investigation is conducted. In this regard, the examining judge ensures that:
- the investigative powers are exercised in a lawful manner
- the investigation's progress is monitored
- the investigation is balanced and comprehensive
The examining judge may also take investigative action at the suspect's request or ex officio. To improve the investigation phase from the defence's point of view, a new regime will replace the existing provisions concerning preliminary defence inquiries ("mini-instructie"). One framework will be created: the preliminary investigation. The new regime will enable the defence to quickly and adequately involve the examining judge in the investigation.
Act revising rules concerning the criminal case file
This Act aims to increase the examining judge's involvement with the compilation of the criminal case file. The current rules on the compilation of the case file and the reporting duty of investigating officers date from 1926, when criminal investigation played a limited role. Accordingly the rules were relatively short and simple. Currently, however, the preliminary investigation is much more important. The new Act recognises this by bringing the statutory provisions on reporting by investigating officers and compiling the case file in line with more recent criminal law developments. The new Act:
- specifies the reporting duty - the Public Prosecution Service can, within certain limits, allow the investigating officer to refrain from drawing up an official report
- reinforces the legal position of the suspect in respect to the compilation of the case file – it is proposed to incorporate in the Act the option of an active involvement of the defendant in the compilation of the case file. To that end the defendant may request that certain documents be added to the case file
- gives the public prosecutor the responsibility for compiling the case file during the preliminary investigation
- defines the term 'case file'
- introduces powers to leave certain information outside the case file and limit the provision of copies if important interests justify this
AFM publishes suggestions concerning 2011 financial reporting
Starting in 2010, the AFM annually publishes suggestions arising from its review of financial statements. Companies can use these suggestions to improve their financial statements. Partly at companies' request, the AFM will from now on publish its suggestions in September. According to the AFM, the 2011 review published on 28 September 2011 has shown that explanatory notes in the annual accounts have further improved and that the AFM's feedback on the 2009 reporting was followed up.
In its recent report, the AFM states that a number of items can still benefit from improvement, these including the explanation of key accounting policies, information about financial instruments and key management/executive remuneration based on shares.
The AFM has furthermore announced that it will conduct four theme-based reviews in 2012. These reviews will regard:
- the valuation of real estate investments by real estate investors and financial institutions
- the valuation and transparency of government bonds and other investments subject to country related risks
- the accounting of special value decreases in fixed assets and explanations thereof
- explanation of third-party interests (non-controlling interests)
Case law on prudent person rule for pension funds – DNB's approach criticized
Pension funds have to abide by several general standards in the Pensions Act. The specific interpretation of these standards is sometimes set out in more detail in further regulations. An example is article 135 Pensions Act, which requires a pension fund to have an investment policy that corresponds with the so-called prudent person rule. DNB actively enforces compliance with this rule. An interlocutory decision by the District Court of Rotterdam on 24 November 2011 illustrates that higher requirements apply to DNB when enforcing such general standards.
Vereenigde Glasfabrieken interlocutory decision
Stichting Pensioenfonds Vereenigde Glasfabrieken invested approximately 13 percent of its funds in gold bullion. DNB was of the view that among other things an investment of this proportion in one investment category carries an excessive dependence (concentration risk) with it and as such violates the prudent person rule. DNB subsequently imposed an instruction which obligates the pension fund to decrease its investment in gold substantially. The pension fund lodged an appeal against this instruction with the District Court of Rotterdam. The District Court concluded as follows:
- article 135 Pensions Act refers to a general standard
- if rules to explain those general standards are lacking, or vague, higher requirements have to be met when asserting a violation
- the question whether a pension fund complies with article 135 Pension Act depends on the specific circumstances regarding the pension fund; enforcement thus requires a tailor-made approach by DNB
- DNB was unable to clarify to the court which assessment framework and standards it used to interpret the general standards
- the argument that no other Dutch pension fund had a comparable investment in gold bullion is by itself an insufficient ground to constitute a violation of the prudent person rule
- the conclusion that the investment in gold bullion - as a percentage of total funds - deviated from a certain investment index was insufficiently explained by DNB
The District Court concluded that a proper reasoning for DNB's decision was lacking and gave DNB the opportunity to correct this. After DNB has taken a new decision, the District Court will again review the case. The case is also noteworthy because earlier in 2011 Stichting Pensioenfonds Vereenigde Glasfabrieken requested the judge in preliminary relief proceedings also before the District Court of Rotterdam to suspend the decision of DNB regarding the instruction. The court at that time concluded that DNB had substantiated its decision sufficiently and that DNB came to the conclusion rightly that there was a violation of the law. As is clear from the decision of 24 November 2011, the Court has since revisited its prior ruling.
International | News
EC proposes new rules on market manipulation and insider dealing
The European Commission published a proposal for a regulation on insider dealing and market manipulation to replace the current Market Abuse Directive on 20 October 2011. The new regulation is designed to strengthen supervisors' investigative and sanctioning powers, help fight market abuse in the commodities and derivatives markets, and promote that regulation keeps up with market developments.
The key changes are:
- the scope of the rules will be extended to financial instruments that are only traded on new platforms such as multilateral trading facilities and organised trading facilities, and also to over-the-counter trade
- the proposal clarifies which high-frequency trading strategies (HFT) fall under the prohibition against market manipulation
- the regulation extends the options of reporting suspect transactions to suspect non-executed orders and OTC transactions. In addition the regulation sets out that, under certain circumstances, supervisors should have the power to require telephone or data traffic records from telecommunications operators or inspect private documents if there is a reasonable suspicion of insider dealing or market manipulation. Supervisors will also have the power to enter private buildings, provided that they have prior judicial authorisation
- the regulation obliges the member states to offer protection to whistle-blowers and sets common rules to encourage reporting of market abuse
- "attempt at market manipulation" is introduced as a new criminal offence
- the new rules also apply to trade in emission allowances
Finally, the Commission published a proposal for a directive obliging member states to provide for criminal sanctions for insider dealing and market manipulation. The directive inter alia contains definitions of insider dealing and market manipulation. When committed intentionally, both should be regarded as criminal conduct. The member states have to ensure that the criminal sanctions they impose are effective and proportionate and provide an adequate deterrent. In addition, criminal sanctions will have to be imposed for inciting, aiding and abetting market abuse or attempted market abuse.
Expansion of restrictive measures against Iran and Syria
In view of the continued concern over the expansion of Iran's nuclear and missiles programmes, more restrictive measures have been imposed by European and US legislators.
The Council of the European Union decided on 1 December 2011 to designate a further 180 entities and individuals to be subject to restrictive measures against Iran. The Council furthermore agreed that, given the seriousness of the situation, the EU should extend the scope of its restrictive measures against Iran. In particular, the Council agreed to broaden existing sanctions by examining, in close coordination with international partners, additional measures including measures aimed at severely affecting the Iranian financial system, measures in the transport sector and in the energy sector, as well as in other areas.
The Council announced adoption of these measures in the near future, presumable by the end of January 2012.
The US also imposed additional sanctions against Iran on 21 November 2011, significantly increasing the stringent sanction regime that was already in force.
These new US sanctions target Iran's gasoline supply. They prohibit any person or company, including foreign companies, from knowingly providing Iran with goods, services, technology or support that increases Iran's ability to develop petroleum sources in Iran if this has a value of USD 1,000,000 at any one time or an aggregate value of USD 5,000,000 in a 12-month period. Those monetary limits are lowered to USD 250,000 and USD 1,000,000 for items relating to Iran's domestic production of petrochemical products. Notably, sanctions can also be imposed on (foreign) successor entities as well as on (foreign) related entities that are owned or controlled by, or own or control, a sanctioned company, provided that these companies had actual knowledge or should have known of the activities. A number of sanctions are put in place to ensure that (foreign) persons or companies, acting in violation of the restrictions mentioned above, are effectively blocked from participating on the US market.
In view of the gravity of the situation in Syria, the Council of the European Union decided on 1 December 2011 to step up its sanctions against Syria. With the aim to isolate President Bashar al-Assad's government, the Council decided to put the names of a number of persons and several state-owned firms on the list of persons and entities whose funds and assets are frozen.
Dutch Government opens National Cyber Security Centre
On 12 January 2012, the Minister of Security and Justice opened the National Cyber Security Centre ("NCSC"). The NCSC aims to become the platform for cyber security cooperation in the Netherlands. Its focus areas are development and provision of expertise and advice, support and execution of incident response and enhancement of crisis management. It serves as a successor to GovCERT, the former computer emergency response team of the Dutch government.
The NCSC will form part of the Dutch Ministry of Security and Justice. Other government participants in the NCSC will include the High Tech Crime Unit of the Dutch national police, the public prosecutor’s office, the General Intelligence and Security Service (AIVD), the Dutch Forensics Institute (NFI) and various ministries. Private parties will also be able to join the NCSC over time.
In the first half of 2012, De Brauw will, jointly with a group of multinationals, organize a quarterly roundtable discussion with several government participants in the NCSC. The purpose of such roundtable will be to explore possibilities for cooperation, both amongst multinationals and with government participants in the NCSC. A strategy paper regarding these roundtable discussions will be released shortly. For more information, please contact Richard van Staden ten Brink (email@example.com).
First conviction under the UK Bribery Act
As mentioned in the RCE Newsletter October 2011, the UK Bribery Act 2010 ("UKBA") entered into force on 1 July 2011 and reforms the criminal law to provide a new scheme of bribery offences. On 14 October 2011, a 22-year-old administrative UK court clerk was the first to be found guilty of breaching the UKBA and was sentenced to three years' imprisonment. The clerk allegedly promised an individual that he could influence the course of criminal proceedings in exchange for GBP 500. According to the judge the indictment represented misconduct which lasted well over a year and involved at least 53 cases in which he earned probably over £ 20.000.
The maximum sentence for the offence is ten years' imprisonment. With this sentence, the UK court has taken a strong stance against corrupt activities of an individual employed in the UK justice system.
This conviction may encourage UK prosecutors to regard the UKBA as a useful tool in their fight against corruption. The length of the sentence imposed in this particular case also sends a clear message that public officials engaging in corrupt practices will be treated harshly by UK courts.
US charges 3 Swiss bankers in tax evasion case
On 3 January 2012 three Swiss bankers working for Switzerland's oldest bank, Wegelin & Company, were charged with tax evasion by US prosecutors in Manhattan. The bankers are accused of helping US clients to evade US taxes through secret Swiss bank accounts. The three bankers allegedly solicited clients between 2005 and 2010 by using sham companies in Liechtenstein, Panama and Hong Kong. An amount exceeding USD 1.2 million is said to be involved. According to the three bankers, their clients did not need to worry about the US tax authorities because Wegelin & Company had a long tradition of bank secrecy and no offices outside Switzerland. If they are convicted, the Swiss bankers each face a maximum prison term of five years and fines up to USD 250,000.
The US tax authorities have previously pursued tax-evading Americans in Switzerland and the bankers who have assisted in evasion schemes. Whereas these cases involved large banks, the recent charge against Wegelin & Company shows that smaller financial institutions in Switzerland are being scrutinised as well.
2011 FCPA enforcement actions reach second-highest level
Last year enforcement statistics gathered by the law firm Gibson Dunn show that the number enforcement actions initiated by US regulators relating to the Foreign Corrupt Practices Act ("FCPA") reached their second-highest level in 74 years. However, with a total of 48 enforcement actions the number is well below the all-time high of 74 enforcement actions initiated in 2010. In 2011 the Department of Justice ("DOJ") initiated 23 enforcement actions (2010: 48) against 25 by the Securities and Exchange Commission ("SEC") (2010: 26).
The 2011 figures prove that the SEC and the DOJ are still strictly enforcing compliance with the FCPA anti-bribery provisions by individuals and companies with a US nexus. In addition, violation of the books-and-records and internal control provisions of the FCPA by companies can lead to prosecution. Most of the enforcement actions initiated by the SEC in 2011 resulted in a settlement (15), against 10 cases being contested in court.
The FCPA's anti-bribery provisions make it illegal to offer or provide anything of value to officials of foreign governments or foreign political parties with the intent to obtain or retain business. Enforcement actions can be initiated against both individuals and companies with a US nexus. Earlier this year the DOJ announced that it would also be in a position to pursue individuals long after a case has been settled against the relevant company.