Author: Niall Hearty
28 July 2022
3 min read
Niall Hearty of Rahman Ravelli details the approach taken by the Financial Conduct Authority in imposing its largest fine so far relating to Cum-Ex.
The Financial Conduct Authority (FCA) fined The TJM Partnership Limited (in liquidation) £2,038,700 million for serious financial crime control failings in relation to Cum-Ex trading.
The financial penalty was imposed for TJM’s failure to ensure it had effective systems and controls to identify and reduce the risk of financial crime and money laundering in its business. This is the third case brought by the FCA in relation to Cum-Ex trading - and the largest fine so far.
The FCA found that TJM did not have adequate procedures, systems and controls to identify and mitigate the risk of it being used to facilitate fraudulent trading and money laundering in relation to trading on behalf of clients of the Solo Group between January 2014 and November 2015. It also failed to adequately apply its anti-money laundering policies and did not properly assess, monitor and mitigate the risk of financial crime.
Trading executed by TJM on behalf of the Solo Group’s clients throughout this period was, according to the FCA, characterised by a pattern of purported trades that were highly suggestive of financial crime. The regulator believed that the trades appeared to have been carried out to allow the arranging of withholding tax reclaims in Denmark and Belgium – the practice known as Cum-Ex.
TJM executed trading to the value of approximately £59 billion in Danish equities and £20 billion in Belgian equities and received commission of £1.4 million. It also failed to identify or escalate any potential financial crime concerns and money laundering risks in two other instances related to Solo Group business. This related to transactions with no apparent economic purpose other than to transfer windfall profits of €4.3 million among the company’s clients. TJM also accepted payment from a third party without appropriate due diligence.
As TJM agreed to resolve all issues of fact and liability, it qualified for a 30% discount under the FCA’s Settlement Discount Scheme.
The FCA operates a scheme to give discounts on financial penalties, suspensions, restrictions conditions and disciplinary prohibitions (prohibitions under s123A FSMA) for early resolution – referred to as Stage 1 - of part or all of a case.
A financial penalty can be reduced by up to 30% in Stage 1 for:
There can be no reduction if there is no agreement on facts, liability or penalty in Stage 1 and there are no stages beyond Stage 1 where discounts are available
TJM breached Principle 2 and Principle 3 of the FCA’s Principles for Business between January 2014 and November 2015.
Principle 2 states that “A firm must conduct its business with due skill, care and diligence.’’ Principle 3 states that “A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.’’
Under the full list of FCA principles, a firm must:
The case is yet another reminder of the need for businesses to have procedures, systems and controls in place that are fit for purpose when it comes to identifying and preventing wrongdoing. Other companies may find themselves in similar situations if and when the authorities begin to investigate – if they have not ensured they have such controls in place.
Niall has a wealth of corporate crime expertise and an ability to coordinate global bribery and corruption cases. His achievements in such investigations have made him a logical choice for corporate clients.