Financial Crime Hypothetical The Law Society Financial Crime - PowerPoint PPT Presentation

The Law Society Financial Crime Hypothetical

The Law Society Financial Crime Hypothetical – ABC Corp ▪ ABC Corp. is a U.K.-based biopharmaceutical company whose shares are listed on a national U.S. exchange. ABC Corp. is considering an acquisitions in China of a precious mineral company. ABC Corp.’s proposed acquisitions would make the target a subsidiary of ABC Corp. ▪ What steps should ABC Corp. consider taking before acquiring the mining company? ▪ What if ABC Corp. was based in Ireland?

The Law Society Financial Crime Hypothetical ▪ Prior to acquiring the Chinese company, ABC Corp. decides to conduct due diligence. ▪ What steps should it consider taking? ▪ Review sales and financial data, customer contracts, and third-party vendor agreements; ▪ Perform a risk-based analysis of customers; ▪ Perform an audit of selected transactions; and ▪ Engage in discussions with relevant officers regarding corruption risks, compliance efforts, and any other corruption-related issues that have surfaced at the company. ▪ Anything else? ▪ Should ABC Corp consider reporting requirements?

The Law Society Financial Crime Hypothetical ▪ During the course of its due diligence, ABC Corp. learns that: ▪ The Chinese company has made several potentially improper payments. ▪ The Chinese company appears to have entered into a contract with a third-party vendor that does not, in fact, exist. The purported payments for that vendor, which were recorded as legitimate business expenses, appear to have actually gone to various local officials to get reductions or dismissals of proposed financial penalties against the subsidiary. ▪ The Chinese company is engaged in trade with North Korea and Iran which, in the aggregate, account for approximately 7% of its revenues. ▪ What should ABC Corp. do?

The Law Society Financial Crime Hypothetical ▪ Following completion of the acquisition of the Chinese company, ABC Corp decides to issue a Reg 144a bond. ▪ During the course of due diligence ABC Corp discloses to the underwriting banks the issues identified with the Chinese company during the acquisition ▪ What steps do the underwriters need to take in light of this information? ▪ Does it make a difference if the underwriters are U.S. institutions?

The Law Society Financial Crime Hypothetical ▪ In light of the issues identified, the underwriting banks carry out additional diligence with ABC Corp, which prompts ABC Corp to disclose an internal investigation in relation to the Chinese subsidiary ▪ ABC Corp is investigating an allegation from a whistleblower that, pre- acquisition by ABC Corp, the Chinese company paid a bribe to a foreign government official in order to secure the licence to carry out mining activities in Kenya. The project represents approximately 40% of the projected revenues for the Chinese subsidiary. ▪ What steps do the underwriting banks need to undertake in light of this additional information? ▪ Does the fact pattern raise any AML concerns?

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