You joined Arendt in Luxembourg about four months ago. How is it going?
Stéphanie Lhomme. - “Very well, I already knew a bit about Luxembourg, its corporate specificity, funds and banking institutions. Joining a large law firm with an integrated investigation team in Europe means a lot to me, having previously worked in the US where the model is very common. It is increasingly common in London and much less so in Europe, which makes Arendt Luxembourg's initiative almost unique in a context where this type of service has become really critical for clients.”
Did the financial crime department that you head already exist before you arrived? What will you bring to it?
"There was a litigation department, financial litigation on the legal side. What I bring is a more advanced level of investigation on the non-legal aspects. We don't just do crime and not just financial. I work upstream of crime on prevention through very advanced due diligence, on anti-corruption and anti-fraud compliance and with the AML service (anti-money laundering, ). When there is a problem, I also intervene downstream in the search for information. There is in fact a financial aspect, corruption, money laundering, but sometimes the financial link is indirect in the case of data theft or unfair competition.”
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How many people do you have in the team and what profiles do they have?
"I am in the process of building my team. I have specialists in information retrieval, risk management, forensic accountants and computer forensic experts, all of whom carry out their tasks with a focus on investigation. The idea is not necessarily to have large teams, but senior teams, because the subjects are complex. Profiles are difficult to find, because you need to have both a lot of expertise and experience and the mindset to go into detail.”
You have several degrees (ESCP, ENA, SC PO...) and are a reservist in the French Navy. You could have made a career in diplomacy or in intelligence within a state agency. Are experts in the fight against financial crime called upon to act as close as possible to the organs of power?
"My main education is business school and an MBA in the US and I have 15 years of experience in international M&A which naturally led me to this profession. My career is in business and transactions, and when you get into corporate restructuring, there are cases of corporate abuse and so on. Being a reservist has taught me a lot about not thinking in a pyramid fashion in project management, because the army is very advanced in this respect compared to the private sector. It also helped me on a human level. But no, I have never worked for the state. There is no porosity between the private sector and the government in Europe, unlike in the United States, for example. When a government is considering a regulation or an anti-corruption law, it can create working groups and I can be asked to participate, as some of my colleagues have already done, with the agreement of the firm.”
Today, the existing due diligence procedures are insufficient in the face of the complexity of the schemes developed to hide the final beneficiaries.”
What types of investigations do you carry out in Luxembourg, which has rather restrictive regulations on money laundering and the fight against corruption?
"It goes beyond the regulatory. The internal fraud investigation part can concern any type of entity: corporate, bank, start-up, fund, public bodies... We are talking about misuse of corporate assets, misappropriation of clients, misappropriation of funds... in this case, there is not necessarily any intervention from the regulator. Internal investigation also includes computer forensics for research related to digital technology (computers, servers, emails, etc.), on which all companies depend today and where there is a lot of exploitable data. We also provide support for litigation and post litigation, to find assets to be seized.
On the prevention aspect, an example: we can intervene at the request of a client who wants to make an acquisition (company, fund, etc.) and asks for a very thorough search for information about it. The due diligence that we carry out goes well beyond KYC (for 'Know Your Client') to find out whether the acquisition risks problems of fraud, money laundering or corruption that could impact the value of the investment. In Luxembourg, we are mainly concerned with AML issues, sometimes with corruption and fraud aspects, the three being often linked, with a regulatory aspect. Today, the existing due diligence is insufficient given to hide the final beneficiaries. Our role is to go further, to determine the origin of the funds, and this is where we work firm's , including on regulatory aspects.”
Can you respond to a direct request from the CSSF?
"No, I act through our clients, represented by their counsel (lawyers). They can be asked to provide evidence to the regulators. Here, it will be the Commission de surveillance du secteur financier, the Commissariat aux assurances, and the Police judiciaire, but it can also come from one or more foreign regulators, for example the French Parquet, the competition authority, the US Department of Justice...”
Luxembourg has a reputation for strong and robust compliance. Is this a competitive advantage?
"Yes, absolutely. The issues are transnational in nature. Today, if a company wants to become a subcontractor of an Anglo-Saxon group and is not 'compliant' with anti-corruption laws, it has no chance of being selected for tenders. In the US, an investment fund that makes an acquisition without doing maximum due diligence on corruption liability inherits criminal liability in the acquired company. Some investors require management companies to have anti-corruption procedures in place before investing with them. For the firm, as for Luxembourg, it is therefore undeniably a competitive advantage to develop pragmatic forensic expertise, which is akin to in-depth documentation of the decision-making process, coupled with a strong compliance requirement for lawyers in this area.”
Will the sanctions against Russian entities intensify your investigative work?
"There are Russian assets all over the world... Some will be easily identifiable, others less so, not necessarily illegally. But if Europe demands to freeze all Russian assets, there will be more work to do in finding the final beneficiaries. Some of our clients will want to ensure that there are no hidden assets that escape sanctions."
This article is from the Paperjam Finance newsletter, the monthly rendez-vous to follow financial news in Luxembourg.