In 2016, A UK based and FCA regulated accountancy firm ("the firm") opened a subsidiary office in a west African country. To assist with the necessary regulatory approval and interactions with the local authorities, the local subsidiary temporarily retained a local consultant to advise. Revenue from the African subsidiary flowed back to the UK entity. The African subsidiary was wound up for commercial reasons in 2018, and the firm no longer does business in that country.
In 2019, a Partner of the firm, during a personal holiday in the African country, read a local newspaper containing a report concluding that the consultant in question routinely made small payments to officials of the local regulators in order to avoid applications for his clients being placed at the "back of the queue" and indefinitely delayed. The Partner reported this to the firm’s MLRO. Following an initial document review, the firm has concluded that no one at the firm or the local subsidiary was aware of this at the time, but that the due diligence on the consultant was inadequate.
- Local law advice should be obtained to confirm whether any facilitation payment, if made, was unlawful under the local criminal law.
- In terms of the substantive money laundering offenses under Sections 327-329 of the Proceeds of Crime Act 2002 ("POCA"), even if the conduct was lawful in the local jurisdiction, given that it would be unlawful in the UK (and can carry a sentence in excess of 1 year’s imprisonment in the UK), the substantive money laundering offenses could apply going forwards. If the UK entity considers that it now has a suspicion that a facilitation payment may have been paid in connection with the regulatory approval of the local office, and it has benefited from that facilitation payment by way of the revenues received, care needs to be taken.
- Given the lack of awareness of the facilitation payment at the time and if the revenues earned by the local office were received through legitimate business transactions with clients for which value was provided, the "adequate consideration" defense may well apply.
- Since the UK entity is FCA regulated, and assuming the facilitation payment was unlawful under local law, consideration as to whether whether a disclosure to the NCA must be made under Section 330 of POCA ought to be given.
- If the facilitation payment was lawful under local law, then it be may possible to conclude that no disclosure to the NCA is required because any money laundering, if it occurred, was entirely overseas (because the firm had no suspicion at the time, and so any money laundering was only committed by the local consultant).
- In any event, it would be advisable for the compliance program to be reviewed so that appropriate due diligence on local consultants is carried out.