Enforcement actions by criminal and supervisory authorities are settled regularly. In light of these developments, companies are advised to take appropriate measures. This month we highlight two cases. In the first, we highlight a settlement with Atlas Elektronik, a German company specialised in equipment and systems for naval forces. This settlement concerns alleged bribery violations in Bremen, Germany, and is notable for the unusual amount of the settlement. The EUR 48 million settlement represents only the profit made from the relevant projects without an additional monetary penalty. The second case deals with an administrative fine of EUR 2,400,000, imposed by the Dutch Authority for the Financial Markets (AFM) on a wholly-owned Dutch subsidiary of ABN AMRO, International Card Services B.V. According to the AFM, ICS was fined for "overcrediting" customers of the credit card company. For years, ICS offered too much credit to credit card holders in relation to their income.
Atlas Elektronik GmbH settles for EUR 48 million
On 1 June 2017, Atlas Elektronik settled with the German authorities for allegations of bribery of foreign officials. According to the Bremen Public Prosecution Office, Atlas Elektronik paid more than EUR 13 million to Greek officials to obtain a contract for two projects on sonar systems for submarines. A shell company in London and accounts in Switzerland were allegedly used for transferring the money. In addition to this, bribes were allegedly paid for the sale of torpedoes to the Peruvian navy.
There are ongoing investigations against seventeen (former) employees. One of the employees is the Managing Director, who is being investigated for failing to prevent the infringements by employees. Other agencies, such as the Financial Conduct Authority (FCA) in the UK and the Financial Markets Supervisory Authority (Finma) in Switzerland, may also initiate investigations.
This settlement is notable for the rather unusual amount. The EUR 48 million settlement amount reflects only the profit made from the projects concerned; no additional fine was imposed. In a similar case in December 2014, the Bremen Public Prosecution Office did add a fine of EUR 300,000 to Rheinmetall Defence Electronics GmbH, on top of the EUR 37 million unlawfully obtained from the alleged offence.
Both German companies are part of the same Greek investigation. Besides Atlas Elektronik and Rheinmetall, the investigation also targets Airbus Eurocopter, STN (partitioned to split up in Rheinmetall and Atlas in 2003) and fourteen others, according to the German newspaper Bild. Eurocopter allegedly paid around EUR 41 million in bribes, and Rheinmetall, STN and Atlas allegedly paid a total of EUR 62 million in bribes.
According to Atlas Elektronik, the reason given for not imposing a fine on Atlas Elektronik was the companies' collaboration with authorities. The company conducted a comprehensive investigation and its compliance and risk management structures were strengthened.
AFM imposes EUR 2.4 million administrative fine on International Card Services B.V.
On 7 June 2017, the Dutch Authority for the Financial Markets (AFM) imposed an administrative fine of EUR 2.4 million on International Card Services B.V. (ICS), a wholly-owned subsidiary of ABN Amro. According to the AFM, ICS entered into credit contracts with customers which overextended credit to customers.
ICS offers credit cards to its customers, and every month the customer chooses if he or she wants to pay back the credit in full or in instalments. ICS made profiles of their customers specifying the maximum credit limit they could be granted. There was, however, an error in the system, whereby children were not taken into account. The result was that the maximum credit limit was higher than it should have been. In addition to this, customers could obtain 15% more credit than their entitled maximum. The risk group (the number of people who could have received too much credit) consisted of 39,558 customers. In March 2015, after consultation with the AFM, ICS removed the possibility of customers obtaining the extra 15% above the maximum.
The AFM is guided by the law when setting the amount of an administrative fine. There are three different administrative fine categories, as shown in the table below. The first category concerns relatively common and minor offences. The second concerns offences regarding ongoing obligations. The third category is reserved for the most serious offences. Offences regarding the overextension of credit fall within the third category.
Under certain circumstances, the AFM may reduce or increase the base amount to a maximum of 50%. The circumstances to be considered are:
- The seriousness and duration of the offence: the AFM takes into account the number of agreements concluded or customers involved, the amount of the proceeds obtained, the effect on the market, the capacity of the offender, and damage caused to third parties.
- The degree of culpability of the offender: the AFM takes into account the intention of the offender, the policy of the offender, the possibility of avoiding the offence, the clarity of the standard, and if the offender had been notified about this standard beforehand.
If a fine was imposed in the preceding five years for the same offence, the AFM must double the fine. The fine is related to the size of the company, meaning a smaller company can receive a smaller fine than a larger company, even if both companies have committed the same offence. In judging the size of a company, the AFM takes into account the company's equity, balance sheet total, and the number of employees. If the unlawful proceeds are greater than EUR 2 million, the fine can be twice the amount of the unlawful proceeds. In this situation, the base amount plays no further part.
The base amount of the offence committed by ICS was EUR 2 million. Due to the seriousness and duration of the offence, the AFM increased the fine by 25%, to EUR 2.5 million. According to the AFM, the error in the system which determined the credit limits and allowed the possibility of obtaining 15% more credit than the maximum limit cannot not be justified.
The AFM also increased the base fine by 25% – so to EUR 3 million – in response to ICS's culpability. They found that it should have been clear to ICS that the possibility of obtaining 15% over the maximum credit was unacceptable. ICS had also been notified before about its violation of a similar standard.
ICS's cooperation with the investigation, on the other hand, provided reason for the AFM to decrease the fine to EUR 2.4 million: ICS discovered the error, self-reported it to the AFM and fixed the problem. ICS also cooperated throughout the entire investigation. ICS also reserved an amount of EUR 63.1 million, with EUR 47 million of that amount meant to compensate disadvantaged customers.
Financial regulation, such as laws against overextension of credit, changes frequently. Financial service providers have to be well informed about these changes in order to prevent violations which can result in significant fines.
General guidelines on the level of sanctions by the AFM can be found in the AFM's published penalty policy. However, it is not always clear what contributes to an increase or decrease of a fine. The Trade and Industry Appeals Tribunal in the Netherlands recently instructed the AFM to publish its calculations for the amount of the fine. The AFM has said it will do so in the near future. We will keep you updated about these developments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.