Key Findings

1. Financial services is a key sector of Jersey’s economy accounting for approximately half of the total economic activity and a quarter of the workforce (approximately 13,400 employed). The banking, fund administration, and trust company sectors dominate, supported by extensive legal and accountancy practices. Financial services expertise and international reputation have been significant in attracting business to Jersey, as has the close working relationship with the U.K. financial system and the availability of favorable tax arrangements, in a developed, stable, and well-regulated jurisdiction.

2. A substantial proportion (believed to be around 90 percent in some sectors) of customer relationships is established with nonresidents. Arising from the nature of services provided and the typically nonresident, non face-to-face nature of much of the client relationships, Jersey’s financial sector is inherently exposed to the risk of money laundering, particularly in the layering and integration phases. No particular vulnerability to terrorism financing (FT) was noted.

3. Jersey has put in place a comprehensive and robust AML/CFT legal framework with a high level of compliance with almost all aspects of the FATF Recommendations. The key elements were first introduced in the 1980s and have been kept updated, most substantially in the last two years to reflect the 2003 revision of the FATF Recommendations, in parallel with the implementation by EU member states of the EU Third AML Directive.

4. Both money laundering (ML) and financing of terrorism (FT) are criminalized largely in line with the international standard and Jersey has implemented the provisions effectively. With respect to both offences, however, some technical shortcomings have been identified that may limit somewhat the scope of criminal confiscation and the effectiveness of procedures for freezing of terrorist assets.

5. The Joint Financial Crime Unit (JFCU) carries out the role of a financial intelligence unit effectively and is benefiting from an increase in its resources. The JFCU receives a satisfactory flow of suspicious activity reports (SARs), mostly from banks and trust businesses (TCBs). Overall, there is scope to improve the timeliness of SAR submission and to increase the range of types of entities submitting SARs. Once the JFCU receives a SAR, it can consent or not to the financial activity that gave rise to the SAR. Nonconsent has the same effect as a freezing order.

6. Jersey has adopted a risk-based approach to AML/CFT at all levels–in determining the scope of AML/CFT requirements, in designing implementation measures, and in supervision. There is a high level of awareness of AML/CFT risks and requirements across the financial sector.

7. Jersey has a high level of compliance with the FATF Recommendations on preventive measures, with most deficiencies noted being technical in nature. CDD requirements for legal entities, trusts, and politically exposed persons (PEPs) largely comply with the international standard. One material issue relates to the extent of the concessions allowed to financial institutions and certain DNFBPs to rely on intermediaries and introducers in conducting CDD. While mostly valid in principle, the concessions do not comply fully with the international standard. The resultant increase in risk is partially mitigated by strong Jersey Financial Services Commission (JFSC) supervision.

8. AML/CFT requirements for DNFBPs are largely the same as those applied to financial institutions. With the exception of trust company businesses, for which regulatory controls were well established and robust, AML/CFT measures for some DNFBP business were too recent to permit a realistic assessment of the effectiveness of implementation.

9. The JFSC is an effective regulator and supervisor for financial institutions and TCBs in Jersey and its AML/CFT role has been extended to include all other DNFBPs and money service businesses. Arising from its program of on-site inspections, many financial institutions and TCBs were required to implement CDD remedial measures. The range of available sanctions was found to be largely effective, proportionate, and dissuasive, but could be enhanced by providing the JFSC with the power to apply monetary fines.

10. With mandatory registration with the Registrar of Companies, Jersey has measures in place to obtain, maintain, and verify beneficial ownership information for companies, of which more than 34,000 were registered, most being private companies. Trusts have long been established in Jersey but no statistics are maintained on their number. Although trusts are not subject to any registration requirements, acting as a trustee is (with a few exceptions) a regulated activity and is subject to AML/CFT requirements, including to obtain, maintain, and verify beneficial ownership information.

11. Day-to-day cooperation on AML/CFT issues between the domestic authorities is close and effective. The Jersey authorities established in 2007 an AML/CFT Strategy Group to, inter alia, coordinate policy in implementing the FATF Recommendations.

12. At the international level, the legal framework for mutual legal assistance (MLA) and extradition is largely in place and effective. The JFCU is an active member of the Egmont Group and frequently exchanges information with other financial intelligence units. The JFSC is active in international cooperation and in a position to share information subject to appropriate safeguards. There is no statutory banking secrecy provision.

Legal Systems and Related Institutional Measures

13. Both ML and FT are criminalized largely in line with the international standard. All relevant offences under the standard are criminalized. However, the offences of acquisition, possession, or use do not extend to self-laundering and the scope of the offences of “concealing or disguising” and “converting or transferring” is not sufficiently wide due to the requirement that these acts are carried out with the purpose of avoiding a prosecution for a predicate offence. For terrorism-related ML, not all elements of the ML provisions of the Palermo and Vienna Conventions are covered. The FT offence does not extend to all offences under the FT Convention. These omissions also impact to some extent on the scope of criminal confiscation. Some further steps are needed to improve the effectiveness of procedures relating to requests for freezing of terrorist assets.

14. Jersey’s implementation of UNSCRs 1267 and 1373 is largely sufficient but attention should be given to procedures governing the receipt and assessment of foreign requests and to providing greater clarity regarding coverage of assets that are jointly or indirectly owned or controlled.

15. The JFCU-a joint police/customs unit-carries out the role of a financial intelligence unit effectively. The assessors welcomed the decision of the authorities to provide the JFCU with additional resources to deal with its expanding workload and allow it to provide additional guidance to reporting entities and improve its statistical database. Most of the SARs are received from banks or TCBs. Once the JFCU receives a SAR, it can either consent to the financial activity mentioned in the SAR or not. The effect of a consent may be to provide a defense against a potential charge of money laundering. Conversely, the absence of a consent inhibits the service provider from completing any financial service for the customer for fear of committing a money laundering offense, which has the same effect as a freezing order. Of course, it could also expose the reporting institution to potential litigation from the affected customer.

16. The legal framework for the investigation and prosecution of ML and FT offences operates effectively. The resource constraints affecting the JFCU had impacted on their capacity to conclude investigations and, by extension, on the development of cases for prosecution. It is clear from the statistics, however, that the AG is quite prepared to pursue ML-related cases and prosecute them in the Jersey Courts. In the period 2005-08, there were 12 relevant prosecutions, of which 10 resulted in a conviction for ML, and a substantial amount of funds was seized and confiscated. Jersey introduced a disclosure system for cross-border currency movements in January 2009 in line with the international standard but, as this occurred post-assessment, it was not possible to assess its effectiveness.

Preventive Measures—Financial Institutions

17. The primary legislative foundation for customer due diligence (CDD) and other preventive measures is the Proceeds of Crime (Jersey) Law 1999 (POCL), which defines ML to also include FT offences. The specific requirements are set out in detail in secondary legislation in the Money Laundering (Jersey) Order 2008 (MLO). This is supplemented by a Handbook issued by the JFSC in 2008 which includes further requirements (which qualify as other enforceable means (OEM) for purposes of the assessment), as well as additional guidance. The updating of the requirements in 2008 followed extensive consultations with industry and sought to address the detail of the international standard.

18. Jersey’s CDD requirements comply with the FATF Recommendations in most respects and the deficiencies identified during the assessment are largely technical. A more material issue relates to the extent of the concessions allowed to financial institutions and certain DNFBPs to rely on intermediaries and introducers in conducting CDD; while valid in principle, the concessions are an overly-generous interpretation of the international standard and may increase the risk of abuse in some respects. However, the assessors noted that compliance with Jersey’s CDD requirements was being tested by the JFSC through on-site inspections and that, in availing of the concessions, at least some reporting institutions applied additional controls in practice.

19. Customers and ultimate beneficial owners are required to be identified in all relevant cases (subject to the concessions mentioned above). Detailed CDD requirements apply to legal entities and trusts and enhanced due diligence is required for higher risk customers, including politically exposed persons (PEPs). Records of customer identification and of transactions must be retained for at least five years. All suspicious activity in relation to ML or FT is required to be reported to the JFCU.

20. While the volume of SARs reported to the JFCU appeared satisfactory, there is some scope to improve the timeliness of reporting. Banks and TCBs accounted for the bulk of the reported SARs, although efforts were being made to encourage other reporting entities to increase filing rates. The legal protection for those filing should be limited to those acting in good faith and the tipping-off offence needs to be broadened to comply with the international standard. There was no requirement for financial institutions to have an independent audit function to test for AML/CFT compliance.

21. Implementation of AML/CFT measures by Jersey financial institutions is generally strong. The assessors found a high level of awareness of AML/CFT risks and requirements during their discussions both with the authorities and the private sector, including banks and other financial institutions, trust company businesses, lawyers, and accountants.

22. The JFSC has demonstrated that it is an effective regulator and supervisor for financial institutions and TCBs in Jersey and, for AML/CFT purposes, its role was extended in 2007 to cover money service business and in 2008 to include the remainder of the DNFBPs-in particular lawyers and accountants. In addition to taking a leading role in consultation and outreach, the JFSC has been delivering an active program of on-site inspections, including for AML/CFT. Many financial institutions and TCBs had been required to implement remedial measures to bring their CDD information, including on beneficial owners, into line with the latest requirements. While implementation in some TCBs was found to be effective, serious deficiencies identified in others have resulted in sanctions, including termination of businesses in Jersey in some cases. The range of available sanctions was found to be largely effective, proportionate, and dissuasive, but could be enhanced by providing the JFSC with the power to apply monetary fines.

Preventive Measures—Designated Non-Financial Businesses and Professions

23. CDD obligations for DNFBPs are largely the same as for financial institutions. Trust company business is defined as a “financial service business” and has been supervised with increasing rigor by the JFSC since it was first brought within its ambit in 2000. As a strong proponent of international regulation of trust businesses, Jersey has been to the fore in seeking to develop international standards in this area and to implement effective measures domestically. As trust and corporate-related business may represent the highest overall reputational risk to Jersey’s financial services sector, it is important that the close monitoring is continued.

24. With the extension in the scope of AML/CFT requirements in 2008 to include the remaining DNFBPs, Jersey is well placed to achieve full compliance with the international standard. Lawyers and (to a lesser extent) accountants in Jersey are heavily engaged in providing trust, investment, and wealth-management services, mainly to nonresident clients and have been subject to prudential oversight in respect of these activities for some time. However, as they (in respect of auditing, accounting, and legal services) and other DNFBPs (estate agents, high value dealers) have only recently become subject to AML/CFT oversight in respect of DNFBP activities, the effectiveness of implementation could not be fully tested at the time of the assessment. The JFSC has established an AML unit to address the new areas of responsibility. While it is too soon to fully assess the unit’s effectiveness, initial progress appears positive and additional resources might be warranted as the work expands. There are no casinos in Jersey, though, as a result of a recent change in the law, some support services could be based there in future.

Legal Persons and Arrangements and Non-Profit Organizations

25. Company registration and the establishment of trusts are significant activities in Jersey and are subject to strong AML/CFT requirements. Jersey law allows for the incorporation of public and private companies and limited liability partnerships (LLPs), subject to registration with the Registrar of Companies. Close to 34,000 companies were registered at the time of the assessment, a large majority being private companies. All information from the companies’ register is publicly available, including online. Pursuant to the Control of Borrowing (Jersey) Order 1958 (COBO), beneficial ownership information must be provided to the JFSC in respect of all registered companies. This information is not publicly available but may be accessed by court order. In addition, Jersey requires its TCBs to obtain, verify, and retain beneficial ownership information on client legal entities and the JFSC monitors compliance with this requirement.

26. Jersey trusts, which are widely used, are legal arrangements governed by the Trusts (Jersey) Law 1984. They are highly flexible and allow for the settlor to maintain, through a range of available mechanisms, significant influence over the trust property. Although there is no requirement for all trusts to be registered or to file information with a central authority, Jersey requires its TCBs to obtain, verify, and retain beneficial ownership information on client legal arrangements and the JFSC monitors compliance with this requirement. The JFSC has a wide range of powers to access any information and documentation held by registered TCBs and may require the production of information, the provision of answers to questions posed, and access to the premises of the supervised person. No statistics are maintained on the number of Jersey trust arrangements or the volume of trust assets administered in Jersey.

27. Non-profit organizations became subject from August 2008 to a requirement under the Non-Profit Organizations (Jersey) Law 2008 to register with the JFSC. Following the closing of the registration period in November 2008, the authorities should proceed to analyze the sector to seek to identify any FT vulnerability.

National and International Cooperation

28. The legal framework for mutual legal assistance (MLA) and extradition is largely in place and effective. More than 70 percent of MLA requests received were granted within three months. However, where dual criminality is required, the technical deficiencies in the ML and FT offenses may limit somewhat Jersey’s ability to provide MLA, including in extradition cases.

29. The Jersey authorities established in 2007 an AML/CFT Strategy Group to coordinate policy in implementing the FATF Recommendations. Day-to-day cooperation between the domestic authorities is close and effective. Formal gateways are in place to facilitate exchange of information.

30. At the international level, the JFCU is an active member of the Egmont Group and frequently exchanges information with other financial intelligence units. The JFSC is active in international cooperation and shares information subject to appropriate safeguards. There is no statutory banking secrecy provision and information sharing is subject to the common law duty of client confidentiality.

31. While an assessment of taxation matters is not within the scope of this assessment, it is worth noting that Jersey has been among the pioneers of Tax Information Exchange Agreements (TIEAs). Jersey voluntarily applies measures equivalent to the EU Savings Tax Directive offering the option of using the retention tax approach. While tax evasion is not a separate statutory offense under Jersey law, such conduct could be (and has been) prosecuted as “serious fraud” and as such, constitutes a predicate offense for money laundering.

Other Issues

32. The level of resources allocated to AML/CFT matters appeared generally adequate, taking into account the decision by the authorities to approve additional resources for the JFCU. The AG and JFSC are in a position to acquire additional legal expertise on contract to handle increases in case-load. The resources of the JFSC may need to be increased somewhat to adequately cover its expanded areas of AML/CFT responsibility, while maintaining the level of AML/CFT supervision of financial institutions and TCBs.

33. Relevant statistics are generally available and well maintained, though the JFCU would need to develop its statistical collection system to demonstrate what action results from submitted SARs, particularly as its workload increases.