Compliance Forum established

The Diplomatic Council (DC) has established a Global Compliance Forum under the leadership of DC Business Ambassador Dr. Thomas Durchlaub, Lawyer and Notary, MBA, Certified Anti-Money Laundering Officer, Certified Compliance Officer, Certified Compliance Auditor, Chief Compliance Officer of the Diplomatic Council.

Within the Global Compliance Forum, the Diplomatic Council cooperates closely with the commissions of the United Nations, which have dedicated their work to this range of topics. First and foremost, we should mention the UN Commission on Crime Prevention and Criminal Justice (CCPCJ) in this context, which has been extensively consulted by the Diplomatic Council on comtemporary compliance topics.

Solutions for compliance risks

Compliance risks are manifold and they occur on a day to day basis in the constantly changing business landscape. The Global Compliance Forum has set itself the tasks to comprehinsively process the numerous compliance risks omnipresent in daily economic life for members and other relevant financial actors.

Furthermore, in times of an advancing globalization of the financial markets connected with steadily rising legal requirements, the Global Compliance Forum intends to develop solutions in consultation with the parties involved in order to ensure legaly safe and compliant business practices. This approach is mandatory in order to contribute to an equitable and trasparent market economy which also constitutes an imperative requirement for a long-term national as well as international peace process.

The area of economic crime constitutes the first focus within this challenging task management. Besides the fight against tax evasion and corruption, the aforementionted topic particularly includes the fight against money laundering, which is also being regarded as a means for combating terrorist financing – par-ticularly since the attacks of September 11th 2001 on the World Trade Center.

Due to the current national and european legislation on the fight against money laundering and the increasing number of terrorist attacks throughout the world, recently also in Europe, the competent state supervisory and law enforcement authorities are expected to accelerate anti-money laundering and terrorist financing compliance more vigorously than ever. Undoubtedly, this approach is indispensable.

Importance of compliance

The term „Compliance“ describes the assurance of the fulfillment of statutory provisions and internal corporate directives by the corporate management as well as the timely recognition and minimization of the according risks. Nr. 4.1.3. of the German Corporate Governance Codex states accordingly: „The executive board has to ensure the fulfillment of the statutory provisions and the internal corporate directives as well as to work towards their fulfillment by the group companies (compliance).“ While being „merely“ a non-binding recommendation, this principle naturally does not exempt the enterprises from the fulfillment of their statutory obligations.

This „universal message“ to enterprises to comply with the applicable law is as self-explanatory as its particular requirements are complex at the same time.

The question of risk evalutaion with regard to business decisions as well as to the fulfillment of statutory provisions and internal corporate directives arises in all business sectors. However, depending on the particular sector, the answers to the aforementioned question can substantially differentiate. The following business sectors are typically prone to compliance risks:

• Banking
• Insurance sector
• E-Commerce
• Real estate- and transport business
• Contruction industry
• Pharmaceutical industry
• Recycling and waste management
• Public administration and many more.

Experience shows that even the largest global companies, despite of typically being assumed to be managed in accordance with the applicable law, are any-thing but free from legal violations. This is also illustrated by the recent interna-tional corruption scandal within the Volkswagen group over the feigned fulfill-ment of emission standards regarding diesel engines, arleady having resulted in losses worth billions. As of right now, the long term consequences of such inci-dents can only be speculated about.

All the significat business sectors have in common that the diversity as well as complexity of the mandatory compliance regulations has significanty increased over the last few decades – last but not least due to the advancing harmoniza-tion on the european and, to a lesser extent, on the international level. Thus, speaking of an overregulation in certain branches does not appear to be out of touch with reality anymore.

More often than not enterprises are subject to compliance obligations regarding various legal areas, such as:

• Human resources management
• Labor criminal law
• Bankruptcy law
• Data protection law.

Bigger enterprises and company groups can additionally experience compliance risks in the following legal areas:
• Exchange and capital market law
• M&A transactions
• IT security
• Environmental protection
• Product development and product recalls
• Antitrust law and many more.

Partikular focus: economic (white colar) crimes

Regardless of the company´s size, special attention has to be paid to compli-ance requirements which, if not followed correctly, may result in criminal penal-ties and harm the economic growth, particularly in the area of:

• The fight against money laundering
• The fight against tax evasion (tax compliance) as well as
• The fight against corruption.

Thus, the Global Compliance Forum commences its work with the examination of these highly sensitive topics. In order to meet the challenge of processing these extensive topics and especially presenting according solution concepts, being elaborated with private financial actors, diplomats and public authorities, the Global Compliance Forum will dedicate an extensive paper to each of the three aforementioned areas of economic crime.

While doing so the Global Compliance Forum also has the responsibility to balance the public and commerical interest in criminal prosecution against the financial actors´ commercial rights including data protection concerns with utmost scrutiny.

Since many financial actors are merely „intermediaries“ with regard to the ac-cording property crimes, the topic „third party compliance“ has also to be taken into consideration. „Third party compliance“ deals with the evaluation and mini-mization of risks which may arise within a company as a consequence of busi-ness practices with external parties.

Significance for the market economy

Regardless of the company´s size, special attention has to be paid to compli-ance requirements which, if not followed correctly, may result in criminal penal-ties and harm the economic growth, particularly in the area of:

• The fight against money laundering
• The fight against tax evasion (tax compliance) as well as
• The fight against corruption.

Thus, the Global Compliance Forum commences its work with the examination of these highly sensitive topics. In order to meet the challenge of processing these extensive topics and especially presenting according solution concepts, being elaborated with private financial actors, diplomats and public authorities, the Global Compliance Forum will dedicate an extensive paper to each of the three aforementioned areas of economic crime.

While doing so the Global Compliance Forum also has the responsibility to balance the public and commerical interest in criminal prosecution against the financial actors´ commercial rights including data protection concerns with utmost scrutiny.

Since many financial actors are merely „intermediaries“ with regard to the ac-cording property crimes, the topic „third party compliance“ has also to be taken into consideration. „Third party compliance“ deals with the evaluation and mini-mization of risks which may arise within a company as a consequence of busi-ness practices with external parties.

Fight agains money laundering

Compliance obligations steadily increase on a national and particularly on an international level. Due to the endeavors of the FATF and the EU parlament, already four Anti-Money Laundering EU Directives have evolved by now. Their implementation into national legislation has created a complex body of rules consisting of a wide variety of monitoring, audit and information duties aimed at private financial actors.

The latter are of particular importance since in those instances a legally obliged private financial actor has to evaluate a suspectful transaction with regard to a possible criminal liability bevor notifying the FIU – despite of the law enforce-ment authorities being actually responsible for this task. As this had been stipu-lated in the Anti-Money Laundering EU Directives, an according procedure has also been implemented in other EU member states.

Fight agains tax evasion

A similar development is also noticable with regard to the fight against tax eva-sion (tax compliance), which is partially inseparable from money laundering from a legal point of view. The increasing number of international transactions and the mobility of taxpayers, resulting from unrestricted European freedom of movement, have increased the risk of tax evasion exceptionally. Given the dif-ferences between the taxation models of the individual EU member states and unintended tax loopholes, many criminally liable transactions remain undiscov-ered and unpunished. Therefore, mere national measures are insufficient for an effective fight against tax evasion on a european and all the more on a global level.

Apart from a wide variety of Double Taxation Avoidance Agreements (DTAA) and multilateral international treaties or manifold Tax Transparency Conven-tions between the European Union and non-member countries, in recent years also a further development of the directive 2011/16/EU on administrative coop-eration in the field of taxation has taken place. The initial directive already pro-vided plenty of compliance obligations in the form of information transfer duties between the member states´ tax authorities, including the automatic exchange of information. The authorities themselves obtain the necessary information on the basis of national compliance obligations of the financial actors beforehand. In the past several years the amount of these obligations was expanded con-siderably by the amending directives 2014/107 EU and 2015/2376 EU. The lat-ter directive in particular can be regarded as an aftermath of the Luxemburg-Leaks affair and has added advance cross-border rulings and advance pricing arrangements to the mandatory informations subject to the automatic exchange of information.

Additionally, the national implementation of the US Foreign Account Tax Compliance Act (FATCA) is also worth noting. In this case national financial insti-tutes as well as other obliged financial actors as lawyers and accountants transfer information concerning accounts with an US reference to the national tax authority, which subsequently transfers the data to the US Internal Revenue Service (IRS) and vice versa. Dozens of other states follow a similar procedure. The implementation of the FATCA is another example bearing considerable obstacles in the compliance sector.

After all, a numerous amount of other regulations, directives and national provi-sions stipulate a wide variety of compliance obligations directed at official authorities as well as subjects of private law in order to ensure an effective ex-change of information. Frequently, this can only be achieved by combining the different regulations. Details shall be discussed in separate papers dedicated to the subject.

Fight agains international corruption

Oftentimes, tax evasion and money laundering are closely connected to corrup-tion. On the international level, corruption is liable to prosecution according to several conventions and their national implementation acts. On this occasion, statutory acts as the European Union Anti-Corruption Act (EU-Bestechungsgesetz, EUBestG) and particularly the Act of Combating Interna-tional Bribery (Gesetz zur Bekämpfung internationaler Bestechung, IntBestG) as an implementation act of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions come to mind. The OECD also issues directives and recommentations on the fight against in-ternational corruption , most recently in the anti-corruption recommendations from the year 2009 .

Private enterprises are also subject to high compliance requirements regarding anti-corruption, particularly since corruption crimes can not only be commited by government officials according to sections 331-338 (bribery in public office) of the German Criminal Code (Strafgesetzbuch, StGB) but also by private actors, e.g. in case of anti-competitive agreements during an invitation to tender or bribery in commercial business transactions according to sections 298-302 StGB.

Such national provisions partly represent implemenatation acts of international anti-corruption requirements and are thus applicable to international circum-stances. As an example, section 298 StGB is also applicable to EU wide invita-tions to tender and even to those in the European Economic Area (EEA), whereas the latter are not even subject to the EU public procurement law per se.

Therefore, the Diplomatic Council Global Compliance Forum´s remit is also to enter into a dialogue with the relevant financial actors on anti-corruption compliance for the purpose of its systematic processing, with a particular focus on a practical orientation.

Sensitivity of the subject

Many times, financial actors are not even conscious of becoming offenders or participants of economic crimes regardless of their economic relevance, let alone any calculated links with organized crime. Supposedly legal tax-saving schemes or „chain-transactions“ often take on criminal dimensions if the parties involved are unaware of the particular thresholds of criminal liability and their compliance obligations.

Bearing this in mind, the Diplomatic Council Global Compliance Forum also intends to act and to highlight the relevant grey areas of the according crimes in the succeeding pa-pers, particularly focusing on the economic crimes´ subjective requirements.
On the other side of the coin, there are the affected parties´ substantial rights to freely exercise their economic activity. These rights are being comprehensively expressed in the European Fundamental Freedoms and must not be neglected.

The right to confidential treatment of finance data in particular is steadily gaining in importance and is more topical than ever, last but not least because of the new European General Data Protection Regulation, which has already entered into force and will be directly applicable from May 25th 2018.

It is therefore absolutely mandatory to reconcile the affected parties´ rights and the public but also private necessity for the fight against economic crime in an adequat way.

We are very much looking forward to this challenge and the lively and fruitful expert exchange with the parties involved.

Experts and executives who are interested in an exchange on the aforementionted topic areas are welcome to contact the responsible DC Chairman for further information:

Dr. Thomas Durchlaub, MBA durchlaub@diplomatic-council.org