Jersey
Financial Sector Assessment Program Update: Detailed Assessment of Observance of AML/CFT

Jersey has put in place a comprehensive and robust Antimoney Laundering/Combating the Financing of Terrorism (AML/CFT) legal framework with a high level of compliance with almost all aspects of the Financial Action Task Force recommendations. The paper discusses a Detailed Assessment of Observance of AML/CFT report on Jersey. Both money laundering and financing of terrorism are criminalized largely in line with the international standard, and Jersey has implemented the provisions effectively.

Abstract

Jersey has put in place a comprehensive and robust Antimoney Laundering/Combating the Financing of Terrorism (AML/CFT) legal framework with a high level of compliance with almost all aspects of the Financial Action Task Force recommendations. The paper discusses a Detailed Assessment of Observance of AML/CFT report on Jersey. Both money laundering and financing of terrorism are criminalized largely in line with the international standard, and Jersey has implemented the provisions effectively.

1. General

1.1. General Information on Jersey

34. Located 14 miles (22.5 kilometers) off the north-west coast of France and 85 miles (137 kilometers) from the English coast, Jersey is an island with a total surface area of 45 square miles. The resident population was officially estimated at end-2007 at 90,800 and has remained relatively stable in recent years. Persons wishing to buy and occupy property in Jersey must meet certain legislative criteria to become “residentially qualified” and 85 percent of the population has become so qualified through a period of residence (10 years for persons born locally; 12 years continuous residence for someone born outside Jersey).

35. Jersey is a self-governing British Crown Dependency. It is not part of the U.K. and is not represented in the U.K. Parliament. The U.K. Government is responsible for Jersey’s international affairs and defense, while Jersey has autonomy in relation to its domestic affairs, including taxation. The U.K. parliament does not legislate for Jersey without its permission: by a Framework Agreement, the U.K. will not act internationally on Jersey’s behalf without prior consultation. With such agreement, Jersey has been included in many international conventions to which the U.K. is a party. Under the terms of Protocol 3 to the U.K.’s 1973 Treaty of Accession, Jersey has a relationship with the European Union (EU) and is part of the common customs territory of the European Community, allowing for free movement of goods and trade with EU member states. However, Jersey is not part of the EU single market in financial services and the relevant EU Directives do not apply. However, in many cases, similar requirements have been put in place in implementing international standards for regulation and in the AML/CFT area. The local currency is the Jersey pound, which is on a par with the British pound (GBP). There are no exchange controls.

36. Jersey is a parliamentary democracy and its single-chamber parliament is called the Assembly of the States of Jersey (the States), which comprises a number of categories of elected representative and holders of certain positions ex officio—only elected members have the right to vote. The constitution of the States and its procedures are set out in the States of Jersey Law and related Standing Orders. The Executive of the States is the Council of Ministers, consisting of a Chief Minister and nine ministers, each with political responsibility for a civil service department. There are detailed and well developed mechanisms in place to support accountability and high standards of governance.

37. The Jersey economy has performed satisfactorily over the last decade, but some slowdown is currently expected in the context of global financial turmoil and the slowing of the British economy. Annual real gross value added (GVA) growth averaged 3.8 percent over 2003–07. GVA in 2007 is estimated at GBP4.1 billion. Gross national income (GNI), which measures income of Jersey residents and companies, is estimated at GBP3.7 billion. GNI per head is about GBP41,000 (44 percent more than in the U.K.).

38. Jersey has its own legal system and jurisprudence, which is a mixture of customary law and statute law. English law does not apply but the criminal law draws heavily on English common law in some areas and, where the statutory provisions are modeled on English Acts of Parliament, English cases are frequently referenced by the Royal Court of Jersey. However, in certain areas, Jersey has adopted laws to meet its own special circumstances.

39. No particular structural issues were identified in the course of the assessment that could give rise to an increased vulnerability to abuse of the system for ML or FT purposes. Standards of governance and transparency appear to be high. In the area of anti-corruption, Jersey has enacted the Corruption (Jersey) Law 2006 containing a comprehensive range of relevant offenses. Jersey has requested the U.K. to ratify on its behalf the UN Convention against Corruption, the Council of Europe’s Criminal Law Convention on Corruption, and the OECD’s Convention on Combating Bribery of Foreign Public Officials in International Transactions. The court system appears to be effective, including in cases directly relevant to money laundering, and indications point to high ethical and professional standards across the public sector. The assessors can confirm that they found a significant improvement in the overall culture of compliance across the financial sector by comparison with the more accommodating pre-2003 approach, as emphasized by many of the financial sector participants. Most legal and accounting professionals are members of professional bodies which carry out monitoring procedures for quality control and legal compliance and, as described later in this report, progress is currently being made regarding the implementation of AML/CFT measures by lawyers and accountants.

1.2. General Situation of Money Laundering and Financing of Terrorism

40. Jersey is, in general, a low-crime environment, though the authorities have a continuing concern regarding the increasing incidence of drug related crimes. Illegal drugs-heroin in particular-commands a very high price in Jersey relative to other jurisdictions, making it attractive for criminals to attempt to provide supplies to meet local demand. The customs and law enforcement authorities devote considerable resources to countering drug importation and related crime. On average over the past five years, approximately 10 percent of suspicious activity reports filed with the FIU were drug-crime related.

41. The authorities also identified that a significant component of suspicious reporting related to the proceeds of (mainly) foreign fraud and corruption, including in relation to nonresident politically exposed persons. The proceeds of foreign insider trading also featured.

42. More broadly, as discussed in detail in this assessment, the nature of the financial sector business conducted in or from Jersey creates a material vulnerability to being used in the layering and integration stages of money laundering schemes. As set out below, some characteristics of the Jersey financial system point to an elevated vulnerability to abuse for ML or FT purposes. While in reality not all of this business is high-risk, much of it would fall within the range of categories suggested by the FATF Methodology as examples of higher-risk business, including as follows:

  • A substantial proportion—believed to be around 90 percent in some sectors—of customer relationships and of financial services business conducted are on a non face-to-face basis for nonresidents of Jersey;

  • In many cases the business relationship is established through intermediaries or introducers (Jersey or foreign) that are subject to varying levels of regulation, depending on their origin. Subject to certain legal requirements, Jersey financial institutions are permitted to rely on the intermediaries or introducers to conduct CDD on their behalf. However, in general the CDD evidence is independently checked and CDD tests sometimes conducted again by the Jersey financial institution, employing a risk-based approach;

  • Financial services provided include private banking facilities for nonresidents; and

  • The use of legal persons and arrangements such as trusts is prevalent, both as asset-holding vehicles and as part of more complex structures that have the potential to create difficulties for Jersey financial institutions on occasion in accurately identifying the customer and the ultimate beneficial owner or controller.

43. This environment, designed to attract financial services business and employment to Jersey, brings with it a material risk of financial crime, typically emanating from other jurisdictions and seeking to avail of the financial services available in Jersey. This assessment will consider carefully whether and to what extent the preventive measures put in place in Jersey are adequate to measure, manage, and mitigate the resulting risk. Emphasis will also be placed on assessing the willingness of the Jersey authorities to cooperate with their international counterparts in addressing cross-border financial crime, and in assessing the effectiveness of the measures in place.

44. While the number of suspicious reports in relation to the financing of terrorism has been relatively low, the authorities report that the resulting investigations have been significant, involving close cooperation with the U.K.. There have been no convictions or prosecutions in Jersey for terrorist financing; neither have there been any domestic terrorist incidents.

1.3. Overview of the Financial Sector

45. The following table sets out the types of financial institutions that can engage in the financial activities that are within the definition of “financial institutions” in the FATF 40+9. It is evident that the banking and funds sectors dominate, while insurance business is not conducted on a significant scale from Jersey. All categories of financial institution are authorized and supervised, including for AML/CFT purposes, by the JFSC.

Statistical Table: Structure of Financial Sector-Financial Activity by Type of Financial Institution

1. Jersey-Financial Activity by Type of Financial Institution-December 31, 2008

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Overview of the Money Service Business

46. The independent money services sector in Jersey is small. Bureau de Change services are offered by offices of major travel agencies and by the Jersey Post. Some hotels have until recently offered limited exchange services but, with the prospect of new regulation, most have curtailed this activity to avoid the threshold for regulation. Bureaux de Change typically deal with the public and for transactions that are well within the EUR15,000 threshold of Recommendation 5. They do not customarily handle exchange transactions for retail or commercial clients. Other than through banks, money transmission services are provided by agents of Western Union and MoneyGram. Jersey Post offers MoneyGram services but does not otherwise provide postal money transmission services. Outbound transmissions dominate, with a major portion of the business being remittances to Poland, Madeira, and Latvia by ethnic groups working in the Jersey service sector.

47. The authorities and the money service sector are not aware of any hawala-style remittance arrangements operating in Jersey.

1.4. Overview of the DNFBP Sector

48. As set out in detail in section 4 of this report, the JFSC’s supervisory responsibilities were in the course of being extended at the time of the on-site visit to include not just Trust Company Businesses (TCB) (which have been regulated and supervised for a number of years) but also the supervision for AML/CFT purposes of the other categories of Jersey’s DNFBPs. The number of businesses in each category is set out in the following table.

2. Jersey-Designated Non-Financial Businesses and Professions-December 31, 2008

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Trust and Company Service Providers

49. As defined in the Financial Services Jersey Law 1998 (FSJL), the trust company business in Jersey encompasses any person that carries on a business that involves the provision of company administration services, or trustee or fiduciary services and who also carries on a prescribed activity. The trust company business sector is a large and integral part of the financial sector. According to the JFSC, 186 entities are registered to carry on the trust company business, some of which are registered to undertake a range of TCB activities. Employment in the TCB sector is estimated to be about 5,000. TCBs vary widely in the range of services and products they offer, in their size and in their corporate structure. A handful of very large TCBs are affiliates of Jersey law firms, and a few are affiliates of banks. More commonly, TCBs are unaffiliated Jersey companies, many of which have offices in other jurisdictions. The majority of employment in the sector is accounted for by bank affiliated TCBs.

50. The business lines of TCBs are typically categorized as company and trust administration, private wealth management for high (and ultra high) net worth clients, formation and administration of structured finance products, and employee benefit solutions. Firms typically specialize along product and service lines, and according to the geographic source of business. While the U.K. accounts for a large share of TCB clients, the client base is widely distributed across Europe, the Middle East, Latin America and Africa, and, to a lesser extent, Asia. Private client work is the core activity of much of the TCB sector but work for corporate clients has grown rapidly in recent years, particularly in the area of pension and employee benefit structures.

Lawyers

51. The legal profession in Jersey consists of advocates, who have a right of audience before all Jersey Courts, and solicitors, who have a right of audience in the Petty Debts Court. Educational as well as other admission requirements for both categories are provided for in the Advocates and Solicitors (Jersey) Law 1997. In addition, lawyers admitted under the law of a foreign jurisdiction may operate in Jersey, albeit they may not practice Jersey law. While a limited number of notaries are active in Jersey, they do not handle or provide services in respect of any property transactions. To become a notary under Jersey law, an individual must pass the notaries examination.

52. Jersey lawyers provide a wide range of legal services, including litigation, corporate and commercial law, real estate law, will and estate planning, and representation before the courts in criminal and civil cases. Many law firms also provide trust and company services, albeit through a legal entity that is separate from the law firm and is licensed as a TSCP. At the time of the assessment visit, the Jersey legal profession consisted of 350 members, of whom 25 percent were solicitors and 75 percent advocates. In addition, 200–250 lawyers qualified under a foreign jurisdiction, in particular the UK, and around 30 notaries, were operating in Jersey.

Accountants

53. Approximately 42 firms in Jersey offer accountancy services, including offices of the Big Four and a range of smaller local firms and sole practitioners. Larger firms provide audit, tax, insolvency, and advisory services, with audit work for multi-national financial institutions representing a large share of their work. A significant number of accountants work for Jersey trust companies. In some cases local accounting practices include a trust company. However, audit firms with a large international client base tend to avoid direct involvement in the trust business due to potential customer conflicts. Advisory work for both corporate and private clients can be a significant avenue of business development for Jersey trust companies.

54. The Jersey Society of Chartered and Certified Accountants (JSCCA) is a professional association representing the interests of its membership. However, there is no professional body of accountants established in Jersey that could issue its own code of ethics or set standards, certify qualifications, or discipline members. Many in the profession are members of the Institute of Chartered Accountants of England and Wales or similar professional bodies and come under the disciplinary framework of those bodies.

55. With the coming into force of the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 (SBL) in September 2008, Jersey accountants as defined in Schedule 2 of the Proceeds of Crime (Jersey) Law 1999 (POCL), are subject to regulation by the JFSC for compliance with AML/CFT obligations. As of October 28, 2008, some 22 persons had requested registration. Application for registration extended through December 19, 2008, at which date 25 accountancy firms had registered.

Real Estate Agents

56. The main activities conducted by Jersey estate agents concern local and overseas property transactions and lettings. Jersey has adopted the FATF definition of estate agents which covers the buying and selling of real estate. In Jersey, conveyancing is always handled by a Jersey lawyer and no movements of funds are conducted by estate agents. The estate agency business is tiered, with three large firms accounting for about two thirds of the total business, ten or twelve mid-size firms competing actively for business, around a dozen mid-sized firms competing actively for business and around 20 small offices (some small traders) conducting limited business. At December 31, 2008, 15 estate agents had registered with the JFSC, with the remainder registering in 2009. A feature of the local residential property market is that ownership and occupancy are very tightly controlled because of the scarcity of space. All property conveyances require housing consent and must be recorded and approved and registered by the Royal Court. Consent and approval involve careful scrutiny of an individual’s identity, employment, and residency.

Dealers in Precious Metals and Precious Stones

57. In Jersey, the DNFBP categories of dealers in precious metals and dealers in precious stones consists of about a dozen long-established jewelry stores. The client base includes a significant proportion of international visitors who are attracted to the availability of high quality products and international brands at low-tax prices. High value sales paid for using debit and credit cards are not uncommon.

58. Jersey has taken the approach of bringing all high value dealers, not just jewelers, under the AML/CFT regime. With effect from September 2008, all high value dealers who are prepared to accept cash payment of EUR15,000 or more are subject to the Money Laundering (Jersey) Order 2008 (MLO) and are required under the Proceeds of Crime (Supervisory Bodies) (Designation of Supervisory Bodies) (Jersey) Order 2008 (SBO) to register with the JFSC. According to the JFSC, prior to introduction of the new requirements high value cash purchases of EUR15,000 were not common but they were noticeable among dealers in automobiles, jewelry, and yachts, and occasionally at hotels. Prior to formal introduction of the new regulatory requirements, some dealers indicated to the JFSC they might wish to register to be allowed to accept high value cash payments. With the August publication of the Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism for Estate Agents and Dealers in High-Value Goods (Handbook for Estate Agents and Dealers in High-Value Goods), however, most of these dealers have revised their plans and have instead told the JFSC that they will cease accepting cash payments of EUR15,000 or more. To date, no dealers have registered with the JFSC to be dealers in high value goods.

Casinos

59. Under the general prohibition of the Gambling (Jersey) Law 1964, as amended, casino gaming is illegal in Jersey, though it is possible for such business to be carried on outside Jersey by Jersey companies. Notwithstanding this prohibition, if casino gaming were to be legalized, the AML/CFT framework for DNFBPs would apply to casinos, as it applies to any gaming activities carried on outside Jersey by Jersey companies. Under Schedule 2 of the POCL “the business of operating a casino” is an activity subject to the MLO. Articles 4 and 13 of the MLO provides that identification procedures must apply to any transaction amounting to not less than EUR3,000 carried out in the course of operating a casino. This is in addition to identification measures that must apply where any business relationship is formed.

60. While casino gaming is illegal in Jersey, the Gambling (Remote Gambling Disaster Recovery) (Jersey) Regulations 2008 (Gambling Regulations) allow remote gambling operators to locate servers for online gambling activities (which could include casino gaming) in Jersey, but only as part of the provision for business continuity in cases of a verified disaster in their home jurisdiction. The Gambling Regulations require both gambling operators and local hosting facility providers to be licensed. Regulation 25 of the Gambling Regulations provides that it shall be a condition of a remote gambling facility provider’s license that the holder of the license and his or her employees or agents shall comply with the laws of Jersey relating to money laundering, drug trafficking, data protection, and terrorist financing. This allows both regulatory and criminal action to be taken where there is a failure to comply with the law.

61. The JFSC is not aware of any Jersey companies carrying on the business of operating a casino outside Jersey. At the time of the on-site visit, only one application for a remote gambling facility provider had been received (hosting) and is currently subject to due diligence checks by the Economic Development Department.

1.5. Overview of commercial laws and mechanisms governing legal persons and arrangements

Companies and Partnerships

62. Jersey companies are governed by the Companies (Jersey) Law 1991 (CL), which allows for the incorporation of public and private companies. While it is generally up to the members to decide whether a company shall be a private or a public company, companies that circulate a prospectus relating to their own securities or with more than 30 shareholders are in any case treated under the CL as public companies. As such, they have to have annual shareholder meetings, subject to members agreeing in writing to dispense with such meeting, and submit audited accounts and details of directors to the Registrar of Companies.

63. The shareholders of a public or private company may have limited or unlimited liability. A company may be formed as a par value or a non par value company, or as a guarantee company if it only consists of guarantor shareholders. A company may also be set up as a limited life company, if its memorandum provides for its winding up and dissolution upon the happening of a specified event or upon expiration of a fixed period of time. Any company may be incorporated as a cell company.

64. In addition to companies established pursuant to the CL, Jersey law allows for the registration, of Limited Liability Partnerships (LLP) pursuant to the Limited Liability Partnerships (Jersey) Law 1997, and of Limited Partnerships (LP) pursuant to the Limited Partnership (Jersey) Law 1994. General partnerships also operate in Jersey based on customary law. None of these partnerships is considered a body corporate and only the LLP has legal personality. LPs and general partnerships are considered legal arrangements. Of the later two, only limited partnerships are registered with the Registrar of Limited Partnerships.

65. Jersey companies, LPs, and LLPs are set up by way of registration with the Registrar of Companies. To incorporate a company and thus obtain legal personality, the memorandum and, if applicable, the articles of association as well as a statement containing the address of the registered office in Jersey and, in the case of a public company, the particulars of the company director(s) has to be provided to the Registrar. For LLPs, the Registrar has to be provided with a declaration, stating the name of the partnership, the address of the registered office and the name and address of each partner.

66. Public companies require at least two shareholders and two directors. Private companies have to have at least one shareholder and one director. All companies require a registered office in Jersey and one secretary. A company may only act as a director of a Jersey company if it is registered to conduct such activity pursuant to the FSJL and has itself no corporate director. The company secretary may be the same natural or legal person as the company director, unless he/she is a sole director. LLPs require a registered office but no secretary. All information and documentation provided to the Registrar pursuant to the CL is public information and available to any person, including online.

67. In addition to information that is collected by the Registrar under the CL and partnership laws, the JFSC obtains and administers beneficial ownership information pursuant to the relevant provisions of the Control of Borrowing (Jersey) Order 1958 (COBO) as outlined in greater detail under Recommendation 33. Information held by the JFSC pursuant to the COBO is not publicly available but may be disseminated by the JFSC to other supervisory agencies pursuant to Article 36 FSJL or accessed on the basis of a court order.

68. In addition to beneficial ownership information obtained by the JFSC, registered trust and company service providers are required under the MLO to obtain, verify, and retain beneficial ownership information on legal persons, and Article 8 of the SBL (and equivalent provisions in other laws) grants the JFSC a wide range of investigative powers to access any information and documentation held by such persons. Law enforcement authorities may apply for a court order to access any information and documentation held by TCBs.

69. As of December 31, 2008, 33,395 companies were registered in Jersey, of which 32,081 were private companies and 1,314 were public companies. Included in the total are 570 cell companies.

Trusts

70. Trusts constitute an important part of and are widely used in the Jersey financial services industry. Such legal arrangements are governed by the Trusts (Jersey) Law 1984 (Trusts Law) or, in the case of foreign trusts, by trusts laws from other jurisdictions. The Trusts Law does not require the use of a Jersey registered TCB in administering a Jersey trust, nor is there a registration requirement for trusts. In addition to the Trusts Law, the English law principles of trust law and equity are applied and recognized by the courts in Jersey insofar as they are not contrary to statutory law or local precedent.

71. A trust under Jersey law is a legal arrangement whereby a person (settlor) transfers assets or property to another (trustee), who holds legal title to those assets not in his own right but (1) for the benefit of another whether or not yet ascertained or in existence or (2) for any purpose which is not for the benefit only of the trustee or (3) for both. Jersey trusts are generally set up by way of deed, declaration or will, even though the Trusts Law allows for a trust to be created in any manner, including through oral declaration.

72. Jersey trusts are highly flexible and allow for the settlor to maintain a wide range of direct powers over the management and administration of the trust property. Jersey law allows for both the settlor and the trustee to be a trust beneficiary, including the sole beneficiary. The settlor may reserve an extremely wide range of powers with respect to the trust, including to amend or revoke the trust terms, to give binding instructions with respect to management of the trust property, to appoint or remove trustees, beneficiaries, enforcers, and protectors, to change the law of the trust, and to restrict any powers or discretion of the trustee through requiring consent of the settlor or any third person before any action may be taken.

73. Protectors, enforcers, as well as flee clauses are allowed under Jersey law, although the latter seems to be used only to a very limited extent. The Convention on the Law Applicable to Trusts and on their Recognition has been extended to Jersey and Jersey law recognizes foreign trusts through Article 3 of the Trusts Law.

74. The authorities do not maintain statistics or information pertaining to the number of trust arrangements or the amount of trust assets administered in Jersey.

Non Profit Organizations

75. Jersey does not yet have a body that is charged with the oversight of charities. On June 5, 2008, the States approved the Non Profit Organizations (Jersey) Law 2008 (NPO Law), which provides for non-profit organizations (NPOs) to register with the JFSC, and registration started on August 8, 2008. Following completion of registration of NPOs in December 2008, information on the number of NPOs (with breakdowns by size), form of NPOs (with numbers of entities in each category), estimated financial flows through the sector, and details of NPOs with international ties will be available for analysis.

76. It is already known that the Association of Jersey Charities has just over 200 members, that the Comptroller of Income Tax is aware of some 1,000 charities that have historically enjoyed tax exempt status, and that the Economic Development Department, which regulates gambling in Jersey, issues around 200 permits each year to charities, associations and clubs to run lotteries and bingo events on a noncommercial basis.

1.6. Overview of strategy to prevent money laundering and terrorist financing

AML/CFT Strategies and Priorities

77. Jersey has established an AML/CFT Strategy Group to coordinate AML/CFT efforts and which, in October 2008, published “An Island Strategy to Counter Money Laundering and the Financing of Terrorism” (see JFSC website). The Strategy Group includes representatives of all of the authorities with an AML/CFT role. It is chaired by the Chief Executive of the States and comprises the Chief Minister’s Department, the Economic Development Department, the Law Officers’ Department, the JFSC, the JFCU, and the Shadow Gambling Commission. The strategy document outlines the significance of AML/CFT measures to Jersey and the roles and commitment of the authorities in implementing them in line with international standards. It discusses key AML/CFT vulnerabilities for Jersey and sets out the basis on which the Strategy Group will coordinate efforts to address them, including through an annual review process. The document points out that, although this was the first time that such vulnerabilities were formally documented in this way, Jersey has been proactive over recent years in identifying ML and FT vulnerabilities, including through the progressive application of AML/CFT requirements to the trust sector from 1999 onwards.

78. Topics and vulnerabilities of strategic interest outlined in the October 2008 document include dealing with requests for assistance regarding assets in Jersey linked to insider dealing and market manipulation abroad, consideration of introducing a basis for civil confiscation, and the expansion of AML/CFT coverage to additional relevant businesses, including to lawyers and accountants.

79. The strategy document sets out three goals:

  • Raise awareness of obligations that are set out in legislation and Codes of Practice in those sectors considered to have lower awareness;

  • Raise awareness of typologies that are relevant to Jersey including the risks arising from the nature of the customer base and products associated with Jersey as an international finance centre;

  • Raise awareness of the importance of considering the competence and probity of employees at the time of recruitment and on an ongoing basis thereafter.

80. It also outlines work in progress in a number of areas:

  • Develop a picture of the size and nature of the NPO sector, for which CFT-related legislation came into force on August 8, 2008, and the risks that may be presented. Identify NPOs that may be more vulnerable to use in terrorist financing, and work with such NPOs to reduce that vulnerability;

  • Preparation for the application by States of Jersey Customs and Immigration Service (Customs) officers of controls on carrying cross-border cash in excess of EUR10,000, and the planned implementation of Special Recommendation IX.

The Institutional Framework for Combating Money Laundering and Terrorist Financing

81. Overall political responsibility for Jersey’s legislative and regulatory strategy to counter money laundering and terrorist financing rests with the Chief Minister. The Chief Minister is assisted in this area by an AML/CFT Strategy Group. The Minister for Home Affairs is responsible for the States of Jersey Police (Police) and Customs. The JFSC is accountable to the States through the Minister for Economic Development, including as regards the JFSC’s role in overseeing NPOs that raise and disburse funds in Jersey. The Minister for Treasury and Resources is responsible for the requirements that are placed on persons carrying on financial services business by the MLO and determining which persons are covered by those requirements (through Schedule 2 of the POCL).

Joint Financial Crime Unit (JFCU)

82. The JFCU is responsible for collection, analysis and dissemination of intelligence that is collected under reports made under AML/CFT legislation, and is a partnership between the Police and Customs. Along with the Law Officers’ Department, the JFCU conducts money laundering and terrorist financing investigations.

Attorney General / Law Officers’ Department

83. The Attorney General (AG), a Crown appointment, is head of the Law Officers’ Department, Jersey’s prosecution service, and is also the legal adviser to the Crown and the States (and its Ministers and Departments). The Law Officers and the JFCU work closely together not only in relation to this sharing of intelligence but also in identifying cases for investigation, the investigations themselves and in sharing information relevant to mutual legal assistance requests.

Customs and Excise

84. The Customs Service has responsibility for policing Jersey’s border and also provides the three officers that sit within the drugs proceeds confiscation wing of the JFCU - which has responsibility for financial investigations relating to drug trafficking in Jersey. The Service is responsible for seizing illicit drugs and ‘tainted cash’ (as defined in the Proceeds of Crime (Cash Seizure) (Jersey) Law 2008) (POC (CS) L))and is able to require cash disclosures from individuals entering and leaving Jersey (as of January 2009).

Jersey Financial Services Commission (JFSC)

85. The JFSC is an independent statutory body with responsibility for the registration and prudential oversight of banks, insurance companies, fund services businesses, investment businesses (investment managers, dealers and advisors), trust company businesses (trust and company service providers), general insurance mediation businesses, money service businesses, and fund products. It has responsibility for the oversight for compliance of the above sectors with AML/CFT requirements, as well as for checking that financial institutions have effective systems and procedures in place to comply with the implementation in Jersey of United Nations (UN) and EU sanctions legislation. The JFSC issues and maintains the Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism for Financial Services Business Regulated under the Regulatory Laws (Handbook for Regulated Businesses) which sets regulatory requirements and provides guidance to prudentially supervised persons. The JFSC also operates Jersey’s Companies Registry (covering companies, LPs and LLPs) and administers the Control of Borrowing (Jersey) Law 1947. The JFSC’s AML/CFT oversight remit has been extended to cover other persons that carry on financial services business and which are not prudentially supervised persons, through enactment in July 2008 of the SBL. It is now also responsible for registering NPOs under the NPO Law which came into force in August 2008.

86. Jersey has formed a “shadow” Gambling Control Commission, which is charged with the development of legislation to extend and regulate gambling activities. Legislation does not permit casinos to operate in Jersey.

Approach Concerning Risk

87. Jersey has adopted the risk-based approach to AML/CFT at all levels-in determining at the margins the scope of coverage of the AML/CFT requirements; in the direction given to industry to take risk into account in designing and applying appropriate CDD measures; and in the supervisory approach of the JFSC. The risk-based approach appears to be taken seriously in Jersey and awareness is exceptionally high on the part of both the authorities and the financial sector of the need to assess inherent risk and apply enhanced CDD measures where warranted. The JFSC has provided guidance on the proper implementation of the risk-based approach in Sections 2 and 3 of their Handbook for Regulated Businesses (and the handbooks for other sectors)-the former dealing with the assessment and management of risk at business level, and the latter with the application of a risk-based approach on a customer by customer basis. The JFSC expects each financial institution to develop a risk-based AML/CFT strategy and has been testing implementation as part of focused on-site examinations. At this relatively early stage, results have been shown to be mixed and it is not uncommon for institutions to be instructed by the JFSC to further develop their risk analysis and models.

88. At the broader policy level, the risk-based approach is also evident in the work of the AML/CFT Strategy Group, as described above, which is considering on an ongoing basis the vulnerabilities and sources of risk to which the Jersey financial sector is exposed. Overall, the assessors commend the Jersey authorities for their professional approach to the implementation of effective risk-based AML/CFT measures, including placing particular emphasis on training and awareness-raising, focusing primarily on enhancing due diligence in areas of perceived higher risk, and delivering a program of on-site internal controls and external supervision to test the quality of implementation. While much work remains to fully achieve effective implementation across all entities subject to AML/CFT requirements, impressive progress has been made to date, due to the strong commitment of both public sector and financial sector participants.

Progress Since the Last IMF Assessment

89. The AML/CFT measures in Jersey were last assessed by the IMF in 2002 (report published in 2003). The authorities published an action plan to address the recommendations made at that time, most of which have since been addressed in whole or in part. To an extent, the recommendations have been overtaken by the substantive revisions to the FATF Recommendations in 2003, which form the basis for the current assessment. However, a number of points are carried forward from the 2002 assessment and are included again among the recommendations in this report. For example:

  • Extension of the U.K.’s ratification of the Convention against Transnational Organised Crime to include Jersey is still awaiting action in the U.K.; and

  • While substantive action was taken, some issues remain regarding the effectiveness of the obligation to report suspicious activities.

90. Broadly speaking, however, Jersey has made substantial progress in addressing the recommendations of the 2002 assessment, in the context of addressing also the latest revision to the FATF Recommendations.

2. Legal System and Related Institutional Measures

Laws and Regulations

2.1. Criminalization of Money Laundering (R.1 & 2)

2.1.1. Description and Analysis

Legal Framework:

91. Jersey has criminalized money laundering through the POCL, the Drug Trafficking Offences (Jersey) Law 1988 (DTOL), and the Terrorism (Jersey) Law 2002 (TL). Whereas the offense defined in the POCL covers money laundering related to all predicate offenses, the DTOL and the TL are limited in scope to predicate offenses involving drug trafficking and terrorism, respectively.

Criminalization of Money Laundering (c. 1.1—Physical and Material Elements of the Offense):

92. As a Crown Dependency, Jersey is not a sovereign State and can therefore not sign or ratify international conventions in its own right. Rather, the United Kingdom (U.K.) is responsible for Jersey’s international affairs and, following a request by the Jersey Government, it may arrange for the ratification of any convention to be extended to Jersey.

93. The U.K.’s ratification of the Vienna Convention has been extended to Jersey on July 7, 1998. While Jersey has requested extension of the Palermo Convention on July 2, 2008, at the time of the onsite visit the U.K. had not yet granted the extension.

94. As indicated above, Jersey’s money laundering offenses are defined through three different acts: the POCL, the DTOL, and the TL. Whereas the offenses contained in the POCL and DTOL vary only in terms of scope but not with respect to the material elements, the TL’s money laundering offense is different also in terms of language and will therefore be discussed separately.

POCL and DTOL:

95. The money laundering offenses of the POCL extend to all offenses sanctioned with imprisonment for a term of one year or more, except drug trafficking offenses and offenses under the TL. In comparison, the money laundering offenses of the DTOL only relate to certain offenses defined in the Misuse of Drugs (Jersey) Law 1978 and the Customs and Excise (Jersey) Law 1999.

96. Articles 34 POCL and 30 of the DTOL provide that a person is guilty of money laundering if he (1) conceals or disguises any property that is, or in whole or in part directly or indirectly represents, the person’s proceeds of criminal conduct/drug trafficking or converts or transfers that property or removes it from the jurisdiction for the purpose of avoiding prosecution for an offense or if the person (2) knows or has reasonable grounds to suspect that any property is, or in whole or in part directly or indirectly represents another person’s proceeds from criminal conduct/drug trafficking and conceals or disguises that property or converts or transfers that property or removes it from the jurisdiction for the purpose of assisting any person to avoid prosecution for an offense/a drug trafficking offense. Articles 34(3) and 30(3), respectively, further state that the reference to concealing or disguising any property include references to concealing or disguising the nature, source, location, disposition, movement, or ownership or any rights with respect to it.

97. Articles 34 of the POCL and 30 of the DTOL provide criminal liability for the acts of “concealing or disguising” and the “converting or transferring” only if the prosecution can show that the purpose of the act is to avoid prosecution for a predicate offense. In comparison, the offenses of “conversion or transfer of criminal proceeds” as defined in the Palermo and Vienna Conventions are broader and require proof that the purpose of the act is either to conceal or disguise the illicit origin of the property or to help any person to evade criminal liability for the predicate offense. In addition, under the Vienna and Palermo Conventions, no specific purpose has to be proven for the “concealment or disguise” of the true nature, source, location, disposition, movement, or ownership of or rights with respect to criminal proceeds. Therefore, Articles 34 of the POCL and 30 of the DTOL are not sufficiently wide to meet fully the international standard due to the requirement to prove the outlined purpose in all cases.

98. While certain situations in which a purpose cannot be proven by the Jersey prosecutor could be covered by the offense of “assisting another to retain the benefit” of the commission of a predicate offense, the latter offense does not extend to self-laundering as outlined below and also requires proof of the existence of an “arrangement.”

99. Articles 33 of the POCL and 38 of the DTOL provide that “a person is guilty of an offense if, knowing that any property is, or in whole or in part directly or indirectly represents another person’s proceeds of criminal conduct/drug trafficking, he acquires or uses that property or has possession of it”, whereby it is expressly stated that “having possession of any property shall be taken to be doing an act in relation to it.” Articles 33(2) and 38 (2), respectively, further provide that it is a defense to a charge if a person acquired or used the property or had possession of it for adequate consideration, whereby he/she “acquires property for inadequate consideration if the value of the consideration is significantly less than the value of the property” and “uses or has possession of property for inadequate consideration if the value of the property is significantly less than the value of the person’s use or possession of the property.” The exception, although a defense for situations in which adequate consideration was provided, is beyond the standard as set forth in the Vienna and Palermo Conventions.

100. Jersey law requires that the prosecution has the burden of proving its case to the criminal standard. Occasionally, a statute provides for a reverse burden of proof, placed on the defendant, where a specific defense is conferred by the law. In those circumstances, the statute may provide that if a defendant can prove the elements of a defense to the civil standard which is by a preponderance of evidence, he/she has a right to acquittal. This is a concern with respect to Articles 33(2) of the POCL and 38(2) of the DTOL as it is not required that the defendant establishes that he was bona fide at the time of acquisition or use or having possession of criminal property. The defense would therefore be available even in situations where the defendant knew that the property stems from the commission of a predicate offense. While the authorities argued that in such cases the person could be convicted under Article 32 of the POCL or Article 37 of the DTOL, the assessors do not agree that this would eliminate the outlined problem for three reasons. First, Articles 32 of the POCL and 37 of the DTOL require proof of the existence of “an arrangement.” While Jersey courts have interpreted the term broadly, the fact remains that it is an element that has to be proven beyond reasonable doubt and, thus, the outlined provisions vary in scope from those of Articles 33 of the POCL and 38 of the DTOL. Secondly, Articles 33 of the POCL and 38 of the DTOL extend to self-laundering, while Articles 32 of the POCL and 37 of the DTOL are limited in scope to third party laundering. Thirdly, whether or not a defendant intends to establish a defense is generally not known until after specific charges have been brought. In practice this would mean that an abuse of Articles 33(2) of the POCL and 38(2) of the DTOL could be avoided only if the prosecution abstained in all circumstances from bringing charges under those Articles. This cannot be the solution either, as it would effectively render Articles 33 of the POCL and 38 of the DTOL irrelevant. In addition to the above discussed provisions, Articles 32 of the POCL and 37 of the DTOL provide that a person is guilty of money laundering if he enters into or is otherwise concerned in an arrangement whereby the retention or control by or on behalf of another (A) of A’s proceeds of criminal conduct/of drug trafficking is facilitated or A’s proceeds of criminal conduct/drug trafficking are used to secure that funds are placed at A’s disposal or used for A’s benefit to acquire property by way of investment and if he knows or suspects that A is or has been engaged in criminal conduct/drug trafficking or has benefited from criminal conduct/drug trafficking. While the first part of the provision overlaps to a certain extent with Article 34 of the POCL and 30 of the DTOL, the former requires proof of the existence of an “arrangement” whereas the latter require proof of a specific purpose.

101. Therefore, even though the outlined provisions cover all the material elements of the money laundering offenses as defined in the Palermo and Vienna Conventions, the assessors believe that the defense in Articles 33(2) of the POCL and 38(2) of the DTOL may be open to abuse by money launderers to avoid criminal liability for the acquisition, possession, or use of criminal proceeds.

TL:

102. Terrorism financing offenses are explicitly excluded from the scope of the POCL and money laundering offenses based on terrorism financing may therefore not be prosecuted under the above cited provisions. The TL 2002 itself, however, contains a money laundering provision applicable to terrorism related predicate offenses.

103. Pursuant to Article 18 of the TL, it is an offense to enter into or become concerned in an arrangement which facilitates the retention or control by or on behalf of another person of terrorist property, including through concealment, removal from the jurisdiction, the transfer to nominees, or through any other way. In discussions with the authorities it was clarified that the elements of the offense that have to be proven by the prosecution are: (1) the existence of an arrangement; (2) terrorist property; (3) that the arrangement facilitates the retention or control of another’s terrorist property; and (4) that the perpetrator knew or should have known at the time the arrangement was made that the property constituted terrorist property.

104. While Article 18 of the TL covers some of the material elements of the money laundering offenses as defined in the Vienna and Palermo Conventions, the requirement to prove all three elements as indicated above would not permit the application of the provision to the full range of situations required by the Conventions. For example, the offense would not cover situations in which a person converts or transfers criminal proceeds for the purpose of disguising or concealing the illicit origin of the property unless the existence of an arrangement can be established beyond a reasonable doubt. Equally, situations in which a person conceals or disguises the true nature, source, location, disposition of, or rights with respect to proceeds of crime would not be covered unless all three elements of the offense can be established. While the authorities held the view that the term “arrangement” would and has been interpreted by the Courts in a rather broad manner (Michel vs. AG), the fact remains that it is an element not provided for in the Palermo and Vienna Conventions but that has to be proven beyond reasonable doubt under Jersey law.

The Laundered Property (c. 1.2):

105. Articles 32 of the POCL and 37 of the DTOL 1988 define “proceeds” as “any property which in whole or in part, directly or indirectly, represent [… ] proceeds of criminal conduct/drug trafficking”. Article 1 of the POCL and of the DTOL further provide that “property” includes “all property, whether moveable or immoveable, vested or contingent, and whether situated in Jersey or elsewhere.”

106. Equally, Article 3 of the TL defines “terrorist property” as any property, which wholly or partly, directly or indirectly represent the proceeds of acts of terrorism, including payments or other rewards in connection with its commission. Article 1 of the TL further stipulates that “property” includes “all property, whether moveable or immovable, vested or contingent and whether situated in Jersey or elsewhere.”

107. None of the provisions expressly refer to corporeal and incorporeal property and legal documents or instruments evidencing title to, or interest in such assets. However, the distinction between “moveable or immoveable” property is one used not only with respect to the money laundering provisions, but is fundamental to many different areas of Jersey law. A commentary on “Jersey Insolvency and Asset Tracking,” for example, defines “moveable property” as all property that is not immovable property, including tangible and intangible property and “new economy assets” such as website domain names and software licenses. “Immovable property” is defined to include buildings, land and long term contract leases, and interest in land and buildings. It can be concluded that with respect to proceeds of crime the terms would be interpreted to cover the same scope and therefore extend to any type of property, including corporeal or incorporeal assets, and legal documents or instruments evidencing title to, or interest in such assets.

Proving Property is the Proceeds of Crime (c. 1.2.1):

108. The language of the provisions in the POCL, the DTOL, and the TL do not require a conviction for a predicate offense to prove that certain property constitutes proceeds of crime. This interpretation has been confirmed by the Royal Court in Michel vs. AG. While the law is silent on the standard of proof applicable to establish that property stems from an illegal source, the authorities stated that it would have to be established “beyond a reasonable doubt” that property stems from a specific predicate offense. This view was also held by the Royal Court in Michel vs. AG.

109. The authorities confirmed that the difficulties in obtaining sufficient evidence to meet the high standard of proof applicable to establish that the property in question is of criminal origin is one of the main challenges in obtaining convictions for the stand-alone money laundering offense, particularly in cases where the predicate offense has been committed abroad.

The Scope of the Predicate Offenses (c. 1.3):

110. As indicated above, the money laundering offenses of the POCL extend to offenses sanctioned with imprisonment of one year or more except drug trafficking offenses and offenses under the TL.

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111. All FATF designated categories of predicate offenses are covered, as outlined above. While tax evasion is not a separate statutory offense under Jersey law, the authorities stated that such conduct would be prosecuted as “serious fraud” and as such, would constitute a predicate offense for money laundering. In Michel vs. AG, the accused was convicted for stand-alone money laundering based on tax evasion committed abroad.

Threshold Approach for Predicate Offenses (c. 1.4):

112. Jersey has adopted a threshold approach for predicate offenses based on the penalty of imprisonment applicable to the predicate offense. The general money laundering offenses of the POCL refer to proceeds of criminal conduct, whereby Article 1 of the POCL defines “criminal conduct” as conduct which constitutes any offense sanctioned with imprisonment for one year or more.

113. For statutory crimes, the penalties are indicated for each offense. For customary law offenses penalties are always unlimited and thus all customary offenses constitute predicate offenses for money laundering.

Extraterritorially Committed Predicate Offenses (c. 1.5):

114. All three statutes defining money laundering offenses cover both conduct which constitutes a predicate offense in Jersey and any conduct committed abroad that would have constituted a predicate offense had it occurred in Jersey (Article 1 of the POCL and of the DTOL and Article 19 of the TL). Dual criminality is not required. There are also no jurisdictional provisions that would require any other link between Jersey and the perpetrator, such as citizenship or residence as long as the laundering offense has been committed in Jersey.

Laundering One’s Own Illicit Funds (c. 1.6):

115. Articles 34 of the POCL and 30 of the DTOL make it an offense for a person to conceal, disguise, transfer, or convert criminal proceeds both in cases where the property stems from the commission of a predicate offense by another or by the person himself.

116. The acquisition, possession, or use of proceeds of criminal conduct, however, is only criminalized if the property involved stems from another person’s criminal behavior and does not extend to self laundering. The authorities confirmed that there was no fundamental principle of Jersey law that would prevent the criminalization of self laundering for such conduct.

117. The TL does not extend the money laundering offense to situations where the terrorist or terrorist financer himself conceals or transfers property to maintain control over it. Rather, the offense only covers persons who do so for or on behalf of somebody else.

Ancillary Offenses (c. 1.7):

118. Article 42 of the POCL and Article 62 of the TL provide that a person who aids, abets, counsels or procures the commission of an offense under the cited laws shall be criminally liable. In addition, the common law offenses of attempt and conspiracy also apply with respect to statutory offenses (Martins vs. AG) and therefore apply with respect to the money laundering offenses.

119. Article 1 of the DTOL goes beyond the provisions of the POCL and the TL as it also provides for criminal liability for attempts to commit any offenses as defined in the DTOL or conspiracy to commit such crimes.

120. Jersey law therefore allows for the prosecution of all parties that may be involved in the commission of the money laundering offense. In all cases, persons committing an ancillary offense may be liable in the same manner as the principal offender to the penalty provided for that offense.

Additional Element - Could an act carried out overseas which does not constitute an offense overseas, but would be a predicate offense if it occurred domestically, lead to an offense of ML (c. 1.8):

121. As indicated above, all three statutes define money laundering to cover both conduct which constitutes a predicate offense in Jersey or would have constituted a predicate offense had it occurred in Jersey (Article 1 of the POCL and of the DTOL and Article 19 of the TL). Dual criminality is not required.

Liability of Natural Persons (c. 2.1):

122. The three money laundering offenses as outlined above are offenses for which intent is required and therefore apply to persons who knowingly engage in the conduct in question.

123. With respect to the property in question the required mental element varies depending on the actus reus:

  • With respect to the acts of concealing, disguising, converting or transferring of criminal proceeds, a person may be held criminally liable if the prosecution can establish beyond a reasonable doubt that the person knew or had reasonable grounds to suspect that the property in question stems from the commission of a crime.

  • For the offense relating to the acquisition, possession, or use of criminal proceeds, the required mens rea is actual knowledge that the property in question constitutes criminal proceeds.

  • For the acts of assisting another person to retain the benefit of crime it suffices that the prosecution can establish beyond a reasonable doubt that the perpetrator knew or suspected that the person with whom he/she entered into an agreement is or has been engaged in or has benefited from criminal conduct. While it is not required that the prosecutor establishes the perpetrator’s actual knowledge about the criminal source of the property involved, the defendant has a defense and therefore a right to acquittal if he/she can establish by preponderance of evidence that he did not actually have knowledge of the criminal nature of the property in question.

  • For money laundering based on the predicate offense of terrorism or terrorism financing, the TL does not expressly stipulate a mental element requirement with respect to the nature of the property but provides that the defendant has a defense if he/she can prove by a preponderance of evidence that he did not know and objectively had no reasonable cause to suspect that the arrangement related to terrorist property.

124. At a minimum, and with respect to all acts constituting money laundering, a person may therefore be held criminally liable for money laundering if he acted intentionally and with the knowledge that the property involved stems from a criminal source. The Vienna and Palermo Conventions set forth a minimum standard that the perpetrator acts in the knowledge that the laundered property is the proceeds of crime. Intent as defined under Jersey law therefore meets the international standard with respect to the mental element requirement.

The Mental Element of the ML Offense (c. 2.2):

125. None of the three Acts contain a provision clarifying whether or not the mental element may be inferred from objective factual circumstances. However, the English common law principle regarding the ability to make reasonable inferences from objective factual circumstances, confirmed by the Royal Court in Michel vs. AG, applies also with respect to the money laundering offenses.

126. Additionally, with respect to the acts of concealing, disguising, converting, or transferring of criminal proceeds it is sufficient for the prosecution to show that the perpetrator had reasonable grounds to suspect that the property in question constitutes proceeds of crime. Therefore, the provision expressly allows for the intentional element of the offense to be inferred from objective factual circumstances.

Liability of Legal Persons (c. 2.3. and 2.4.)

127. The money laundering provisions of the POCL, the DTOL, and the TL apply to any “person” without differentiating between legal and natural persons. Article 3 of the Interpretation (Jersey) Law 1954 provides that the expression “person” shall extend to legal persons unless it is stated otherwise.

128. The language of the money laundering offenses does not preclude the possibility of parallel criminal, civil, or administrative sanctions for perpetrators that are legal entities. The authorities confirmed that both criminal and civil/administrative action could be instituted against legal persons at the same time, but it was pointed out that, in practice, criminal proceedings would always take priority under the customary law maxim of le criminel tient le civil. In any case, there would be close cooperation between the JFSC and the AG’s office to avoid administrative action having an adverse impact on criminal proceedings. At the time of the assessment, no legal entities had been held criminally liable for money laundering in Jersey. However, a TCB had previously been prosecuted and held criminally liable for a breach of the CDD obligations under the Money Laundering Order.

Sanctions for ML (c. 2.5):

129. Pursuant to Articles 32(6), 33(9), 34(4) of the POCL, Articles 30(4), 37(6), 38(9) of the DTOL and Article 18(3) of the TL, the sanctions applicable to both natural and legal persons convicted for money laundering are imprisonment for a term not exceeding 14 years or to a fine, or both.

130. The sanction for money laundering seems to be in line with other serious crimes under Jersey law. For example, corruption, insider dealing, and market manipulation may be sanctioned with imprisonment of up to ten years and to a fine and terrorism financing with imprisonment of up 10 to 14 years. Jersey’s sanctions for money laundering are identical to those of the U.K. and the Isle of Man.

131. The strictest sanction actually imposed by Jersey courts at the time of the assessment was nine years imprisonment for the stand-alone money laundering offense.

Effectiveness:

132. As of the time of the assessment mission, Jersey had conducted 17 investigations for money laundering, of which three investigations were terminated before charges were brought, two investigations are ongoing, and 12 investigations led to prosecutions.

133. Of the 12 prosecutions, one case was terminated during prosecution, one case was pending, and 10 cases resulted in a conviction. In three cases, the charges were brought based on Article 34 of the POCL, in one case they were brought pursuant to Article 38 of the DTOL and in all other cases, charges were brought based on Article 32 of the POCL or Article 37 DTOL.

134. The sentences imposed range from 140 hours community service to nine years imprisonment. The average term of imprisonment was 3.7 years.

135. In the absence of complete and accurate statistics on the number of SARs resulting in an investigation for money laundering, including the cases terminated, it is somewhat difficult to form a final opinion on the effective application of Jersey’s money laundering provision. Considering that many of the SARs filed related to money laundering cases where the predicate offenses has been committed abroad and the offender was not located in Jersey, the assessors agree that Jersey might be in a more difficult position to prosecute money laundering and that therefore the number of SARs filed would not necessarily be an indicator for the appropriate number of domestic investigations or prosecutions.

136. Unlike other jurisdictions facing similar challenges as Jersey in prosecuting money laundering, Jersey has, however, successfully developed its own jurisprudence on money laundering, including autonomous money laundering. Furthermore, when comparing the number of domestic investigations and prosecutions with the number of convictions obtained for money laundering, including autonomous money laundering, the criminal provisions relating to money laundering seem to be implemented effectively. 58 percent of investigations for money laundering resulted in a conviction.

2.1.2. Recommendations and Comments

  • Amend Articles 34 of the POCL and 30 of the DTOL to:

    • ■ provide for two alternative purposes for the acts of converting and transferring proceeds, namely to avoid prosecution for the predicate offense or to conceal the illicit origin of the funds, and;

    • ■ to eliminate the purpose requirement for the acts of converting and transferring proceeds of crime.

  • The defense (payment of adequate consideration) provided for in Articles 33(2) of the POCL and 38(2) of the DTOL is not provided for in the Vienna and Palermo Conventions and should be eliminated as it may allow money launderers to abuse the provision to avoid criminal liability for the acquisition, possession, or use of criminal proceeds.

  • Amend Article 18 of the TL to cover all material elements of the money laundering provisions of the Palermo and Vienna Conventions.

  • Amend the offenses of acquisition, possession, or use of the POCL and DTOL, as well as the money laundering offense contained in the TL 2002 to include criminal proceeds obtained through the commission of a predicate offense by the self-launderer.

  • The authorities should assess whether the level of proof applied to show that property stems from the commission of a specific predicate offence poses a barrier to obtaining convictions for stand-alone money laundering.

2.1.3. Compliance with Recommendations 1 & 2

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2.2. Criminalization of Terrorist Financing (SR.II)

2.2.1. Description and Analysis

Legal Framework:

137. Jersey law criminalizes the financing of terrorism through Articles 13–17 of the TL.

138. As indicated under Recommendation 1, Jersey is a Crown Dependency and cannot sign or ratify international conventions in its own right. Rather, the U.K. is responsible for Jersey’s international affairs and may arrange for the ratification of any Convention to be extended to Jersey.

139. The U.K.’s ratification of the International Convention for the Suppression of the Financing of Terrorism (“FT Convention”) has been extended to Jersey on September 25, 2008. Of the remaining 15 international counter-terrorism related legal instruments, the Unlawful Seizure Convention, the Civil Aviation Convention, the Diplomatic Agents Convention, the Hostage Taking Convention, and the Nuclear Material Convention have been extended to Jersey.

Criminalization of Financing of Terrorism (c. II. 1):

140. Article 15 of the TL constitutes the main terrorism financing offense. The provision makes it an offense for a person to receive or provide or invite another to provide property where the person either intends that the property will be used or has reasonable grounds to suspect that the property may be used for the purpose of terrorism.

141. Articles 16 of the TL criminalizes the use of property for terrorism purposes as well as the possession of property where the person possessing the property either intends to use it for terrorism or has reasonable cause to suspect that it may be used for terrorism.

142. Article 17 of the TL furthermore provides that it is an offense for a person to enter into or become concerned in an arrangement as a result of which property is made available or is to be made available to another and the person knows or has reasonable cause to suspect that it will or may be used for purposes of terrorism.

143. Pursuant to Article 3 of the TL, the term “terrorist property” extends to property likely to be used for the purpose of terrorism, including property of a proscribed organization, as well as the proceeds of the commission of terrorist acts and acts carried out for the purpose of terrorism. Article 1 further specifies that “property” includes all property whether movable or immovable, vested or contingent, and whether situated in Jersey or elsewhere.

144. The international standard requires that the terrorist financing offense extends to any person who provides or collects funds by any means, directly or indirectly, with the intention that they be used for terrorist acts, by a terrorist organization or by an individual terrorist:

Terrorist Acts:

145. Article 2 of the TL defines “terrorism” as the use or threat of action where (1) the act involves serious violence against a person or damage to property, endangers a person’s life other than that of the person committing the act, creates a serious risk to the health or safety of the public or a section thereof, or is designed to interfere with or seriously disrupt an electronic system, and (2) the use or threat is designed to influence a government or to intimidate the public or a section thereof and is for the purpose of advancing a political, religious, or ideological cause. If, however, any of the acts listed under (1) involve firearms or explosives and are committed for the purpose of advancing a political, religious, or ideological cause, it is considered terrorism regardless of whether the requirements listed in (2) are met.

146. Under the FATF standard, “terrorist acts” include (1) offenses as defined in the nine Conventions and Protocols listed in the Annex to the FT Convention and (2) any other act intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a Government or an international organization to do or to abstain from doing any act.

147. With respect to the generic terrorism offense it would appear that the scope of Article 2 of the TL covers most aspects of the FATF definition. While the latter is limited to acts against civilians, the former covers violence against any person or property as long as the act is designed to influence a government or intimidate the public. However, while the FATF definition also includes acts designed to intimidate an international organization, no such reference to international organizations is contained in the TL.

148. As indicated above, for the generic offense, Jersey law provides that only acts undertaken or threats made with the intention of advancing a political, religious, or ideological cause would constitute “terrorism.” This approach, which adds an element not set forth directly in the FT Convention, is one that a number of countries have adopted to ensure the generic definition is not used in circumstances where it was not intended. The authorities should assess the advantage of this approach in the domestic context in implementing the Convention, and ensure that Jersey’s ability to prosecute in factual settings contemplated by the Convention would not be negatively impacted.

149. Article 2 of the TL does not contain an express reference to the offenses defined in the 9 Conventions and Protocols listed in the Annex to the FT Convention. To satisfy the requirements of the international standard on that point, the generic terrorism offense must be broad enough to cover all offenses defined in the mentioned Conventions and Protocols. However, while the use or threat with the use of serious violence is required for an act to fall under the definition of Article 2 of the TL as outlined above, some of the offenses in the Conventions and Protocols do not require the use of violence or threat thereof. For example, the Nuclear Material Convention makes it a terrorism offense to possess nuclear material if the prescribed mental element is met.

150. It should be noted that Jersey has criminalized all offenses defined in the nine Conventions and Protocols listed in the Annex to the FT Convention. However, as the scope of the terrorism financing offense is defined based on the definition of “terrorism” as discussed above, the offenses cannot be taken into account for the purpose of assessing SR II.

151. In practice the scope of the terrorism offense in the TL may therefore cover many but clearly does not extend to all “terrorist acts” as defined in the FATF standard.

Terrorist Organizations:

152. Article 2(5) of the TL provides that any reference to “action taken for the purpose of terrorism” would include action taken for the benefit of a proscribed terrorist organization. Articles 15–17 of the TL therefore apply to the provision or collection of funds for the benefit of proscribed terrorist organizations, whereby an organization is proscribed if it is listed in Schedule 1 to the TL. The TL does not provide for a generic definition of “terrorist organization”.

153. To some extent Article 15 of the TL also applies to situations where a person collects or provides funds that he/she has reasonable cause to suspect may be used for terrorism. If a person funds a terrorist organization not “proscribed” by the States, it is assumed that he/she has reasonable cause to suspect that the money may be used for terrorism and may therefore be held criminally liable for terrorism financing.

154. However, the terrorism financing provisions of the TL have never been tested before the courts and it has not been established in what circumstances property is considered to be “used for terrorism”. It is therefore unclear whether the financing of terrorist organizations could be prosecuted under the cited provisions in cases where the support relates to costs of living, education expenses, or similar expenses. Representatives of the AG’s office held the view that in the described situation, a financer would be prosecuted for an ancillary offense. However, this would only be possible in cases where an act has, at a minimum, been attempted and would not cover situations in which an act has not yet taken place.

Individual Terrorists:

155. The TL does not expressly criminalize the financing of individual terrorists, nor does it contain a definition of the term “terrorist”. However, Articles 15–17 of the TL extend to situations where a person collects or provides funds that he/she has reasonable cause to suspect may be used for terrorism. The authorities have indicated that in Jersey, if a person provides funds to an individual terrorist, he/she would be assumed to have reasonable cause to suspect that the money “may” be used for terrorism and could therefore be held criminally liable for terrorism financing.

156. The standard of “reasonable cause to suspect” that the funds “may” be used for terrorism is a relatively low one. Nonetheless, it is not clear that the provision of living and private expenses to an individual terrorist would be covered by Jersey’s provisions, as interpreted by a court. The assumption is not set forth in the statutory language. Even if the court were to assume this, evidence can be adduced to rebut the assumption. There is no jurisprudence on the issue. In addition, for the reason outlined above, such situations would not necessarily be covered by the ancillary offenses.

157. However, the provision of any funding to such individuals is a criminal offense under the Al-Qa'ida and Taliban (UN Measures) (Channel Islands) Order 2002 and the Terrorism (UN Measures) (Channel Islands) Order 2001, respectively, and prosecutions in Jersey could be initiated directly based on the provisions of those Orders. The latter not only applies to individuals and entities designated pursuant to UN Resolution 1373 but extends to any person within Jersey and any British citizen elsewhere who is ordinarily residing in Jersey or body corporate established under Jersey law. With these provisions and the possibility that the funding would also be captured by Articles 15–17, Jersey has clear avenues to impose criminal liability for the funding of the living and private expenses of individual terrorists.

158. Article 15(5) of the TL provides that a reference to the “provision of property” would include property being given, lent, or otherwise made available, whether or not for consideration. Article 1 further provides that “property” extends to all property whether movable or immovable, vested or contingent, and whether situated in Jersey or elsewhere. The language of the provision is not limited to property that stems from illegitimate sources and the authorities confirmed that terrorism property as defined in Article 3 in connection with Article 1 of the TL would extend to property from illegal as well as legitimate sources. While the provision does not expressly refer to corporeal as well as incorporeal property and any legal documents or instruments evidencing title to, or interest in such assets, based on the definition of “moveable and immovable” property as contained in laws and commentaries relating to other areas of the law (as outlined under Recommendation 1), it can be concluded that with respect to proceeds of crime the terms would be interpreted to cover the same scope and therefore extend to any type of property, including corporeal or incorporeal assets, and legal documents or instruments evidencing title to, or interest in such assets.

159. The terrorism financing provisions do not require that the funds provided are actually used to carry out or attempt the commission of a terrorist act or that the funds are linked to a specific terrorist act. It is merely required that the funds are intended for use in the commission of a terrorist act or that the financer has reasonable cause to believe that they will be used for terrorism or for the benefit of a proscribed terrorist organization.

160. Article 62 of the TL provides for the ancillary offenses of aiding, abetting, counseling, or procuring the commission of terrorist financing. In addition, the common law offenses of attempt and conspiracy also apply with respect to statutory offenses (Martins vs. AG) and therefore also apply to the terrorism financing offense of the TL. In all cases, persons committing an ancillary offense may be liable in the same manner as the principal offender to the penalty provided for that offense.

161. Jersey law therefore allows for the prosecution of all parties that may be involved in the commission of a terrorism financing offense.

Predicate Offense for Money Laundering (c. II.2):

162. As outlined under section 1.1 of this report, offenses under the TL are expressly excluded from the money laundering offenses of the POCL. However, the TL itself, through Article 18, contains a money laundering offense which is exclusively applicable to situations in which the funds involved constitute terrorist property. Further information on the elements as well as the shortcomings of the TL money laundering offense may be found in section 1.1 of this report.

Jurisdiction for Terrorist Financing Offense (c. II.3):

163. Article 19 of the TL provides that a person may be held criminally liable for any acts committed outside Jersey that would have constituted a terrorist offense pursuant to Articles 15-17 of the TL had they been committed on Jersey. Furthermore, the term “action” includes any action outside Jersey; “person or property” includes any person or property, wherever situated; and “the public” extends to the public of any place or country other than Jersey.

164. The terrorist financing offenses of the TL therefore apply regardless of whether the person alleged to have committed the offense is in the same or a different country from the one in which the terrorist or terrorist organization is located or the terrorist act occurred or will occur. There are also no jurisdictional provisions that would require any other link between Jersey and the perpetrator, such as citizenship or residence.

The Mental Element of the TF Offense (applying c. 2.2 in R.2):

165. As outlined above, the terrorism financing offense under the TL requires that the perpetrator either knows or intends that the funds are being used for a terrorist act or has reasonable cause to believe that they may be used for terrorism purposes, including for the benefit of proscribed terrorist organizations.

166. As in the case of the POCL and the DTOL, the TL does not expressly provide that the intentional element required for the commission of the terrorism offense may be inferred from objective factual circumstances. However, the English common law principle regarding the ability to make reasonable inferences from objective factual circumstances, confirmed by the Royal Court in Michel vs. AG, applies also with respect to the terrorism financing offense.

Liability of Legal Persons (applying c. 2.3 & c. 2.4 in R.2):

167. The terrorism financing offenses of the TL apply to any “person” without differentiating between legal and natural persons and Article 2(4)(b) provides that the reference extends to any person, wherever situated. Article 3 of the Interpretation (Jersey) Law 1954 applies the definition of “person” to both legal and natural persons and Article 63 of the TL expressly provides that where an terrorism offense is committed by a legal person, the natural person in charge of managing the legal person may be held liable in the same manner as the legal person to the penalty provided for the offense.

168. The language of the terrorism financing offenses does not preclude the possibility of parallel criminal, civil or administrative sanctions for perpetrators that are legal entities. The authorities confirmed that both criminal and civil/administrative action could be instituted against legal persons at the same time, although in practice criminal proceedings would always take priority under the customary law maxim of le criminel tient le civil. In any case, there would be close cooperation between the JFSC and the AG’s office to ensure that administrative action did not prejudice criminal investigations or proceedings.

Sanctions for FT (applying c. 2.5 in R.2):

169. The sanctions applicable for terrorist financing pursuant to the TL are imprisonment for a term of up to 14 years or a fine or both. Jersey’s sanctions for terrorist financing are identical to those of the U.K. and the Isle of Man. As there has never been a conviction for terrorist financing on Jersey, no sanctions have ever been imposed.

Effectiveness:

170. There have been no investigations or prosecutions relating to domestic terrorism financing and the terrorism financing offense has therefore never been tested before the courts in Jersey.

2.2.2. Recommendations and Comments

  • Amend Article 2 of the TL to include a reference to international organizations.

  • Amend the definition of “terrorism” in Article 2 of the TL to extend to all terrorism offenses as defined in the nine Conventions and Protocols listed in the Annex to the FT Convention.

  • Consider the impact of including in the FT offense “intention of advancing a political, religious or ideological cause” on Jersey’s ability to successfully prosecute in the factual settings contemplated by the FT Convention.

2.2.3. Compliance with Special Recommendation II

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2.3. Confiscation, freezing and seizing of proceeds of crime (R.3)

2.3.1. Description and Analysis

Legal Framework:

171. There is no single statutory instrument covering all instances of seizure and confiscation of criminal assets or proceeds in general. Relevant provisions are found in three different Acts: the legislation covering seizure and confiscation of proceeds of crime in respect of ML and FT is currently found in the DTOL (confiscation and seizing of the proceeds of drug trafficking offenses), the TL (freezing and forfeiture of terrorism related assets), and the POCL (confiscation and seizing of the proceeds of all offenses, other than drug offenses, including TL offenses).

172. Confiscation of Property related to ML, FT or other predicate offenses including property of corresponding value (c. 3.1):

Proceeds

General Regime

173. Except for drug trafficking and terrorism related cases, the relevant provisions of POCL, Part 2 apply. A confiscation order is issued by the Royal Court upon conviction, ordering the defendant to pay the lesser sum of the benefit obtained, or the realizable amount at the time the order is made. The offender has to be found guilty of an offense detailed in schedule 1 of the POCL, namely an offense, excluding a drug trafficking offense, carrying a penalty upon conviction of one or more years. The Court has to be satisfied that the offender has benefited from that offense or from that offense together with any other offense for which he is convicted in the same proceedings, or within a ‘relevant period’ being a period of six years that ends when the current proceedings are instituted against the defendant.

174. ‘To benefit from an offense’ is defined as to obtain property as a result of, or in connection with the conduct forming the predicate offense, or the commission of such predicate offense. The benefit is the amount of property so obtained. (POCL Article 1(1)) Issuing a confiscation order is at the Court’s discretion. The AG can request such an order or the Court may order it even without such a request if it considers it appropriate. The Court will assess the benefit of the criminal conduct and order the offender to pay a sum equal to that benefit, or an amount the Court estimates to be realizable at the time of the order, whichever is the lesser amount. In making this determination, the Court may take into account (and deduct as appropriate) amounts a victim recovers from a defendant in a civil proceeding that relates to the same offense (POCL Article 4(1) and (2)). If payment of the amount ordered after the assessment of benefit is not forthcoming the Court may order the defendant to be imprisoned for a fixed term to be specified in the order in default of payment of the amount. This specified period shall not exceed ten years (POCL Article 11(1) and (2). The Court may issue a ‘saisie judiciare’ or freezing order over realizable property when a confiscation order has been issued (POCL Article 15(1)(a)). The Court may empower the Viscount to realize, in such a manner as it may direct, any realizable property subject to a ‘saisie judiciare’ to satisfy a confiscation order (POCL Article 17(1)(a) and (d)). If the Court in making a confiscation order considers one or more offenses committed in the relevant period, the POCL, Article 5 gives detailed instructions on how the benefit from this ‘relevant criminal conduct’ has to be assessed, but basically it has to be understood as any property held by the defendant at any time since the date of the conviction, together with any property transferred to the defendant at any time since the beginning of the ‘relevant period’, coupled with any expenditure made by the defendant in the ‘relevant period’.

Drugs

175. The confiscation regime in the context of drug offenses is similar to that of POCL. DTOL also provides for the possibility of confiscation of the benefits upon conviction for drug trafficking, on application of the AG or if the Royal Court considers it appropriate. The rules on the assessment of the benefits and payment or realization of the confiscated amount are similar to those of assessing the benefit of relevant criminal conduct over a relevant period (POCL Article 5). In the case of ancillary offenses committed under Articles 30, 37 or 38, the Court may only consider the aggregate of benefits, payments, or other rewards received in connection with the ancillary offense.

176. The procedures for the noncompliance and enforcement of drug offense related confiscation orders are no different from those contained in the POCL.

Terrorism

177. TL provides for the possibility of making forfeiture orders upon conviction of the defendant for terrorism offenses, including the financing of terrorism and laundering of terrorist property (TL Articles 15–18). The use of different terminology for terrorism offenses, that is “forfeiture” rather than “confiscation” is explained by the fact that the order does not relate to a sum equivalent to an illegally gained benefit but rather in the case of fund raising and money laundering offenses to the money and other property that an offender possesses or controls at the time of the offense with the intention to be used for terrorism purposes (including the financing thereof) or where he had reasonable cause to suspect that it would be used for that purpose. Payments and rewards in connection with the terrorism offenses are also subject to forfeiture. The issuing of forfeiture orders is at the discretion of the Court, and does not require a prior application by the prosecutor. TL Schedule 3 provides further detail in respect of the implementation of forfeiture orders. It requires any property to which the forfeiture order applies to be handed to the Viscount. The Viscount is empowered to dispose of property to satisfy the order. Schedule 3 further provides for the Royal Court to issue a ‘restraint order’ to prohibit any person from dealing in any property liable to a forfeiture order.

Instrumentalities

General

178. The power to confiscate (or “forfeit” in the case of some items) instrumentalities used or intended for use for criminal purposes is provided for in the Criminal Justice (Forfeiture Orders) (Jersey) Law 2001, Article 6. Any property (intended to be) used for or facilitating the commission of an offense by a person convicted of the offense, and which was in his possession or under his control at the time of his apprehension or summons or was otherwise lawfully seized, can be forfeited by the Court with an order depriving the offender of his rights in respect of that property. The property is then taken into the possession of the Police, irrespective of whether it has been previously seized. Forfeiture of the instrumentalities of crime under this law applies to all crimes, including drug trafficking and terrorism.

Drugs

179. Additionally, instrumentalities used in or intended to be used in drug offenses can also be forfeited according to the Misuse of Drugs (Jersey) Law 1978, Article 29, empowering the Court, upon conviction, to forfeit anything shown to relate to the drug offense, to be either destroyed or dealt with in such a manner as the Court may order.

Terrorism

180. Besides the general regime of the Criminal Justice (Forfeiture Orders) (Jersey) Law 2001, forfeiture of terrorism-related instrumentalities may also be captured under TL, Articles 26(2)(b) and 26(3)(b), forfeiting all property intended to be used for terrorism purposes (including raising funds for and financing of terrorism).

Equivalent value

181. The confiscation regime of POCL and DTOL is essentially equivalent value-based by itself. It provides for the payment of a sum that in principle reflects the value of the proceeds (“benefits”) of crime. The confiscation order is then executed on the assets (“realizable property”) of the offender. It does not matter whether they have any relation with the offense or not.

182. The TL forfeiture provisions specifically target money and other property that is related to the terrorism offense and in the possession or under the control of the offender when he committed the offense. The TL 2002 does not provide for equivalent value confiscation or forfeiture. None of the rules regarding value confiscation that appear in POCL or DTOL apply to the TL situations.

Confiscation of Property Derived from Proceeds of Crime (c. 3.1.1 applying c. 3.1):

183. As noted, confiscation under POCL and DTOL is value based. The criminal proceeds are not subject to confiscation as such but, in calculating the total value of the benefits the offender gained from his criminal conduct, the Court will take into account all benefits derived directly or indirectly therefrom, which would include substitute assets, investment yields and other profits. It does not matter if the proceeds are held by the offender or by a third party. If no voluntary payment follows, the Court may issue a‘saisie judiciare’ effectively seizing realizable property which is then vested with the Viscount. The Viscount is then able to realize the offender’s “realizable property” in order to satisfy a confiscation order. “Realizable property” is defined in both Laws as “any property held by the defendant and any property held by a person to whom the defendant has directly or indirectly made a gift caught by this Act' and any property to which the defendant is beneficially entitled”.

184. Proceeds of FT offenses, subject to forfeiture under TL, Article 26, are defined in Article 3 as property wholly or partly and directly or indirectly representing the proceeds of terrorism-related activity. The definition also covers payments and other rewards and would consequently cover all immediate and derived benefits.

185. Forfeiture of instrumentalities of (whatever) crime relates to identified objects, whether or not the property of the offender.

Provisional Measures to Prevent Dealing in Property subject to Confiscation (c. 3.2):

186. At the investigation stage the Police have a general power of seizure of items or other property based on establishing reasonable grounds that they are the product of crime (“obtained in consequence of the commission of an offense”) or have an evidentiary value (Police Procedures and Criminal Evidence (Jersey) Law 2003 (PPCEL), Article 21). Criminal proceeds could fall under both categories, especially if materially present in the form of cash. Police seizure of assets unrelated to the offense under investigation (equivalent value seizure) is not possible under the PPCEL.

General

187. Conservatory measures to preserve assets’ both proceeds and property of corresponding value' subject to a confiscation order and to prevent their dissipation are found in POCL' Articles 15 and 16 (saisie judiciare). Such an order is issued by the Royal Court prohibiting any person from dealing with any realizable property' subject to such conditions and exceptions as may be specified in the order. Saisies judiciares can only be issued if criminal proceedings have been' or are about to be instituted in Jersey against the defendant for an offense to which POCL applies. Such orders are available only if the confiscation proceedings have not been concluded and either a confiscation order has been made or the court expects a confiscation order may be made. Saisies judiciares can also be varied to take into account a future change of circumstances ' such as a change in the level of assets available to the defendant (Articles 13'14 and 19).

Drug Trafficking

188. The use of saisies judiciares for purposes Articles 24 and 25 of DTOL is similar to that outlined above. Proceedings must have been' or be about to be instituted against the defendant in Jersey for a drug trafficking offense' and confiscation proceedings have not been concluded and either a confiscation order has been made or the court expects a confiscation order may be made. Saisies judiciares can also be issued to take into account new elements such as a change in the level of assets available to the defendant (Sections 13' 14' and 19).

Terrorism financing

189. Pursuant to TL 2002' Article 26(8)' and Paragraphs 3–6 of Schedule 3 of the same legislation' the Royal Court may issue a restraint order prohibiting any person' subject to any conditions the court decides’ from dealing with any property liable to a forfeiture order that has been made' once proceedings have been instituted against a person for a terrorist funding offense.

Informal Freezing (Consent/Nonconsent by JFCU) Arrangement

190. Outside the formal judicial process’ the structure of Jersey’s legislation sometimes has the same effect as a freezing order. Once the JFCU receives SARs whether, through a hard copy or facsimile transmission, it can either consent to the financial activity mentioned in the SAR or not. This process is overseen by JFCU managers. The effect of a consent may be to provide a defense under Articles 32 and 33 of the POCL (and equivalent provisions in the DTOL and TL), and is referred to in the Handbook for Regulated Businesses (paragraph 6.4.2). 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. Where the service provider fails to take steps when instructed by the customer in accordance with the mandate, as a result of the absence of a consent, that failure has the same effect as a freezing order. Of course, it could also expose the reporting institution to potential litigation from the affected customer.

191. The JFCU endeavors to provide a decision indicating the JFCU provides consent to the financial activity on a best possible available service basis. Most responses are issued within 24 to 48 hours. Consent is not granted initially in about two percent of SARs, but in about half of these, consent is granted within a short period of time. The longest current nonconsent arrangement dates back to 2002 and this length of time is due to protracted investigation and prosecutorial action.

192. A person affected by a nonconsent decision has two avenues to challenge that decision. First, a person may commence proceeding against the financial services provider for breach of contract and/or mandate. The authorities anticipate that where such an action is bought, the applicant may have difficulty if he/she cannot show that there was a lawful provenance for the assets in question. Secondly, the person may file a case in the Royal Court seeking judicial review of an administrative decision based in common law. In such a review, the person would have to prove that no reasonable Police officer could withhold consent in the circumstances. To achieve this, a client would have difficulties in the absence of access to all the information upon which the Police officer based the decision. This would be generally unavailable due to its protected nature.

Seizure of Cash - Terrorism and General

193. The Proceeds of Crime (Cash Seizure) Law 2008 POC(CS)L, Article 4 contains provisions for seizure and detention of “tainted cash”. This also extends to any financial instrument convertible into cash, as defined in Article 1. The meaning of‘ tainted cash’extends to cash that is used or intended to be used in unlawful conduct, or obtained in the course of, from the proceeds of, or in connection with, unlawful conduct. Offenses against the POCL, DTOL and TL resulting in‘tainted cash’can trigger seizures under this law.

194. An “authorized officer” (Customs, Police) may seize “tainted cash” for an initial period of 48 hours, after which an order of the Bailiff is required to detain the cash for a period of up to three months, with a total maximum retention period of 2 years.

195. Seizure during an investigation and of other terrorism related items as “evidence” can be effectuated under the relevant provisions of the PPCEL, Article 21.

Equivalent value restraint

196. Restraint of assets of equivalent value is adequately covered by the restraint order provisions of POCL and DTOL. Such restraints are in support of an eventual value-based confiscation of realizable property. No relation with the offense is required. It is not clear if equivalent value conservatory measures are available under TL.

Ex Parte Application for Provisional Measures (c. 3.3):

197. Current legislation allows for ex parte applications both to freeze or seize property under the provisions of saisies judiciare under POCL and DTOL, and for restraining orders under TL. Such applications are made ex-parte to the Bailiff in chambers by the AG. Once an order is made, notice of the order is provided to persons affected by the order.

Identification and Tracing of Property subject to Confiscation (c. 3.4):

198. A first and important role in the detection of suspected criminal proceeds is played by the JFCU/FIU as receiving agency of the suspicious activity reports made by the industry under AML/CFT legislation.

199. At the investigation stage there are several options open to the Police:

  • They can apply to the Bailiff to issue a production order pursuant to POCL Article 40, DTOL Article 42, or TL Article 31 and paragraph 4 of Schedule 5 requiring the person who holds the required information to produce it to a Police officer.

  • If necessary, the Police officer can immediately apply to the Bailiff for a search warrant under the provisions of POCL Article 41, DTOL Article 31 or TL Article 31 and paragraphs 1-1 and paragraphs 6-10 of Schedule 5.

  • A Police officer, of or above the rank of chief inspector, may apply to the Bailiff for a Financial Information Order requiring a person carrying on a financial service business to provide customer information under POCL Article 41A and Part 1 of Schedule 3, DTOL Article 44A and Part 1 of Schedule 2, TL Article 32 and Schedule 6.

  • A Police officer, of or above the rank of chief inspector, may apply to the Bailiff for a Account Monitoring Order requiring a person carrying on a financial service business to provide customer account information under POCL Article 41A and Part 2 of Schedule 3, DTOL Article 44A and Part 2 of Schedule 2, TL Article 33 and Schedule 7.

200. A special procedure is used in cases of “serious or complex fraud” and is interpreted as including any dishonest operative representation which generates or is intended to generate substantial illegal benefits. Serious money laundering activity would fit within that concept. Investigation of Fraud (Jersey) Law 1991 (IOFL), Article 2 empowers the AGto require from any person he has reason to believe has relevant information to attend before him and answer questions and furnish information with respect to any matter relevant to the information. This procedure does in principle not require a court intervention, but confers a discretionary power on the AG which is subject to judicial review (based on the criterion of reasonableness).

Protection of Bona Fide Third Parties (c. 3.5):

POCL and the DTOL 1988

201. The procedure for assessing the value of realizable property takes into account the rights of creditors and of bona fide third parties by defining the “amount that might be realized” as the total value of property less the value of any obligations having priority and defining the value of that property as the market value ofthat property less the value of any other person’s interest in that property (POCL Article 2, DTOL Article 2). Provision is also made for bona fide third parties to make representation to the Bailiff to vary or discharge a saisie judiciare (POCL Article 16(7), DTOL Article 16(7)).

202. TL Article 25(7) provides for innocent third party protection in the context of forfeiture orders, giving any interested third person the opportunity to be heard by the Court before the order is issued. Forfeiture of instrumentalities under the CIFJL, can be challenged before the Court by third parties under Article 2(5). Forfeiture of cash under the POC(CS)L, can be challenged before the Court under Article 11. In addition, there is always the general right of any person who feels wronged by confiscation or forfeiture measures to apply at any time to the Royal Court in order to obtain a judicial review.

Power to Void Actions (c. 3.6):

203. In general, actions that are intended to willfully obstruct effective confiscation or forfeiture of criminal proceeds in whatever form constitute criminal offenses that amount to aiding and abetting money laundering and as such they give cause to prosecution. Any such actions would be illegal, so any such contracts or agreements are not taken into account in confiscation/forfeiture decisions.

204. As a matter of common law, courts will void contracts contrary to public policy (Basden Hotels Ltd. v. Dormy Hotel Ltd 1968 JLR 91). Further under common law, contracts made for or about any matter or thing which is prohibited or made unlawful by statute is a void contract (Jameson (TW)Ltd.v. Cumming Butler 1981J.J. 18).

Analysis:

205. With the exception of the issues raised below, the Jersey legal framework underpinning the seizure and confiscation system related to proceeds of crime is generally solid and comprehensive. The (similar) relevant provisions of POCL and DTOL adequately provide for a value-based confiscation regime capturing in principle any benefit that the offender may have gained as a result of his criminal conduct. The benefit assessment procedure followed by the court is quite detailed and takes into account all factors necessary to come to a fair estimation. The provisions of TL also appropriately focus on the deprivation of the assets related to FT.

206. There are, however, some issues that need review in respect of compliance with the international standards:

207. The deficiencies identified with the criminalization of ML and FT also affect the criminal conviction-based confiscation and forfeiture. To the extent that such offenses do not meet international standards, there will be a corresponding inability to confiscate or forfeit what would otherwise be proceeds of crime or instrumentalities of the offenses.

208. Equivalent value restraints pursuant to POCL Article 16 and DTOL Article 16 can only be issued when proceedings have been instituted, or are about to be instituted against a defendant. Use of this standard provides persons under investigation with an opportunity to dispose of assets as soon as he/she is alerted to any investigative action so as to avoid the availability of such assets for restraint and ultimate confiscation. This has potential to adversely affect the effectiveness of a confiscation regime. However, this is ameliorated somewhat because in those cases where the JFCU is asked to provide assistance or a request is made for mutual legal assistance, the authorities do give consideration to disclosing this to the relevant financial institution(s). With such a disclosure, there is a basis for a SAR to be made, and an informal freeze of the property held in Jersey may result. Thus, in some but not all situations, there is an ability to restrain equivalent value even in the absence of a showing that proceedings are about to be instituted.

Confiscation and Freezing Data—Drug offenses (DTOL) (Source: Viscount’s Department).

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Confiscation and Freezing Data—Other Criminal Conduct (POCL) (Source: Viscount’s Department).

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Effectiveness:

209. The available statistical data covering the period between 2006 and 2008 with regard to saisies judiciares and confiscation orders made under the DTOL show that reasonable but uneven number of saisies judiciares were made in the relevant period, totaling 93. The number of confiscation orders totaled 94, with an increase in the number or confiscation orders issued in the 2007 period, but a decrease in 2008. Data for 2006–2008 for saisies judiciares and confiscation orders made under the POCL, for other criminal conduct' show that a small number of saisies judiciares were made in the relevant period' totaling 13 and ranging from two to six per annum. The number of confiscation orders totaled four. The above data show that' while the number of actions taken under the provisions of POCL is smaller' the value of the property restrained and confiscated under the POCL is significantly higher. For the 16 POCL cases where assets remained under restraint at the end of 2008' seven involved charges of fraud or fraudulent conversion' four involved money laundering charges (two of these were combined with a fraud charge)' and the remaining involved embezzlement' support of a criminal organization' illegal gambling and tax fraud' theft' corruption' copyright violations and Mafia association. The data reflects the complexity and serious nature of the investigative and prosecutorial work conducted under the IOFL by the Police and the AG' as discussed under Recommendation 27.

210. In most cases’ the full amount ordered to be paid was actually paid. At the end of 2008' there were six cases where the confiscation orders remained outstanding. One involved GBP 1.2 million and the other five a total of approximately GBP57,000. The authorities monitor the amounts restrained which are ultimately returned to the person whose account was restrained (or a foreign authority on the person’s behalf) because no confiscation occurred' the person was acquitted' or a plea agreement is reached. The figures do not appear to differentiate' as would better serve analyzing effectiveness’ situations in which a plea agreement provides for the forfeiture of the funds.

211. The Jersey seizure and confiscation legislative framework is generally adequate and reflects a clear awareness of the authorities of the importance of depriving criminals of their illegal assets. However' the authorities need to reinforce the legal framework to address the following issue in order to enhance effectiveness:

  • The deficiencies in respect of the scope of the ML and FT offenses undermine the quality of the criminal confiscation regime;

  • There is an restriction that equivalent value seizure is possible only after formal proceedings have been instituted or are about to be instituted;

  • Provision should be made under the TL for restraint and confiscation of equivalent value.

2.3.2. Recommendations and Comments

  • Jersey’s laws should be amended to address the deficiencies affecting the scope of the ML and FT offenses and thereby also improve the quality of the criminal confiscation regime.

  • Consideration should be given to providing for restraint of property and or its equivalent or corresponding value from the beginning of an investigation;

  • In the case of matters arising under the TL' there should be provision for the restraint and confiscation of property of corresponding value.

  • A more direct legal basis should be provided for the current‘informal freezing’or consent/nonconsent arrangement currently administered by the JFCU.

2.3.3. Compliance with Recommendation 3

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2.4. Freezing of funds used for terrorist financing (SR.III)

2.4.1. Description and Analysis

Legal Framework:

212. Specific legislation on freezing suspected terrorist assets is found in the Al-Qa'ida and Taliban (United Nations Measures) (Channel Islands) Order 2002 and the Terrorism (United Nations Measures) (Channel Islands) Order 2001.

213. TL 2002 contains additional legal measures against terrorism related assets’ including terrorism financing. The Act provides for both criminal and administrative measures to restrain such assets in whatever form. TL 2002 contains provisions to seize and forfeit assets in connection with a criminal investigation or proceeding. They are addressed in Section 2.3 of this report.

Freezing Assets under UNSCR 1267 (c. III.1):

214. The UNSCR 1267 is implemented in Jersey through the Al-Qa'ida and Taliban (United Nations Measures) (Channel Islands) Order 2002' an Order-in-Council made in the U.K. under the United Nations Act 1946 (an Act of the U.K. Parliament) and extended to Jersey (Article 1(3)). The order designates listed persons. These are the persons listed by the UNSCR 1267 Sanctions Committee. The JFSC and the Chief Minister’s Department circulate this list to stakeholders and place it on their respective websites. Besides prohibiting the supply or delivering of goods (“restricted goods”) to persons designated by the UNSCR 1267 Sanctions Committee' it makes it an offense to make any funds available to or for the benefit of a designated person. The Order further provides for the freezing of funds through an administrative determination in situations where the Chief Minister’s Department has reasonable grounds to suspect that funds are in any way held or under the control of a designated person (Article 8).

Freezing Assets under S/Res/1373 (c. III.2):

215. The Terrorism (United Nations Measures) (Channel Islands) Order 2001, an Order-in-Council made in the U.K. under the United Nations Act 1946 (an Act of the U.K. Parliament), gives effect to UNSCR 1373. Article 1(4) extends the Orderto Jersey. It provides a freezing regime, similar to the one giving effect to UNSCR 1267. Article 5 makes it an offense to makes funds available to any person that is a terrorist and Article 6 gives the Chief Minister’s Department as the licensing authority, notice to direct that funds are not made available to a particular person, except under the authority of a license, where the Chief Minister has reasonable grounds for suspecting that the person by, for or on behalf of whom any funds are held is or may be involved in terrorism.

216. Jersey’s list of persons and entities subject to the freezing sanctions is kept in line with the consolidated U.K. list which, inter alia, incorporates not only the UN designations for UNSCR 1267 but also the EU designations for UNSCR 1373. The Chief Minister’s Department has as yet not seen any reason to issue its own additional list of suspected terrorists for designation under UNSCR 1373. This is because the Jersey authorities are not aware of any terrorists living in Jersey. Were such an additional list to become necessary, it would be drafted in consultation with the U.K. Any designation on the domestic list would presumably be based on information supplied by the JFCU or other law enforcement bodies. The Chief Minister’s Department refers residents and businesses to the terrorism measures part of the U.K.’s consolidated list of financial sanctions targets, incorporating the UN and EU designations, which provides the basis for the operation of Articles 5 and 6 of the Terrorism Order 2001.

Freezing Actions Taken by Other Countries (c. III.3):

217. There are no statutory provisions, regulations or policies that set forth a procedure to be followed when there is a formal request from another jurisdiction to designate a particular person under the Jersey freezing mechanism.

218. However, prompt effect can be given to actions initiated under the freezing mechanisms of other countries under Article 6(1) of the Terrorism (United Nations Measures) (Channel Islands) Order 2001, provided the requisite suspicion is raised. This is because Article 6(1) of the Terrorism (United Nations Measures) (Channel Islands) Order 2001 allows the Chief Minister’s Department to freeze funds that are held by persons that are not listed by the UN, EU, or U.K.

219. Jersey has not incorporated foreign terrorist lists directly into its domestic freezing regime other than through the consolidated U.K. list which contains an EU 1373 list. Foreign designations may be taken into account on a voluntary basis by the industry in their risk-based assessments. The JFSC expects relevant persons to make suspicious activity reports with respect to transactions if they involve persons that are listed in the United States on the OFAC list. Other foreign designations may be taken into account as part of the risk-based assessment for particular customer relationships, as indicated in Jersey’s Handbook for Regulated Businesses. A match against a U.S. or other list would provide a ground for a suspicion to be reported to the JFCU.

Extension of c. III. 1-III.3 to funds or assets controlled by designated persons (c. III.4):

220. The Al-Qa’ida and Taliban Order 2002, and Terrorism Order 2001 define quite specifically the funds that are subject to freezing (See Article 2 each Order). The Al-Qa'ida and Taliban Order 2002 does not contain a reference to assets that are “indirectly owned or controlled” by the designated persons. In the case of the Al-Qa’ida and Taliban Order, reference is made to “associated persons” and, under the Terrorism Order to a person who commits, attempts to commit, participates in or facilitates the commission of terrorism, a person owned or controlled directly by such a person, or a person acting on behalf of, or at the direction of, such a person.

221. The TL does not contain any definition of funds, other than defining property as “all property whether movable or immovable, vested or contingent and whether situated in Jersey.

Communication to the Financial Sector (c. III.5):

222. The consolidated U.K. list, which, inter alia, reflects both the UN 1267 and EU 1373 lists, is updated automatically and immediately disseminated by the Chief Minister’s Department by way of an automated subscription system that uses email. An email is forwarded to every financial institution in Jersey that subscribes to this system. A link to U.K. and U.S. sanction lists is also published on the JFSC website. There is a link on the Chief Minister’s website.

223. In order to inform all Jersey residents, as well as relevant persons, of changes in sanctions, notices detailing revisions to the UN list published under UNSCR 1267 are published in the Jersey Evening Post, which has a high local circulation.

224. Jersey’s authorities do not mandate a minimum time frame for financial institutions to compare the customer base against the U.K.’s consolidated list and U.S. list. Indeed some financial institutions have systems in place where their lists are automatically updated, via head office, and the system automatically checks the revised list against the bank’s data base. Such prompt action is necessary because a financial institution commits a criminal offense where it makes funds available to any terrorist.

Guidance to Financial Institutions (c. III.6):

225. Useful guidance applicable to financial institutions and DNFBPs is given to those who may be holding targeted funds and other assets as to their obligations under the freezing mechanisms and this is published on the Chief Minister’s Department website.

226. In the case of a positive match, the financial institution is required to not make the funds available and immediately report the matter to the licensing authority, being the Chief Minister’s Department.

227. The Chief Minister’s Department website also contains detailed information relating to UN and EU sanctions measures, and the legislation implementing them in Jersey. The website also includes a link to the U.K.’s consolidated list of financial sanctions targets.

De-Listing Requests and Unfreezing Funds of De-Listed Persons (c. III.7): Unfreezing Procedures of Funds of Persons Inadvertently Affected by Freezing Mechanism (c. III.8):

228. As Jersey has not initiated any listings under UNSCR 1373 but relies on the list disseminated by the U.K., it does not currently have procedures in place to deal with a request for a de-listing.

229. Article 6(3) of the Terrorism Order and Article 8(3) of the Al-Qa’ida Order provide the Chief Minister’s Department with authority to revoke a freeze of any assets that are covered by a notice that has been issued under Articles 6(1) and Article 8(1) of Orders respectively. Thus Jersey is able to unfreeze any funds it has frozen under the Orders as necessary.

230. Article 6A of the Terrorism Order provides that a person whose funds are frozen may apply by representation to the Royal Court to have the direction to freeze his or her funds set aside. On such an application, the Court may do so. The same provision is contained in Article 8(7) of the Al-Qa’ida Order. These provisions are contained in the Orders which are available on the internet at www.jerseylaw.je and are thus publicly available.

Access to frozen funds for expenses and other purposes (c. III.9):

231. Access can be provided to funds frozen under the Al-Qa’ida and Taliban (United Nations Measures) (Channel Islands) Order 2002, for humanitarian purposes and basic expenses if a license or authorization is granted by the Bailiff or Attorney General, as provided for in Article 7.

232. Access can also be provided to funds frozen under the Terrorism (United Nations Measures) (Channel Islands) Order 2001, for humanitarian purposes and basic expenses if a license or authorization is granted by the Attorney General or the Chief Minister, as provided for in Article 5

Review of Freezing Decisions (c. III.10):

233. A review of a freezing decision is available under Article 8(7) of the Al-Qa’ida and Taliban (United Nations Measures) (Channel Islands) Order 2002. Where a direction has been given by the licensing authority under paragraph (1), any person by, for or on behalf of whom those funds are held may apply by representation to the Royal Court for the direction to be set aside, and on such application the court may set aside the direction.

234. Access can also be provided to funds frozen under the Terrorism (United Nations Measures) (Channel Islands) Order 2001, for humanitarian purposes and basic expenses if a license or authorization is granted by the Chief Minister’s Department, as provided for in Article 5.

235. Access to frozen funds or assets necessary for basic expenses, payment of fees, expenses, service charges or extraordinary charges is sometimes agreed between the authorities and those whose assets are the subject of the saisie judiciare.

236. In the absence of such agreement, a representation can be made to the Royal Court seeking an Order for such access. An example of such an application, albeit unsuccessful, is in re O’Brien [2003] JLR 1. Jersey in another context has had experience in releasing funds for humanitarian purposes and would follow a similar procedure here.

Freezing, Seizing and Confiscation in Other Circumstances (applying c. 3.1-3.4 and 3.6 in R.3, c. III. 11)

237. All penal conservatory and deprivation measures of seizure and confiscation or forfeiture that apply with respect to any criminal offense can be applied also in respect of FT.

Protection of Rights of Third Parties (c. III. 12):

238. There are several ways to protect bona fide third party rights. In particular, the licensing and authorization possibilities provided by the relevant UN orders, and those provided in the TL, Article 26(7), which provides for the affected third parties to make submission for consideration by the court, and paragraph 5 of Schedule 3 which empowers the court to discharge restraint orders following third party submissions.

239. Third parties may request a review of a freezing decision under Article 8(7) of the Al-Qa’ida and Taliban (United Nations Measures) (Channel Islands) Order 2002, which allows any person by, for or on behalf of whom those funds are held may apply by representation to the Royal Court for the direction to be set aside; and on such application the court may set aside the direction.

240. Under article 6(3) of the Terrorism (United Nations Measures) (Channel Islands) Order 2001, notices issued by the licensing authority may be revoked at any time. Such revocation could be triggered by an effected third party making representation to the licensing authority.

Enforcing the Obligations under SR III (c. III. 13):

241. The UN Orders 2001 and 2002 provide for penalties that may run to seven years custody. Failure to comply with a freezing order issued under the TL can also result in penalties that may run to seven years custody.

242. In addition, regulatory authorities such as the JFSC can apply their own range of sanctions that could ultimately include revocation of a license. If the noncompliance could be interpreted as an act of supporting terrorism, criminal prosecution for FT could follow.

Analysis:

243. Jersey’s implementation of UNSCRs 1267 and 1373 is closely linked to the U.K.’s implementation of these resolutions. Jersey automatically incorporates the U.K. lists in its resolution implementation regime. Jersey has not become actively involved in the U.K. decision-making processes with respect of designations and delisting.

244. Jersey implements UNSCR 1267 through the means noted above. In addition, although not yet used in practice, Jersey has an ability to designate persons and freeze their assets in conformity with UNSCR 1373 through the Terrorism (United Nations Measures) (Channel Islands) Order 2001.

245. The TL provisions and the specific UN Orders are the legal instruments that provide the basis in Jersey for an assets freezing regime. Although the bulk of the international criteria are covered, some issues, mostly of a formal nature, still need to be addressed:

  • No formal procedure is in place to receive and assess requests based on a foreign request, as required by UNSCR 1373;

  • In all cases, the definition of “funds” subject to freezing does not expressly refer to assets “jointly” or “indirectly” owned or controlled by designated or listed persons.

Effectiveness:

246. The authorities noted there is little evidence to suggest that there is terrorist property in Jersey. Consistent with that assessment, the Jersey authorities have not had occasion to freeze assets under UNSCRs 1267 and 1373 either on their own initiative or at the request of another state. Jersey has not received requests from other states to take action to freeze under the resolutions.

247. Effectiveness could not be evaluated as no information was provided regarding numbers of requests from other States and any action on them nor on numbers of freezing actions that have taken place in order to comply with UNSCRs 1267 and 1373.

248. The JFCU has received the following terrorism-related SARs. These figures, though modest, indicate a certain level of awareness and compliance by the industry.

SARs related to Terrorism

(Source: JFCU)

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2.4.2. Recommendations and Comments

  • The authorities should put in place a formal procedure governing the receipt and assessment of requests based on a foreign request to designate/freeze in order to comply with obligations under UNSCR 1373.

  • The legal framework implementing the UN Resolutions should be amended to expressly extend the definition of ‘funds’ subject to freezing to cover assets ‘jointly’ or ‘indirectly’ owned or controlled by the relevant persons.

  • The authorities should develop procedures to assess the effectiveness of their program to implement the UNSCRs and keep statistics regarding implementation.

2.4.3. Compliance with Special Recommendation III

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Authorities

2.5. The Financial Intelligence Unit and its Functions (R.26)

2.5.1. Description and Analysis

Legal Framework:

249. The legal basis for the suspicious activity reporting regime is found in Articles 32, 33, 34A, and 34D of the POCL, Articles 37, 38, 40 and 40A of the DTOL, and Articles 20, 22, and 23 of the TL, pursuant to which suspicions are to be reported to a Police or Customs officer. In practice all such reports are directed to the JFCU which is a joint unit comprised of officers of the Police and Customs.

250. In the case of the regulated sector, Article 21 of the MLO also provides for reports to be made by a Money Laundering Reporting Officer (MLRO) of the covered entity to a designated Police or Customs officer in a prescribed format that is set out in the Schedule to the MLO. Designation of Police and Customs officers for the purposes of this order is achieved by the issuing of public notices under Article 6 of the MLO, effectively designating officers who work in the JFCU.

Establishment of FIU as National Centre (c. 26.1):

251. The JFCU acts as the FIU for Jersey. The unit includes a number of Customs officers and is supported by civilian personnel, and performs administrative, analytical, and investigative functions. The JFCU is divided into three operational areas. The Intelligence Wing, the Operations Wing and the Drugs Confiscation Wing..

252. The following chart shows the organizational structure of the JFCU.

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JFCU STRUCTURE AND RESOURCES

Citation: IMF Staff Country Reports 2009, 280; 10.5089/9781451820232.002.A001

253. Once the JFCU receives SARs whether, through a hard copy or facsimile transmission, it can either consent to the financial activity mentioned in the SAR or not. This process is overseen by JFCU managers. The effect of a consent may be to provide a defense under Articles 32 and 33 of the POCL (and equivalent provisions in the DTOL and TL), and is referred to in the Handbook for Regulated Businesses (Paragraph 6.4.2). 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. Where the service provider fails to take steps when instructed by the customer in accordance with the mandate, as a result of the absence of a consent, that failure has the same effect as a freezing order. Of course, it could also expose the reporting institution to potential litigation from the affected customer.

254. The JFCU endeavors to provide consent to carry out an act (transaction or activity) on a best possible available service basis, with the majority of responses being issued within 24 to 48 hours. Consent is not granted initially in about two percent of SARs, of which approximately half are subsequently granted in a short period of time. The longest current nonconsent arrangement dates back to 2002 and relates to a protracted investigation and prosecutorial action.

255. There exist two avenues of appeal for person affected by a nonconsent decision. First a person may commence proceeding against the financial services provider for breach of contract and or mandate. Secondly, they may appeal through a general judicial review of administrative decision process in the Royal Court based in common law, at the initiation of the affected person or entity. In such a review of the Police decision, the client would have to prove that no reasonable Police officer could withhold consent in the circumstances. In order to achieve this, a client would have difficulties unless they had access to all the information upon which the Police officer based his decision, which would be generally unavailable due to its protected nature.1

256. SARs are received by the Intelligence Wing of the JFCU where the administrative support staff enters the details onto the JFCU Intranet Financial Intelligence System (IFIS), which was implemented in 2004 in response to a recommendation of the 2003 IMF assessment. SARs are risk rated in this process. As part of this process, the SAR is adjudicated by the management of the JFCU in order to arrive at a consent or non-consent decision on the SAR. This decision is communicated to the MLRO in writing and verbally if the matter is urgent, before being allocated to staff within the Intelligence Wing for further analysis. The JFCU has adopted an open plan office which enables staff in the Intelligence Wing to exchange information, opinions, and ideas when analyzing SARs.

257. SARs that warrant further attention are forwarded to the Operations Wing for investigative action. Both the JFCU and the Law Officers’ Department are responsible for the investigation of money laundering and terrorist financing. While the Law Officers’Department has responsibility for the investigation of serious or complex fraud under the IOFL, both agencies work closely together in furtherance of such investigations.

258. The Drugs Confiscation Wing focuses on carrying out investigations under the provisions of the DTOL. It also acts as a conduit for information exchange and joint activity with Customs.

259. The Head of the JFCU reports directly to Head of Crime Services of the States of Jersey Police. Ultimately, the Chief Officer of Police retains operational and strategic control over the JFCU. Both the Police and the JFCU are represented on Jersey’s AML/CFT Strategy Group and this group may make suggestions to the Chief Officer of Police with respect to the JFCU. The strategic direction of the Police, and more specifically the JFCU, is outlined in the 2008 Policing Plan which includes providing the Island’s financial community with strong protection against money laundering and other financial crimes as one of two strategic policing priorities. Financial Crime Investigation accounts for five percent of the planned 2008 Police revenue expenditure.

Guidelines to Financial Institutions on Reporting STR (c. 26.2):

260. The JFSC has issued Handbooks which set requirements and provide guidance on reporting. Further, the JFCU has issued separate and further guidance with respect to the process of compiling a SAR. Article 21(2) of the MLO requires reporting entities to use the disclosure form that the JFCU has developed and which is included as a Schedule to the MLO. The form is quite detailed (including identification, supporting documents, reasons for suspicion etc.) and, if correctly completed, covers all relevant information necessary to conduct an initial analysis and keep reliable statistics. Further, both the JFCU and the JFSC AML Unit are active in providing advice and guidance to the regulated industry on both a formal and informal basis, including seminars and other training sessions, reminding MLROs and other personnel of the proper use of SAR forms, the procedures to be followed and the quality expected. The reporting is still done manually: an on-line system is currently being developed.

Access to Information on Timely Basis by FIU (c. 26.3):

261. As the unit comprises Police and Customs officers, the JFCU has full and direct access to all Police and Customs registers, and can also easily access the main U.K. and Interpol law enforcement information databases.

262. Financial and public administrative information of a non-public nature is directly available to the JFCU and obtaining such data normally requires a production order issued by the Bailiff, under Article 40 of the POCL, Article 42 of the DTOL, or Article 31 and paragraph 4 of Schedule 5 of the TL, if it is to be used in evidence. These orders and sought and granted on a timely basis. Collection of information held by financial institutions for intelligence purposes is possible on an informal basis. Some administrative registers, such as housing and social security are also available on a limited basis through the Joint Intelligence Bureau in line with the Data Protection (Jersey) Law 2005.

263. The Data Protection Law (Jersey) 2005 regulates how data may be processed in Jersey. Special provisions apply in Article 29 where information is processed for the purpose of the prevention and detection of crime and the apprehension of an offender.

264. Jersey is a member of both the Egmont Group and Camden Asset Recovery Inter-Agency Network (’CARIN”) and is in a position to obtain timely information from these networks. Jersey is one of nine countries that sits on the steering group of CARIN.

265. The FIU also utilizes internet-based search engines and databases to assist in its analysis and information gathering (data-mining) and consults commercial databases such as World Check, “KYC360°”, and Credit Safe.

Additional Information from Reporting Parties (c. 26.4):

266. In the case of a report under Articles 32 or 33 of the POCL, Articles 37 and 38 of the DTOL, or Article 22 of the TL, the JFCU will engage directly with reporting parties to obtain sufficient information to make an informed decision as to whether to grant “consent” for an act (transaction or activity) to take place.

267. Failure by the reporting party to provide additional information may result in a delay or even refusal to grant “consent”.

268. Additionally, under Article 21(3) of the MLO, a person who makes a report must provide the JFCU with such additional information relating to that disclosure as an officer of the JFCU may reasonably request and within such reasonable period as the officer may require.

269. When additional information is sought only for intelligence and/or analytical purposes, the Intelligence Wing of the JFCU is empowered to request further‘reasonable’information relating to a SAR under the provisions contained in Article 21(4) of the Money Laundering Order. Information outside such a request is then supplied on a voluntary and informal basis, and any such request cannot be enforced. It appears that regulated entities take a co-operative approach to such requests.

Dissemination of Information (c. 26.5):

270. All SARs are analyzed by the Intelligence Wing within the JFCU. The analysis mainly consists of checking the databases at hand, making further enquiries to complete the picture, and comparison with ML and FT typologies. Exchange of information with counterpart FIUs and conferring with the JFSC are important elements of this process. If the JFCU Intelligence Wing finds that a suspicion is grounded, the information is passed on to the Operations or Drug Operation Wing of the JFCU for investigation, as appropriate to the nature of the grounded suspicion.

271. Dissemination of the disclosed information by the JFCU is provided for by Articles 30 and 31 of the POCL, Articles 40C and 40D of the DTOL, and Articles 24B and 24C of the TL, both domestically and externally to Jersey.

Operational Independence (c. 26.6):

272. The head of the JFCU reports to the Head of Crime Services of the Police. The JFCU is a separate unit within the Police and operates with a degree of autonomy given its combined agency structure and its specialized role and function. The JFCU interacts effectively with other segments of the law enforcement community. JFCU personnel seconded from Customs, continue to work in partnership with their parent organization.

273. The relative size of the JFCU compared to its parent organizations and the investments made in the JFCU show the importance of its role for the authorities.

274. In cases of serious or complex fraud, the AG may take the lead by invoking his powers under the IOFL and, where he does so, JFCU officers will assist his Crown officers who will have the lead on the investigation, but which remains nonetheless, a criminal investigation.

275. The JFCU therefore has operational independence and autonomy, subject to the operational requirements and strategic objectives of both the Police and Customs. Operational independence is also subject to the requirements of the AG in the provision of assistance to his serious/complex criminal investigations conducted under the provisions of the IOFL.

Protection of Information Held by FIU (c. 26.7):

276. The JFCU office is situated within a part of the Police estate that is restricted to security pass holders only, who possess electronic swipe card access. Entry to the JFCU office requires a specific card access further to that required to access the main building.

277. All JFCU information is registered in the IFIS system on the Police secure computer server and can only be accessed by authorized personnel. All hard copy material is stored in secure areas which are alarmed outside of office hours.

278. Dissemination of information is covered by legislation (Articles 30 or 31 of the POCL, Articles 40C or 40D of the DTOL, or Articles 24B and 24C of the TL, and the Data Protection Law), together with internal JFCU policies and procedures. Police officers employed within the unit are also covered by Police Disciplinary Regulations covering the improper disclosure of information. Customs officers are Civil Servants and are subject to the Civil Service Disciplinary Procedures. Both operate under a code of conduct issued by the States, which offers guiding principles on integrity matters. Both also sign the Official Secrets (Jersey) Law 1952.

279. JFCU specific information, such as SARs and information from foreign FIUs, is also stored on IFIS. Access is restricted to the JFCU staff, FIU analysts and supervisors. It is shielded from direct access by other investigators by ‘interest markers’ held by the joint intelligence bureau where local criminality is suspected so that approaches to JFCU by other Police departments can be considered’. Any information release has to be cleared by the Head of the JFCU.

Publication of Annual Reports (c. 26.8):

280. The JFCU produces statistics on SAR information which are published by the Chief Officer of the Police as part of the quarterly and annual reporting process.

281. Periodic updates have been given on a number of occasions through a JFCU newsletter issued from time to time to all financial institutions and publicly available via the Police website.

282. Typologies are covered through a joint JFCU, JFSC, and Law Officers’Department publication - “Typologies from a Jersey Perspective”. This was published in October 2008 and includes information on typologies and trends internationally and those which are identified as emerging within the industry locally. Typologies and trends are also fed back to industry on an ad hoc basis through lectures and presentations given by the JFCU and in joint presentations and seminars with the regulatory authorities.

Membership of Egmont Group (c. 26.9):

283. The FIU has been an active member of the Egmont Group since 1998.

Egmont Principles of Exchange of Information among FIUs (c. 26.10):

284. The JFCU is fully committed to the Egmont Group and its Statement of Purpose and its Principles for Information Exchange and exchanges information according to these principles. The JFCU contributes to the running costs of the Egmont Group Secretariat and has access to the Egmont Secure Web.

Adequacy of Resources to FIU (c. 30.1):

285. The JFCU is housed within the Police estate and use the IFIS system which is operated on the Police intranet, which in turn is supported by the overall Police budget. Whilst the JFCU generally operates with autonomy, the Chief Officer of the Police reserves the right to redeploy JFCU Police personnel to other matters to meet other organizational operational requirements. The Unit has its own vehicles at its disposal.

286. The current budget for the JFCU, including salaries and allowances is projected to be five percent of the budget for the Police. It includes budgets for the training and development of staff, IT systems and equipment. It also includes travel and expense allowances. The Head of the Unit controls the proper use of the budgetary resources. The JFCU can make a business case for additional funds on a case-by-case basis to both senior management of the Police and confiscation funds established under the POCL and DTOL..

Integrity of FIU Authorities (c. 30.2):

287. All positions within the JFCU are filled by Police officers, civilian employees of the Police, or Customs officers. High standards of vetting for the employees as well as immediate family members are undertaken before deployment anywhere within the Police or Customs is permitted.

288. Police officers have been vetted upon entry to the Police and qualifications checked. All officers and civilian employees are vetted by the Security Services and will have signed a declaration under the Official Secrets (Jersey) Law 1952 upon joining the organization.

289. Prior to officers being appointed to Customs, a criminal records check is undertaken. Following their appointment, all officers must swear an oath of office as per Schedule 2 of the Customs & Excise (Jersey) Law 1999 (as amended). In addition, all officers are required to be vetted to Security Clearance level. Security Clearance vetting is reviewed every ten years or when there is a change in personal circumstances.

290. The Police retains stringent disciplinary policies and procedures in place to deal with breaches of the Police Force (Jersey) Law 1974 and Police Discipline Code. The Police has its own internal Professional Standards Department which investigates any internally-generated concerns, as well as complaints from outside the Police.

Training for FIU Staff (c. 30.3):

291. Personnel recruited to the JFCU are primarily from experienced investigator backgrounds and have usually undergone criminal investigation training. They are subject to an application process which is evidence based, requiring them to show a competent level of skill in particular areas that are required for their role within the JFCU.

292. All Police and Customs officers are provided with funding and support to undertake the International Compliance Association Diploma in Anti-Money Laundering. Some of the other courses undertaken by JFCU staff include: the U.K. National Fraud and Financial Investigation Courses, training in FT from the U.K. National Terrorism Financial Investigation Unit, as well as local relevant courses and seminars

Statistics (applying R.32 to FIU):

293. Ad hoc statistics, available by reconstruction, are kept on the number of SARs, their sources, and on the grounds for suspicion. The figures for the period 2006–2008 are set out below and also in the analysis in this report of Recommendation 13. They do not indicate, however, the number of SARs that triggered an investigation. The number of cases pending further action by each area within the JFCU is indicated in the following analysis.

SAR Statistics - (Source: JFCU)

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JFCU Work Items as at December 2008

(Source: JFCU).

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294. The vast majority of SARs relate to subjects, entities, and activity overseas. The feedback the JFCU receives in respect of intelligence packages disseminated overseas is very low, which is attributed to a number of factors including the time taken by overseas authorities to conduct investigations and the absence of an automated feedback process resulting in the JFCU being unable to effectively maintain statistics with respect to these disseminations. The FIU has implemented a new statistical collection process which commenced on January 1, 2009.

Effectiveness:

295. The statistics spanning a period of three years (2006–2008) show active reporting levels by the financial sector, ranging from 1,034 disclosures in 2006 to 1,404 in 2008. The disclosure numbers are roughly similar to other equivalent local jurisdictions.

296. Insufficient statistics prevent further analysis of the number of SARs resulting in an investigation by either the Operations Wing, Drugs Confiscation Wing, or the AG Law Officers’ Department. However, active cases on hand indicate that the Intelligence Wing is effectively filtering and identifying cases warranting further investigation.

297. The number of SARs resulting in an investigation, with eighty active cases appears to represent an effective, if under resourced JFCU target development capability. The amounts of effective asset recovery (as noted in the analysis for Recommendation 3) indicate that the JFCU is recovering roughly one quarter of the maximum street value of drugs seized in Jersey. The Drugs Confiscation Wing currently has seventy four active cases with a staff of four; therefore, when measured in terms of concrete prosecution results from the overall system, effectiveness is an issue.

298. A significant factor to take into account is that, considering the offshore nature of Jersey financial industry, the majority of disclosures relate to foreign predicate activity, with the proceeds coming to Jersey. Consequently the JFCU/FIU is to a great extent dependant on the assistance received from its counterparts abroad, which is not always forthcoming or does not add much relevant information. Also relevant to an analysis of effectiveness is the positive impact of the frequent dissemination of information by the JFCU/FIU to the competent authorities of other jurisdictions, to assist in their analysis.

299. Statistics indicate that 98 percent of SARs were responded to within 48 hours. There was, some industry comment that they would like greater feedback with respect to SARs they have submitted and a general recognition that this issue was linked to JFCU resource levels.

300. Delays are sometimes incurred where the JFCU has to depend on external sources, such as its foreign counterparts. These delays impact upon the informal freezing or consent or nonconsent process requiring the prior consent of the JFCU to release funds that are the subject of an SAR.

301. The prerequisite for improved effectiveness remains adequate staffing of the FIU function considering the amount of SARs that are active and or awaiting management sign off.

302. Overall, the JFCU is adequately performing its role as a key player in the AML/CFT system. It has developed a relation of trust and openness with the financial sector, which is also an important factor explaining the acceptable volume of SARs. The clear separation between the intelligence and the investigative side of the handling of the reports is particularly significant.

303. By contrast, the high number of active investigations, and ultimately the low numbers of prosecution, raises the issue of effectiveness. The fact that the JFCU makes relevant information readily available to foreign counterparts is a positive factor, but does not sufficiently address the low level of results from the domestic system. This is a challenge for the authorities as a whole and not just for the JFCU. Nonetheless the JFCU should examine possible new ways to enhance its performance in terms of cases for investigation and asset recovery.

2.5.2. Recommendations and Comments

  • The Intelligence Wing of the JFCU should be adequately staffed to perform its functions effectively.

  • The JFCU should issue periodic reports including statistics, typologies and trends and information on its activities.

  • The JFCU should maintain comprehensive statistics on the work of the Intelligence Wing on matters relevant to the effectiveness and efficiency of systems for combating ML and FT.

2.5.3. Compliance with Recommendation 26

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2.6. Law enforcement, prosecution and other competent authorities—the framework for the investigation and prosecution of offenses, and for confiscation and freezing (R.27, & 28)

2.6.1. Description and Analysis

Legal Framework:

304. The legal framework for the investigation and prosecution of ML and FT offenses and for related seizure and confiscation measures is provided by the POCL (non-drug crimes related ML), the DTOL (drug related ML), the TL (FT and related ML). The POC(CS)L provides for the seizure and civil forfeiture of cash where it is suspected to be‘tainted’.

305. The Police Force (Jersey) Law 1974 and the PPCEL, covers their investigative powers and the conservatory measures taken during a Police investigation.

306. The IOFL provides investigative powers to the AG where the there is a suspected offense involving serious or complex fraud, wherever committed.

Designation of Authorities ML/FT Investigations (c. 27.1):

307. The following law enforcement authorities are, generally or particularly, charged with the investigation of ML/FT offenses:

308. The Police is primarily responsible for the investigation of all offenses. Specialized units within the Police service deal with specific criminality areas, such as drug trafficking. All cases related to ML and FT are allocated to the Operations Wing of the JFCU, with the Drug Investigations Wing investigating drug trafficking-related ML.

309. The inherent powers of a Police constable in respect of stop and search, entry, search and seizure, arrest, and detention are set out in the Police Force (Jersey) Law 1974 and the PPCEL. Specific powers are conferred on Police officers by the POCL, DTOL, TL, and the POC(CS)L, or are supported by a court order.

310. Officers of Customs are empowered generally by provisions of the Customs and Excise (Jersey) Law 1999 to administer, investigate, and enforce the various provisions of the customs and excise legislation and other legislation in respect of “assigned matters”. Assigned matters means any matter in relation to which the Agent of the Impôts and other officers are for the time being required to perform duties in pursuance of any enactment, including the TL, the POC(CS)L, and the MLO.

311. Effectiveness considerations resulted in the establishment of the JFCU, comprising officers of Police and Customs. The unit is responsible for the investigation of financial crime, particularly ML and FT. Officers of the JFCU who are officers of the Police have the powers of a constable in respect of all offenses. Officers of the JFCU who are officers of Customs have the powers of a Police officer under the POCL and the DOTL and the powers of a Customs Officer in respect of assigned matters, listed above.

312. Prosecution is primarily in the hands of the AG and his staff of prosecutors, four at present with the scope to hire in additional resources. Distinction is made between summary proceedings and proceedings in higher courts. Summary proceedings in the Magistrate’s Court level may be handled by either a prosecutor or by a Centenier (member of the honorary police). Proceedings in higher courts are handled by a prosecutor from the Law Officers’ Department, which would always handle ML and FT matters.

313. The Law Officers’ Department provides legal advice and expert assistance in all financial investigations including ML and FT. There are currently three additional lawyers hired for the purpose of investigating and prosecuting AML matters.

314. The AG also intervenes and conducts investigations under the IOFL. In these cases the AG will provide resources and expertise and will contract external legal experts such as prosecutors and forensic accountants for the purposes of furthering an investigation under the IOFL.

315. The AG also issues warrants with respect to the use of special projects including the tapping of communication lines under the Regulation of Investigatory Powers (Jersey) Law 2005.

Ability to Postpone /Waive Arrest of Suspects or Seizure of Property (c. 27.2):

316. The Police Force Jersey Law 1974 provides a power to arrest. The power is not a duty and the exercise ofthat power can be deferred, postponed, or waived for the purposes of identifying persons involved in criminal activities or for evidence gathering. Deferring the arrest of suspected persons or seizure of criminal items or assets is a common law enforcement practice aiming at maximum effectiveness.

317. It is the responsibility of the officer in charge of any investigation to decide on arrests, which may entail allowing an illegal situation to continue in a controlled way. Postponement of arrest to achieve maximum results is not exceptional in drug trafficking cases. Accountability in this process is achieved in the Police generally, and within the JFCU specifically, through the use of a ‘Major Crime Policy File’ system.

318. The‘Major Crime Policy File’ system requires that all major crime investigation decisions, including ones relating to the waiving of the arrest of suspects and the seizure of property are accountable and reviewable. Such decisions are recorded on a template which requires the nature of the decision to be outlined. Ongoing operational decisions relating to this entry are recoded in a major incident duplicate entry book. Both documents are accountable and are reviewed by Police management in the course of an investigation generally, and specifically on a case-by-case basis.

Additional Element—Ability to Use Special Investigative Techniques (c. 27.3); Additional Element—use of Special Investigative Techniques for ML/FT Techniques (c. 27.4):

319. Measures are in place providing law enforcement or prosecution authorities with an adequate legal basis for the use of a wide range of special investigative techniques when conducting investigations of ML or FT. Key legislation in this area includes the provisions of the Regulation of Investigatory Powers (Jersey) Law 2005, Article 10 of which allows the interception of communications on obtaining a warrant signed by the AG and the detailed provisions which provide for the authorization of surveillance and human intelligence sources, including directed and intrusive surveillance and covert human intelligence sources (undercover operations).

320. Controlled delivery of the proceeds of crime or funds intended for use in terrorism is not prohibited by Jersey legislation and is therefore permitted, as is the deferment of arrest, provided that the decision to do so is reasonable in all the circumstances. These have been used in Jersey in relation to ML cases.

321. No legislative protection from civil action by affected persons is provided to employees of financial institutions who co-operate with the Police when techniques such as controlled delivery are used. Current operational practice is that money deposited from abroad as part of a current ongoing controlled operation, is required to belong to the overseas investigative authority, with the tainted funds quarantined offshore by that investigative authority. Protection to employees of financial institutions, who co-operate with the Police when techniques such as controlled delivery are used, is provided by virtue ofthat fact the funds they deal with are not tainted and have a legitimate foreign law enforcement source. The AG has issued guidelines for the conduct of covert or undercover investigations in Jersey by overseas and domestics authorities, and all such actions require the AG’s approval.

322. Officers of the JFCU have undergone training as financial investigators and specialize in investigating the proceeds of crime. They, together with legal officers of the Law Officers’ Department focus on the investigation, seizure, and confiscation of the proceeds of crime.

Use of specialized cooperative investigative groups (c. 27.5):

323. As mentioned earlier, the use of temporary groups specialized in the investigation and prosecution of serious or complex fraud is provided for under the IOFL and is practiced regularly by the AG who hires specific additional resources in the form of investigators, prosecutors, and forensic accountants, to work in cooperation with the Law Officers’ Department and Police.

Review of ML and FT techniques, trends and methods (c. 27.6):

324. Reviews of ML and FT techniques, trends, and methods takes place on a number of levels. The Police review this data when reporting on the JFCU in both is annual and strategic priority reporting process. These issues are examined at periodic meetings between the head of the JFCU and the AG, and further discussed at AML/CFT Strategy Group meetings. Continuous exchange of information with respect to techniques, trends, and methods occurs between the JFCU and JFSC.

Ability to Compel Production of and Searches for Documents and Information (c. 28.1):

325. There are several legal provisions giving Police officers the power, through application to the Bailiff, to compel the production of materials and to search premises with respect to ML under Articles 40 and 41 of the POCL 1999, and the provisions of PPCEL 2003 Article 10 on searches and seizure apply. Article 41A of the POCL provides for the provision of financial information and account monitoring orders. Suspected money laundering, reporting, and tipping off offenses, as well as failure to comply with the MLO, may also be investigated under the PPCEL, as they fall within the definition of “serious offense” in Article 3(2)(b) of the PPCEL.

326. With respect to ML related to drug offenses, the production of material and the search of premises are provided for under Articles 42 and 43 of the DTOL. Article 44A of the DTOL also provides for the provision of financial information and account monitoring orders. Drug trafficking, money laundering, reporting, and tipping off offenses may also be investigated under the PPCEL, as they fall within the definition of “serious offense” in Article 3(2)(b) and (c) of the PPCEL.

327. With regard to FT, production and search powers and financial information and account monitoring orders are also available under Article 31 of the TL for the purpose of a terrorist investigation. By virtue of Article 3(2)(b), the PPCEL may also be used to investigate a number of suspected terrorist offenses.

328. Article 2 of the IOFL gives the AG special powers to obtain evidence without a court order in respect of serious or complex fraud, wherever committed. The AG has the power to require the production of evidence and it is an offense to refuse to comply. The AG may also apply to the Bailiff for the issuance of a search warrant if appropriate in such circumstances. This warrant is executed by a Police officer.

329. The powers outlined in the POCL and the DTOL above are also available to Customs Officers who are included within the definition of Police officers within the Laws

Power to Take Witnesses’ Statement (c. 28.2):

330. Police officers can take witness statements in respect of investigations and prosecutions. This forms part of their duty as a Police officer to ‘bring offenders with all due speed to justice’, as per Article 2 of the Police Force (Jersey) Law 1974.

Adequacy of Resources to Law Enforcement and Other AML/CFT Investigative or Prosecutorial Agencies (c. 30.1):

331. The JFCU is operationally independent and no instances of undue political influence or interference are on record. The Police comprises 245 full time equivalent officers of which 13 work in the JFCU, together with three Customs officers and three civilians. The Police is as a whole committed to fighting criminality, including ML and FT, and lists financial crime investigation as both a key service area and a strategic priority in the 2008 Policing Plan.

332. The Law Officers’ Department presently comprises four prosecutors dealing with serious crime and three other staff engaged in IOFL investigations and prosecutions.

333. The number and complexity of active cases within JFCU raises the issue of adequacy of resources. The Operations Wing has 141 active cases, and the Drugs Confiscation Wing has 55 active cases. Both the Operations Wing and the Law Officers’ Department are responsible for the investigation of money laundering and terrorist financing. Whilst the Law Officers’ Department has responsibility for the investigation of serious or complex fraud under the IOFL, both agencies work closely together in furtherance of such investigations. The Drugs Confiscation Wing is responsible for investigations relating to drug offenses. In both cases the existing resources are insufficient to properly and thoroughly investigate the existing active cases in a timely manner. This resources issue is linked to the issue of effectiveness.

Integrity of Competent Authorities (c. 30.2):

334. The integrity of officers within the JFCU is discussed under Recommendation 26. All officers within the Law Officers’ Department, including those posts involved in the investigation of ML and FT, are subject to States’ policies such as those contained in the States Human Resources Policy Manual, which apply to members of the public service. Officers are also subject to various statutory requirements, including a requirement to sign a declaration pursuant to the Official Secrets (Jersey) Law 1952.

Training for Competent Authorities (c. 30.3):

335. The JCFU has a combined investigative law enforcement and financial intelligence unit structure and its staff have received adequate training to investigate ML and FT in Jersey. An analysis is provided under Recommendation 26.

336. The Law Officers’ Department frequently retains English counsel to assist on serious and complex fraud cases, which typically involve ML. Permanent members of staff also receive external training by attendance at various conferences, examples of which are the IFEX International Fraud and Financial Crime Conference; the Cross Border Crime Conference; the Chatham House Anti-Corruption Conference; the Evidence and Intelligence Conference; the Cambridge International Symposium on Economic Crime; and the annual Securities and Exchange Commission conference.

Additional Element (R.30) - Special Training for Judges (c. 30.4):

337. Judges receive no specific training on ML or FT.

Statistics (applying R.32):

338. Ad hoc statistics have been kept at the JFCU in respect of the number of investigations and prosecutions in relation of ML, number of convictions, and the value of confiscated property. No TL investigations were reported to the assessors. Statistical data provided was sourced through manual reconstruction. The JFCU implement a statistical collection system with effect from January 2009.

Number of Active Work Items.

(Source: JFCU)

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Number and type of Convictions.

(Source: JFCU)

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Estimated (Maximum) Value of Seized Drugs, Number and Value of DTOL Confiscation Orders and Cash Seizures.

(Source: JFCU)

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339. The Police are unable to estimate what percentage of drugs being trafficked in Jersey they are intercepting. Therefore, the statistics above raise a possible issue of effectiveness with respect to conducting proceeds of crime investigations with respect to drug trafficking offenses.

340. The number of active cases currently with the Operations and Drugs Confiscation Wing is high compared to the staffing levels. In respect of the effectiveness of the ML and FT investigations, the effectiveness issues raised in relation with the JFCU Intelligence Wing are also relevant to an analysis of law enforcement aspects. Overall, the law enforcement authorities have a sufficient investigative legal arsenal at their disposal.

2.6.2. Recommendations and Comments

  • The authorities should implement steps to improve effectiveness by seeking to increase investigative resources.

  • Competent authorities should maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of systems for combating ML and FT.

2.6.3. Compliance with Recommendations 27 & 28

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2.7. Cross Border Declaration or Disclosure (SR.IX)

2.7.1. Description and Analysis

Mechanisms to Monitor Cross-border Physical Transportation of Currency (c.IX.1):

341. Customs is a dual-role agency with officers performing a dual customs and immigration function.

342. The Customs and Excise (Amendment No.6) (Jersey) Law 2008 was passed by the States in July 2008 and came in to force on January 9, 2009. Articles 37B and 37C provide that an officer may require a person entering or leaving Jersey, or exporting or importing goods to disclose cash or bearer negotiable instruments in excess of the prescribed amount, currently set at EUR10,000 or the equivalent in any other currency.

Request Information on Origin and Use of Currency (c. IX.2):

343. Articles 36G of the Customs and Excise (Amendment No.6) (Jersey) Law 2008 provides an officer with the power to ask questions with respect of cash and its intended use, require evidence to be produced to support information provided, and further record the questions and responses.

344. Article 37D of the Customs and Excise (Amendment No. 6) (Jersey) Law 2008 provides criminal offense provisions for persons refusing to declare when required to do so, or making a false declaration.

Restraint of Currency (c. IX.3):

345. Customs and Police officers are empowered under the POC(CS)L throughout Jersey and may seize any cash based on grounds for suspecting that it is tainted. Cash is defined to include bearer negotiable instruments. Tainted cash relates to cash that is used in, or intended to be used in, unlawful conduct; or obtained in the course of, from the proceeds of, or in connection with, unlawful conduct.

346. Cash seized may be subject to the civil forfeiture provisions contained within the legislation.

Retention of Information of Currency and Identification Data by Authorities when appropriate (c. IX.4): Access of Information to FIU (c. IX.5):

347. Where tainted cash is seized under Article 4(1) of the POC(CS)L, the officer takes custody of the cash and is required to provide a receipt to the person in whose possession or on whose premises the cash was found, specifying the amount, denominations and currency of the cash.

348. The officer is required as a matter of procedure to provide the JFCU, whose staff includes Customs officers, a full report of the cash seizure.

Domestic Cooperation between Customs, Immigration and Related Authorities (c. IX.6):

349. Customs coordinates its activities with those of the Police Special Branch and also with the JFCU. This coordination is enhanced by the placement of Customs officers within the JFCU.

International Cooperation between Competent Authorities relating to Cross-border Physical Transportation of Currency (c. IX.7):

350. Customs officers within the JFCU operate within guidelines issued by the AG in respect of the sharing of intelligence collected through SARs with overseas law enforcement and regulatory bodies.

351. Jersey is a cooperating jurisdiction and will provide evidential assistance to foreign jurisdictions in response to formal letters of request made to the AG. Officers will also cooperate with foreign law enforcement agencies by virtue of the Criminal Justice (International Co-operation) (Jersey) Law 2001.

352. On a more general note Customs will freely exchange intelligence with U.K. agencies, in particular, U.K. Serious Organised Crime Agency (SOCA), HM Revenue Customs, and the U.K. Border Agency. Any exchange of intelligence will be in compliance with the Data Protection (Jersey) Law 2005.

353. Article 6(2)(a) of the Customs and Excise (Jersey) Law 1999 allows the Agent of the Impô to cooperate with other Customs services on matters of mutual concern.

354. Article 6(2)(c) of the same law allows for the arrangements to be put in place with EUmember statesfor the exchange of information to prevent/detect fraud/duty evasion against their Customs laws.

Notification of Foreign Agency of Unusual Movement of Precious Metal and Stones (c. IX. 12):

355. Customs as a matter of practice will consider notifying the relevant authority upon the discovery of gold, precious metals or stones, and has actively exchanged this information in the past

Safeguards for Proper Use of Information (c. IX. 13):

356. In line with current practice, any exchange of intelligence will be in compliance with the Data Protection (Jersey) Law, 2005.

2.7.2. Recommendations and Comments

  • Jersey should proceed to implement the newly-established disclosure system to detect the physical cross-border transportation of currency and bearer negotiable instruments that are related to money laundering and terrorist financing.

2.7.3. Compliance with Special Recommendation IX

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3. Preventive Measures—Financial Institutions

Customer Due Diligence & Record Keeping

3.1. Risk of money laundering or terrorist financing

357. The nature of the financial sector business conducted in or from Jersey creates a material vulnerability to being used in the layering and integration stages of money laundering schemes. Some characteristics of the Jersey financial system point to an elevated vulnerability to abuse for ML or FT purposes. While in reality not all of this business is high-risk, much of it would fall within the range of categories suggested by the FATF Methodology as examples of higher-risk business, including as follows:

  • A substantial proportion—believed to be around 90 percent in some sectors—of customer relationships and of financial service business conducted are on a non face-to-face basis for nonresidents of Jersey;

  • In many cases the business relationship is established through intermediaries or introducers (Jersey or foreign) that are subject to varying levels of regulation, depending on their origin. Subject to certain controls, Jersey financial institutions are permitted to rely on the intermediaries or introducers to conduct CDD on their behalf. However, in general the CDD evidence is independently checked and CDD tests sometimes conducted again by the Jersey financial institution, employing a risk-based approach;

  • Financial services provided include private banking facilities for nonresidents; and

  • The use of legal persons and arrangements such as trusts is prevalent, both as asset-holding vehicles and as part of more complex structures that have the potential to create difficulties for Jersey financial institutions on occasion in accurately identifying the customer and the ultimate beneficial owner or controller.

358. This environment, designed to attract financial services business and employment to Jersey, brings with it a material risk of financial crime, typically emanating from other jurisdictions and seeking to avail of the financial services available in Jersey.

359. In response, the authorities have adopted a comprehensive risk-based approach to the implementation and supervision of AML/CFT preventive measures. In particular, the JFSC has required each financial institution to develop its own set of risk-based policies and procedures, which are considered by the JFSC as part of its onsite examinations. Indications regarding the depth and quality of the work conducted by the financial institutions in implementing the risk-based approach were mixed. The JFSC was requiring a number of the institutions to conduct further analysis and develop a deeper understanding of the risks they faced and more meaningful mitigating policies and procedures.

Legal framework

360. Since the last IMF AML/CFT assessment of Jersey in 2003, the authorities have revised and expanded significantly the legislative basis for AML/CFT regulation and the breadth and scope of measures in force, in response to the recommendations of the 2003 assessment report and to reflect the substantial changes in the FATF Recommendations, as revised in 2004. The current provisions (including amendments that came into effect during the on-site visit or shortly thereafter) are outlined below and analyzed in detail in sections 3 and 4 of this report.

361. Under the 2004 Assessment Methodology for the FATF Recommendations, an asterisk applied to a criterion indicates that the relevant measures must be in law or regulation. To qualify as such, the requirements must have been issued or authorized by a legislative body and be shown to impose mandatory, enforceable, and sanctionable requirements. This is relevant to many of the requirements under Recommendation 5, as well as all of Recommendations 10 and 13. The requirements in respect of the remaining FATF Recommendations must, at a minimum, be specified in “other enforceable means,” defined by the FATF Methodology as measures issued by a competent authority and shown to be mandatory, enforceable, and sanctionable. The following paragraphs set out the laws, regulations, and, as applicable, other enforceable means taken into account for the purposes of this assessment.

362. The primary legislative foundation for customer due diligence (CDD) and other AML/CFT preventive measures in Jersey is the POCL, which defines money laundering and tipping-off offenses and the offense of not reporting suspicious transactions, deals with confidentiality and provides exceptions to enable disclosure in certain restricted circumstances, and sets forth (as a Schedule) the list of business activities subject to the preventive measures.2 For purposes of this assessment, the POCL, having been adopted by the legislative body of Jersey and sanctioned by the Privy Council, constitutes primary legislation.

363. The POCL also in Article 37(1) authorizes the Minister for Treasury and Resources (the Minister) to issue Orders prescribing measures to be taken (or not taken) “by persons who carry on financial services business for the purposes of preventing and detecting money laundering.” Pursuant to the POCL the Minister issued the MLO, which contains detailed provisions addressing most of the elements of the FATF Recommendations, including CDD measures and recordkeeping and reporting requirements. The MLO is secondary legislation and is accepted for the purposes of this assessment as “law and regulation” within the FATF definition as it:

  • was issued under a specific power granted in primary legislation to issue regulations, including explicitly in relation to the prevention and detection of money laundering;

  • contains mandatory provisions, which are enforceable by the JFSC and law enforcement agencies and subject to the sanctions as set forth in the POCL; and

  • was laid before the States3 in the manner required by Jersey law.4

364. The MLO generally applies to “relevant persons,” which are defined in Article 1(1) as persons carrying on a “financial services business” in or from within Jersey, or a Jersey legal entity carrying on such a business anywhere in the world. A “financial services business” is defined in Article 36 of the POCL to mean a business described in Schedule 2 to the POCL. Schedule 2 is composed of two parts. Part A comprises the financial services businesses that are prudentially supervised by the JFSC under the regulatory laws it administers, and would all (except trust company business) fall within the definition of “financial institution” in the Glossary to the FATF recommendations: banking under the Banking Business (Jersey) Law 1991 (BBJL); insurance business under the Insurance Business (Jersey) Law 1996 (IBJL); collective investment funds and functionaries under the Collective Investment Funds (Jersey) Law 1988 (CIFL); and the investment business, trust company business, money service business, and fund services business under the FSJL. These businesses are referred to in the MLO as “regulated businesses” and the persons who conduct the business, defined in the MLO as “regulated persons,” constitute a subset of relevant persons under the MLO. Regulated persons are specifically referred to in the MLO only with respect to certain concessions from CDD requirements discussed in relation to Recommendation 5 below. Part B of Schedule 2 of the POCL includes the businesses that fall within the FATF definition of DNFBPs, as well as businesses that provide “other services.” This is a “catch-all” category that comprises the business of providing any of the financial activities contained in the Glossary of the FATF Recommendations, where the business is not otherwise included in Schedule 2.

365. The following table sets forth the activities contained in the FATF Glossary cross-referenced to where that activity is covered in Schedule 2:

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366. The list in Schedule 2 of the POCL is subject to numerous exceptions, which is due to the very broad definitions that are used in the regulatory laws referred to above to define collective investment funds and fund functionaries, deposit-taking business, insurance business, and financial service business. Some of the activities that are exempted from the scope of prudential regulation have also been exempted from Schedule 2 of the POCL, based upon one of the following rationales: (1) because they have been determined to be of inherently low ML risk, based upon an assessment by the JFSC; (2) because there is no person resident in Jersey to apply the requirements to5; (3) in order to avoid duplicative obligations (i.e., another Jersey entity that provides a service to the exempted entity is subject to AML regulations); or (4) the exempted person acts only as principal for a connected person or company (i.e., the exempted person conducts no business with the public). Based upon a review of Schedule 2 (including the exemptions and the base for each) and discussions with Jersey authorities, the assessors have concluded that the scope of coverage (including consideration of the exemptions) is in all material respects consistent with the FATF definitions of “financial institution” and “DNFBP”, and are satisfied regarding the adequacy of the process and risk analysis of the Jersey authorities for determining the exemptions and the reasonableness of its conclusions. Some examples of these exemptions are set forth below.

  • The person carrying on the business is outside Jersey and subject to obligations in another jurisdiction equivalent to the obligations imposed by Jersey, e.g., the National Savings Bank of the U.K. (Article 8(2)(c) of the BBJL) and Lloyd’s of London (Article 5(5)(a) of the IBJL).

  • The nature of the activity that is conducted presents a lower risk, e.g. the States and central banks of the EU (Article 8(2)(a) and (b) of the BBJL), a trade union (Article 5(5)(a) of the IBJL), and recruitment agents (paragraph 18 of the Financial Services (Trust Company Business (Exemptions)) (Jersey) Order 2000).

  • The activity is not offered to the public, e.g. Article 1 of the Insurance Business (General Provisions) (Jersey) Order 1996 and investment advice between directors (paragraph 8 of Schedule 2 of the FSJL).

  • The activity is administered by a prudentially supervised person that is subject to AML/CFT obligations itself, e.g. a private trust company business (paragraph 4 of the Financial Services (Trust Company Business (Exemptions) (Jersey) Order 2000).

367. To supplement the POCL and the MLO, the JFSC has issued the Handbook for Regulated Businesses. The stated objectives of the Handbook for Regulated Businesses include, among others, to outline the requirements of the POCL, the MLO, and other primary and secondary legislation imposing anti-money laundering and counter terrorism financing obligations in Jersey, and “to set out the Commission’s requirements--to be followed by all relevant persons that are regulated by the Commission” pursuant to its regulatory laws. The Handbook for Regulated Businesses contains Statutory Requirements (which restate requirements contained in the POCL, MLO, or other primary or secondary legislation), Regulatory Requirements, and Guidance Notes. Following careful consideration, the assessors have concluded that the Regulatory Requirements contained in the Handbook for Regulated Businesses should be accepted as “other enforceable means” (OEM) for the purposes of this assessment, on the following basis:

  • The Handbook for Regulated Businesses states (in Paragraph 10 of Section 1) that the Regulatory Requirements set forth how a “person must meet the Statutory Requirements” and that “failure to follow” these requirements “may attract regulatory sanction.” In addition, the Regulatory Requirements (like the Statutory Requirements) “are described using the term must, indicating that these requirements are mandatory.” (Paragraph 12 of Section 1)

  • The Handbook for Regulated Businesses was originally issued by the JFSC pursuant to its powers under Article 8 of the Financial Services Commission (Jersey) Law 1998 (“JFSC Law”), the law that establishes the JFSC as the supervisor of “regulated persons” and that grants it very broad powers to do anything “that is calculated to facilitate,” or “incidental or conducive to” the performance of any of its functions, and under provisions for Codes of Practice to be issued under the regulatory laws. This basis for the JFSC’s authority to issue enforceable requirements specific to AML/CFT was augmented in 2008 by the enactment of the SBL, which provides for one or more supervisory bodies to monitor and ensure compliance by all persons subject to Schedule 2 of the POCL (relevant persons) with legislation to prevent money laundering and terrorist financing. Article 22 of the SBL authorizes a “supervisory body” (which includes the JFSC) to prepare and issue “Codes of Practice for establishing sound principles for compliance with this Law and anti-money laundering and counter-terrorism legislation by persons in relation to whom that body has supervisory functions.” Article 8 of the SBL gives the supervisor broad powers to examine supervised persons, and to require the supervised person to supply information and answer questions. Thus, the assessors conclude that the Regulatory Requirements in the Handbook for Regulated Businesses “set out enforceable requirements.”

  • The SBL also provides a range of sanctions for noncompliance. Article 26 authorizes a supervisor to issue a public statement concerning a person that appears to have committed a contravention of any Code of Practice. Article 23 provides that, if a supervised person has failed to comply with any Order or any Code of Practice, the supervisor may “give” such directions as it may consider appropriate,…” including imposing a prohibition, restriction or limitation, requiring the removal of a person, and requiring the ceasing of operations and winding up of a business. Article 18 authorizes a supervisor to revoke the registration of a person that is regulated under the SBL for noncompliance with any Code of Practice (in addition to identical provisions in each of the regulatory laws under which regulated persons are registered. The assessors view this range of possible sanctions as largely effective, proportionate, and dissuasive.

368. The Regulatory Requirements, thus, set out enforceable requirements with sanctions that can be imposed by the JFSC for noncompliance, and are issued by a competent authority (the JFSC).6 Although no sanction for noncompliance had been applied at the time of the on-site visit, the Handbook for Regulated Businesses was issued in February 2008 (and revised in October 2008), and the SBL has only been in effect since September 2008. With regard to the practical application of these measures, the assessors also noted that recent management letters written to financial institutions following on-site examinations conducted by an accounting firm on behalf of the JFSC contained references to “requirements” set forth in the Handbook for Regulated Businesses.7 The assessors also found in discussions with financial institutions that they clearly view the Regulatory Requirements as enforceable obligations.

3.2. Customer due diligence, including enhanced or reduced measures (R.5 to 8)

3.2.1. Description and Analysis

General description of relevant provisions

369. Under Article 13 of the MLO, CDD measures are required when: establishing a business relationship; carrying out a one-off transaction (defined as a transaction over EUR15,000 - except for bureaux de change and money transmission activities where the threshold is EUR1,000); there is suspicion of ML or FT; or there are doubts about the veracity or adequacy of previously obtained identification data. However, verification of identity may be completed after the establishment of a business relationship provided that: (a) it is completed as soon as reasonably practicable thereafter; (b) it is necessary not to interrupt the normal conduct of business; and (c) there is little risk of ML occurring. Under Article 14 of the MLO, if measures cannot be completed, then no relationship may be formed or one-off transaction conducted, or, in the case of an existing relationship, the relationship shall be terminated.

370. Articles 3 and 13 of the MLO require a relevant person to: identify and verify the customer; determine whether or not the customer is acting for a third party, and, if so, identify that third party; where the third party is not an individual, understand the ownership and control of xthat third party; identify (and take reasonable measures to verify) each individual who is that third party’s beneficial owner or controller; in respect of a customer that is not an individual, identify any person purporting to act on behalf of the customer and verify the authority of any person purporting to so act; understand the ownership and control structure ofthat customer and the provisions under which the customers can enter into legal arrangements; identify (and take reasonable measures to verify) the individuals who are the customer’s beneficial owners or controllers; obtain information on the purpose and intended nature of the business relationship or one-off transaction; scrutinize transactions; and keep documents, data or information obtained up to date.

371. Article 11 of the MLO provides for policies to support the above to have regard for the degree of risk of ML, and to provide for the identification and scrutiny of: complex or unusually large transactions and unusual patterns of transactions which have no apparent economic or visible lawful purpose; and determination of business relationships and transactions connected with countries and territories which do not, or insufficiently, apply the FATF Recommendations.

372. Under Article 15 of the MLO, enhanced measures must be applied in higher risk circumstances, including where a customer has not been physically present for identification purposes, correspondent banking relationships, and PEPs.

373. Under Articles 16 to 18 of the MLO, reduced simplified measures may be applied—in certain prescribed cases where ML risk is considered to be low (except where there is suspicion of ML or FT).

374. The term “money laundering” is defined in the POCL to mean conduct that constitutes an offense under the relevant articles of the POCL, the DTOL, or the TL. Thus, the term “money laundering, when used in the POCL or the MLO, includes both money laundering and terrorism financing.

375. While the version of the MLO that applied at the time of the assessment had only recently been brought into force (February 2008), the assessors took into account in assessing the effectiveness of implementation of the CDD measures that the financial institutions had been engaged in extensive consultations with the JFSC on the MLO’s provisions and had access to the drafts over an extended period. Financial institutions met during the on-site visit confirmed that they had adopted the updated procedures based on the consultation drafts from early 2007 in some cases. While most of the institutions interviewed were still engaged to varying degrees in upgrading their CDD procedures and customer database information, particularly for their existing client base, the assessors accepted that the updated requirements of the MLO were already at an advanced stage of implementation. Moreover, the JFSC was already in the course of conducting on-site examinations in relation to the new requirements with particular focus on the application by the financial institutions of the risk-based approach.

Prohibition of Anonymous Accounts (c. 5.1):

376. Article 23B of the MLO (effective November 7, 2008) explicitly prohibits a relevant person from establishing an anonymous account or an account in a name it knows or suspects to be fictitious. Even before this explicit prohibition, the establishment of an anonymous account would have been contrary to requirements of Article 13 of the MLO, under which a relevant person must undertake CDD measures on all accounts, including identification and verification of identity, and information and documents must be kept in line with Articles 19 and 20 of the MLO. The assessors understand that anonymous accounts would have been contrary to the applicable Jersey CDD requirements in effect prior to the current MLO.

377. According to the JFSC, it is possible that trust and company service providers may have permitted anonymous or fictitious name accounts prior to their regulation in 2000 but since that time they believe such practices have ceased, and that there are no such accounts at this time. The assessors have not found any indication that such accounts exist.

378. The use of numbered accounts is not prohibited in Jersey. The JFSC informed the assessors that they had identified a small number of banks utilizing numbered accounts and some offering hold mail services. According to the FATF Methodology, when numbered accounts exist, institutions should be required to maintain them in such a way that full compliance can be achieved with the Recommendations. The assessors determined that, although there are no requirements in the MLO specifically applicable to numbered accounts, the CDD provisions referred to above appear adequate to achieve full compliance with the Recommendations with regard to any such accounts,

When is CDD required (c. 5.2):

5.2(a)

379. The requirement to undertake CDD measures is set out in secondary legislation. Article 13(1)(a) of the MLO requires financial institutions and other relevant persons to apply identification measures before the establishment of a business relationship. There is a concession for completion of identification as soon as reasonably practicable after establishment of a business relationship that is discussed below. The establishment of new business relationships based on information received from introducers is addressed in the analysis of Recommendation 9.

5.2(b)

380. With regard to occasional transactions, Article 13(1)(a) of the MLO also requires the application of CDD before carrying out a “one-off transaction,” which is defined in Article 4 of the MLO as any transaction carried out by relevant persons other than in the course of a business relationship, amounting to not less than the applicable threshold of EUR15,000 (other than for a money service business or casino); EUR1,000 in the case of a money service business (including bureau de change and money transmission activities); and EUR3,000 in the case of a casino. The definition includes two or more linked transactions, where it either appears at the outset or later comes to the attention of the person handling the transactions that they are linked and the appropriate threshold is met in the aggregate. Article 13(5) of the MLO provides that, in the event that it later comes to the attention of the person handling a transaction that it is linked to an earlier transaction, the relevant person must apply identification measures as soon as reasonably practicable. Financial institutions interviewed confirmed to the assessors that they had in place procedures to implement the above requirements.

5.2(c)

381. The Jersey authorities chose to address the regulation of wire transfers by implementing legislation that is based on European Regulation 1781/2006 on Wire Transfers: the Community Provisions (Wire Transfers) (Jersey) Regulations 2007, as amended (the WTR).

382. Payment service providers are required, before transferring funds, other than from an account, to verify the complete information on the payer on the basis of documents, data, or information obtained from a reliable and independent source, where the amount exceeds EUR1,000 (or the transaction is carried out in several operations that appear to be linked and together exceed EUR1,000). The exemption threshold does not apply where there is a suspicion of money laundering. (WTR Regulation 6(4)).

383. The measures applicable to wire transfers are analyzed in more detail later in this section when addressing SR.VII, including as regards the effectiveness of implementation of the required measures.

5.2(d)

384. Financial institutions and other relevant persons are required by Article 13(1)(c)(i) of the MLO to apply identification measures when they suspect money laundering which is defined to include both money laundering and terrorism financing offenses regardless of any thresholds.

385. Relevant persons are required pursuant to the MLO to apply CDD measures if they suspect money laundering (except for the situation described in the following paragraph), regardless of any available exemption. The exemptions from the application of full CDD measures are contained in Articles 16, 17, and 18, are not applicable if there is a suspicion of money laundering or terrorist financing. (MLO Articles 16(8), 17(3), and 18(9)).

386. Under Article 14(6) of the MLO, identification procedures need not be applied where there is a suspicion of money laundering, where a relevant person has made a report to the JFCU and has received consent from an officer of the JFCU not to do so. The JFCU may consider providing such consent if it is concerned that a customer may be alerted to the relevant person’s suspicion or it is satisfied that a relevant person already holds sufficient information on its customer (and where the application of identification measures would not provide additional CDD information). The assessors understand that the procedure authorized by Article 14(6) is rarely used. As discussed in the analysis of Recommendation 13, financial institutions generally expressed satisfaction with the operation of most aspects of the suspicious transaction reporting system and confirmed to the assessors a strong awareness of their obligations in that regard.

5.2(e)

387. Article 13(1)(c)(ii) of the MLO requires that a relevant person apply identification measures when it has doubts about the veracity or adequacy of documents, data, or information previously obtained under CDD measures.

Identification measures and verification sources (c. 5.3):

388. Article 13(1) of the MLO requires a relevant person to apply identification measures before the establishment of a business relationship or before carrying out a one-off transaction. Article 3(4) of the MLO states that identification of a person means finding out the identity of the person, including the person’s name and legal status, and obtaining evidence, on the basis of documents, data, or information from a reliable and independent source (added by amendment to the MLO effective November 7, 2008), that: (a) is reasonably capable of verifying that the person to be identified is who the person is said to be, and (b) satisfies the person responsible for the identification of a person that the evidence does establish that fact. Article 3(5) states further that the measures for identifying a person must include the assessment by the relevant person of the risk that any business relationship or one-off transaction will involve money laundering, including obtaining appropriate information for assessing that risk.

389. The Handbook for Regulated Businesses states as a regulatory requirement that a relevant person must collect relevant identification information on an individual (Section 4.3.1), and must verify the identity of the individual, and take reasonable measures to re-verify following a change of identity, such as following marriage, change of address, or change of nationality (Section 4.3.2). The Handbook for Regulated Businesses states in Guidance Notes that a relevant person may demonstrate collection of relevant identification information where it obtains name, residential address, and date of birth (for all customers), and also place of birth, nationality, sex and government-issued identification number (for standard and higher risk customers). The Handbook for Regulated Businesses states in Guidance Notes in these Sections that a relevant person may demonstrate compliance with verification of an individual (for lower risk) if it verifies name and either residential address or date of birth, using at least one verification method, and (in the case of standard risk) address and date of birth, place of birth, nationality, and sex, using at least two verification methods. Guidance on appropriate verification methods includes, for lower risk, (i) a Jersey driving license or (ii) a birth certificate in conjunction with a bank statement, utility bill, or other listed evidence. Other verification methods include current passport (which is most commonly used to verify identity), national identity card, and independent data sources.

390. The financial institutions interviewed during the assessment did not identify any particular difficulties in obtaining appropriate identification and verification information. Some indicated that the full procedures were applied even in cases where concessions (discussed below) would permit a more liberal application of the requirements.

Identification of Legal Persons or Other Arrangements (c. 5.4):

5.4(a)

391. In the case of a customer that is not an individual, Articles 13 and 3(2)(c)(i) of the MLO require a relevant person to identify and verify the identity of any person purporting to act on behalf of a customer, and (by amendment to the MLO effective November 7, 2008), to verify the authority of any person purporting to so act.

5.4(b)

392. Articles 13 and 3(4) of the MLO require a relevant person to establish and verify the identity of a customer, including that person’s name and legal status.

393. Sections 4.4 and 4.5 of the Handbook for Regulated Businesses set out the information to be collected in the case a customer that is a trustee of a trust and in the case of a legal body, respectively. In the case of the trustee of a trust, this includes the name of the trust and name and address of the trustee. Section 4.4. also states (in Section 4.4.2 Regulatory Requirements) that relevant persons must verify the name and date of establishment of an express trust, the identities of the trustees, and take reasonable measures to verify identity of the individuals concerned with the trust (i.e., settlors, protectors, and beneficiaries), and that all key documents used to verify identity must be in a language understood by the employees of the business. Section 4.5 of the Handbook for Regulated Businesses sets out the information to be collected in case of a customer that is a legal body, including the name of the company, its registered office address, and names of directors. The corresponding Regulatory Requirements for verification of identity of legal bodies (Section 4.5.2) include verification of the identity, including at a minimum, name, official identification number, and date and country of incorporation. Permissible verification methods for a company include a certificate of incorporation, memorandum and articles of association, company registry search (including confirmation that company is not in the process of being dissolved, wound up, or terminated), latest audited financial statement, independent data sources, and a personal visit.

394. Article 3(2)(c)(ii) of the MLO requires (by amendment effective November 7, 2008) the relevant person to understand the provisions under which a customer that is not an individual can enter into legal arrangements.

395. Because the requirements described above to verify the authority of any person authorized to act on behalf of a non-individual customer and to understand the provisions under which a non-individual customer can enter into legal arrangements have only recently been added to the MLO, there is no guidance regarding them in the Handbook for Regulated Businesses.

396. The assessors note in this regard that the MLO does not use the FATF term “legal arrangement” with regard to customers that are not individuals, and that the Handbook for Regulated Businesses refers to “legal bodies” and “trusts” as the only types of non-individual customers. If there were some type of “legal arrangement” other than a trust (that also would not fall within the definition of a “legal body") that could be utilized in Jersey it would be covered by the MLO, which applies to every customer, whether it is an individual or not an individual, although there may not be specific guidance covering any such “legal arrangement” in the Handbook for Regulated Businesses. Also, the assessors note that an amendment to Article 3(c)(ii) of the MLO effective November 7, 2008 uses the term “legal arrangement” in a different context from the standards, which could cause confusion.

397. The assessors did not identify an instance in which these points caused difficulty in practice. However, as trust-type business forms a sizeable component of the financial-services business conducted in and from Jersey, it would be helpful if these definitional points could be addressed. Financial institutions interviewed confirmed that their practice was to identify and verify the identity, as far as feasible, of all relevant parties to a trust arrangement. Although many such arrangements are transparent to the financial institutions, some can be more complex and there was recognition by some practitioners that such arrangements carried significant risk of abuse.

Identification of Beneficial Owners (c. 5.5; 5.5.1 & 5.5.2):

398. In the case of a customer that is not an individual, Articles 13 and 3(2)(c)(iii) of the MLO require a relevant person to identify the individuals who are the customer’s beneficial owners or controllers and take reasonable measures to verify the identity of such individuals - obtaining evidence, on the basis of documents, data or information from a reliable and independent source, that is reasonably capable of verifying that the individual to be verified is who the person is said to be and satisfies the person responsible for the identification of a person that the evidence does establish that fact. Article 2(1) of the MLO defines the beneficial owner or controller of a person who is not an individual as an individual who is an ultimate beneficial owner ofthat person (whether or not the only ultimate beneficial owner), and an individual who ultimately controls, or exercises control over the management of, the person (whether alone of with another person or persons). The definition is similar to that contained in the FATF Glossary, but without the inclusion of the clause “the person on whose behalf a transaction is being conducted” (as this is covered by Article 3(2)(b) of the MLO.

399. Financial institutions interviewed confirmed to the assessors that it has long been their practice to identify the ultimate beneficial owner in all cases, and they displayed confidence in the accuracy of their information. A small number of the institutions acknowledged that, in practice, they can encounter difficulties in the case of customers from certain jurisdictions in obtaining all the necessary confirmations and need to develop alternative means to verify beneficial ownership. The assessors note that the non face-to-face nature of much of the nonresident business increases the risk that the identity of the ultimate beneficial owner might remain concealed.

5.5.1

400. Articles 13 and 3(2)(b) of the MLO require a relevant person to determine whether a customer is acting for a third party and, if so (i) to identify that third party and take reasonable measures to verify identity; and (ii) where the third party is not an individual, to understand the ownership and control ofthat third party, and identify each individual who is that third party’s beneficial owner or controller and take reasonable measures to verify identity. As is discussed below, Article 17 of the MLO provides that in certain circumstances, a relevant person need not identify (nor verify the identity of) an underlying customer for whom it is acting, or any beneficial owners or controllers. Due to the underlying risk of misuse, the assessors concluded that this arrangement is not compliant, including on a risk-based approach, with Recommendation 5, under which financial institutions should be required to determine whether the customer is acting on behalf of another person and should then take reasonable steps to obtain sufficient identification data to verify the identity ofthat other person, although there are some grounds for accepting the Article 17 concessions in the case of commingled accounts where it would not be feasible to identify all third parties.

5.5.2

401. In the case of a customer that is not an individual, Article 13, Article 3(2)(c)(ii) and (iii), and Article 2 of the MLO require a relevant person to: (a) understand the ownership and control structure of the customer; and (b) identify the individuals who are the customer’s ultimate beneficial owners or who ultimately control or otherwise exercise control over the customer, and obtain evidence that is reasonably capable of verifying that the person to be identified is who the person is said to be.

402. Section 4.4 of the Handbook for Regulated Businesses requires a relevant person to collect relevant identification information on the trustee(s) and on the express trusts (and any subsequent changes), and on the individuals who are concerned with the trust. This includes the trustee, settlor, and beneficiaries. Section 4.5 of the Handbook for Regulated Businesses requires the relevant person to collect relevant identification information on a legal entity, its beneficial owners and controllers (and any subsequent changes), and sets out in guidance notes the individuals who are to be identified and verified in the case of a customer that is a legal body. This includes those holding a 25 percent of more interest in the capital of the legal body (in lower risk situations) and the legal body’s directors. In cases where the risk is considered to be standard or higher, the guidance indicates that identification information is to be obtained on individuals with ultimate effective control over the legal body’s assets, including individuals comprising the mind and management of the legal body. By virtue of Article 2 of the MLO, a person that holds a stock or share in a body corporate the securities of which are listed on a regulated market is not considered to be a beneficial owner.

403. The financial institutions interviewed indicated that they had well-developed procedures for determining the beneficial owners of legal entities and all relevant parties to a trust. As much of the business in Jersey is introduced by other financial services businesses or professional advisors, it was seen as a straight-forward process in most cases to understand the control structure of a client. Complex structures were also encountered; while some institutions informed the assessors that they do not accept such structures, others confirmed that they would consider such clients, but subject to a higher degree of due diligence.

Information on Purpose and Nature of Business Relationship (c. 5.6):

404. Articles 13 and 3(2)(d) of the MLO require a relevant person to obtain information on the purpose and intended nature of a business relationship or one-off transaction, including in cases where the concessions under Articles 16 and 17 are being availed of, as the concessions do not extend to the combination of Articles 13 and 3(2)(d). However, the assessors considered that, with the limited information available to relevant persons particularly where the Article 17 concession is being claimed, it could be difficult in some cases for relevant persons to fulfill their obligations in a meaningful manner with regard to obtaining information on the purpose and nature of the underlying business relationship or one-off transaction.

Ongoing Due Diligence on Business Relationship (c. 5.7; 5.7.1 & 5.7.2):

405. Article 13(1)(b) of the MLO requires a relevant person to conduct ongoing monitoring during a business relationship.

406. Articles 13 and 3(3)(a) of the MLO require a relevant person to scrutinize transactions undertaken through the course of a business relationship to ensure that they are conducted in a way that is consistent with the relevant person’s knowledge of the customer, including the customer’s business and risk profile, such scrutiny to include, where necessary, the source of funds.

407. Articles 13 and 3(3)(b) of the MLO require a relevant person to keep documents, data, and information obtained under identification measures up to date and relevant by undertaking reviews of existing records. Article 15 of the MLO requires a relevant person to apply enhanced CDD measures in any situation which, by its nature, can present a higher risk of ML.

408. Financial institutions interviewed explained that they operate risk-based systems to seek to identify transactions that point to a material departure from expectations, as recorded in a client’s profile. However, the assessors considered that, with the limited information available to relevant persons where the Article 17 concession is being claimed, it could be difficult in some cases for relevant persons to fulfill their obligations in a meaningful manner with regard to conducting ongoing due diligence.

Risk—Enhanced Due Diligence for Higher Risk Customers (c. 5.8):

409. Article 15 of the MLO requires a relevant person to apply enhanced CDD measures in certain specifically enumerated situations, as well as in any situation which, by its nature, can present a higher risk of ML. The specifically enumerated situations include (a) customers that have not been physically present for identification purposes; (b) where a bank in Jersey establishes a banking relationship with a bank outside Jersey; and (c) where the relevant person proposes to have a business relationship with, or conduct a one-off transaction (i) with a person connected with a country or territory that does not apply, or insufficiently applies, the FATF Recommendations, or (ii) with a politically exposed person.

410. Section 3.3.4 of the Handbook for Regulated Businesses sets out factors to consider when assessing the risk of a customer relationship. These include value of assets handled and type and complexity of relationship. For example, unexplained use of corporate structures and express trusts, and use of nominee and bearer shares may indicate higher risk.

411. Article 15(2) of the MLO defines “enhanced customer due diligence measures” to mean measures that involve specific and adequate measures to compensate for the higher risk of money laundering. Specific measures for higher risk customers are included in Sections 3.4.1 and 3.4.2. of the Handbook for Regulated Businesses.

412. Jersey law does not require enhanced due diligence for all of the examples of higher-risk business set out in the FATF Recommendations. In particular, the MLO does not require the application of enhanced due diligence to all accounts for non-residents, but only those where the customer has not been present for account opening. Neither is enhanced due diligence specified as being required for private banking customers. The assessors question whether this approach is appropriate and fully consistent with Recommendation 5, but note that Jersey has identified a range of other risk factors that relevant persons are to take into consideration which have the potential to require enhanced due diligence measures to be applied.

413. As noted, Jersey has adopted a risk-based approach, which the financial institutions appear to have internalized in their CDD procedures. Based on discussions with a range of financial institutions, it was clear to the assessors that there were differences in approach across the institutions. Much of the business conducted in Jersey is on a non face-to-face basis for nonresidents; as this is normal business for Jersey’s financial institutions, some took the view that these attributes did not in themselves constitute a higher risk; by contrast, a few institutions recognized that the risk was higher and had adapted their procedures accordingly. Overall, however, the financial institutions demonstrated in discussions with the assessors a strong awareness of ML and FT risks.

Risk—Application of Simplified/Reduced CDD Measures when appropriate (c. 5.9):

414. Articles 16, 17, and 18 of the MLO provide for exemptions from CDD requirements or for reduced or simplified CDD measures to be applied in a range of situations. Articles 16 and 17 permit reliance on intermediaries and introducers to obtain and retain CDD information on underlying customers (third parties) or introduced customers under certain circumstances, and Article 18 provides for exceptions from the standard CDD measures with regard to the relevant person’s direct customer in certain situations.

415. Article 16 of the MLO permits financial institutions and other relevant persons to establish a business relationship with an intermediary on behalf of a third party, or with a customer introduced by an introducer and, in either case, to rely on the identification measures performed (including documentation collected and retained) on that third party by the intermediary, or on that introduced customer by the introducer, subject to specified conditions. The Jersey authorities take the position that the concession authorized by Article 16 with respect to intermediaries should be addressed under Recommendation 5 rather than Recommendation 9. They take this position because the Interpretive Note to Recommendation 9 states that it “does not apply to relationships, accounts or transactions between financial institutions for their clients” and that such relationships are to be addressed by Recommendations 5 and 7. The assessors have carefully considered this position and are of the view that, although the precise scope of the Interpretive Note is unclear, Recommendation 9, which is entitled in the assessment methodology “Intermediaries/Introduced business,” is by its terms intended to set forth the conditions under which countries are to permit financial institutions “to rely on intermediaries or other persons to perform... CDD or to introduce business, provided the criteria...are met.” The assessors can find no reason that introducers should be evaluated against the specific standards of Recommendation 9, while intermediaries should be assessed against different criteria. Accordingly, the conditions pursuant to which relevant persons are authorized to rely on intermediaries and introducers under MLO Article 16 are considered in relation to Recommendation 9.

416. Article 17 of the MLO provides that, in more limited conditions than are available under Article 16, a relevant person may establish an account in the name of an intermediary but need not identify (or verify the identity of) the underlying customer for whom an intermediary is acting (or any beneficial owners or controllers). The conditions for utilizing this concession are as follows:

  • 1. Under Article 17(1), the relevant person must know or have reasonable grounds to believe that the intermediary is a bank, collective investment fund functionary, investment business, fund service business, or insurance business that is registered (or licensed) in Jersey, or carries on an equivalent business.8

  • 2. Under 17(2), the relevant person is required to assess the risk of operating an intermediary account on a non-disclosed basis (i.e., without identifying the underlying client) as set out in Section 4.10.1 of the Handbook for Regulated Businesses (Regulatory Requirements). Factors to consider are listed in Section 4.10.1 (guidance).9

  • 3. The concession is not available if the relevant person suspects money laundering or terrorist financing. (Article 17(3)).

417. The Handbook for Regulated Businesses (Section 4.10) explains that intermediary relationships may be established on behalf of a single customer (designated relationships) or multiple customers (pooled relationships), and notes, as an example of pooled relationships, foreign banks (typically Swiss) placing pooled deposits on a fiduciary basis with Jersey banks. Given this example, it would seem that the relevant person in Jersey would not be required to, and might not be in a position to, obtain any information on the beneficial owner of funds they hold on behalf of customers of their Swiss bank customers. While the concession may be pragmatic, it places significant reputational reliance on the quality of the AML/CFT processes of the foreign intermediary bank and could leave the Jersey bank in a difficult position should weaknesses subsequently emerge regarding the quality of the CDD conducted abroad, particularly as—unlike the concession permitted under Article 16—there does not appear to be any requirement that the Jersey bank identify the underlying customer (beneficial owner), spot-check the intermediary’s CDD measures, or be in a position to obtain copies of the CDD documentation should it be duly required. As the Handbook for Regulated Businesses mentions Swiss banks as an example, the impact of bank secrecy laws there would further ensure that the Jersey bank would not be in a position to obtain any information on the beneficial owner of the funds they hold on behalf of customers of their Swiss-bank customers. Due to the underlying risk of misuse, the assessors concluded that this arrangement is not fully compliant with the FATF recommendations. The assessors understand from their interviews with financial institutions that the institutions’ use of this concession is fairly limited, which to some extent mitigates its potential for risk.

418. The concession under Article 17 of the MLO, which is available for a prescribed range of intermediaries and limited to a prescribed range of financial activities, is difficult to classify by reference to the FATF Recommendations. It provides a complete exemption from identification and verification requirements in relation to the underlying customer(s) of the intermediary and beneficial owner(s), at least in part on the basis that the contractual relationship is between the relevant person and the intermediary, i.e., the underlying customer never becomes a (direct) customer of the relevant person. However, as Recommendation 5 does not provide for exemption in such circumstances, albeit allowing for reduced or simplified measures in lower-risk cases, there remains a requirement under Recommendation 5 to determine whether the customer (in this case, the intermediary) is acting on behalf of another person (and by definition, the intermediary is so acting) and then take reasonable steps to obtain sufficient identification data to verify the identity ofthat other person. The assessors note that no such requirement applies in Jersey in circumstances where the Article 17 exemption is availed of.

419. In determining whether the business of intermediaries could be considered lower risk, as considered by the authorities, for purposes of Recommendation 5, the assessors note that the scope of the exemption from identification and verification includes both commingled (pooled) accounts and individual customer business (designated accounts). While the FATF recommendations do not clarify whether a difference in treatment is justifiable for these two types of business, the assessors conclude by reference to the Basle CDD paper that a treatment such as is permitted by Article 17 could be accepted in the case of commingled balances as it would be impracticable to identify/verify each individual beneficial owner of funds in the pool. (A valid example might be a holding in a Jersey mutual fund by another fund-of-funds). In such cases, reduced or simplified measures under Recommendation 5 could be appropriate.

420. In the case of designated accounts or any business that was capable of being disaggregated by underlying customer, however, the assessors conclude that the full obligations of Recommendation 5 must be applied with respect to the identification and verification of underlying customers and beneficial owners. On that basis, Article 17 of the MLO conflicts with Recommendation 5. In the event that the authorities decide to amend the current provisions and require identification/verification but choose to permit reliance on the intermediary to conduct these tasks, this would be acceptable, but only subject to full compliance with the requirements and criteria of Recommendation 9.

421. Article 18 of the MLO offers several exceptions from identification requirements for particular types of customers or products that do not involve reliance on intermediaries or introducers. Paragraphs (2) through (6A) of Article 18 except from the customer identification measures of Article 13 the following types of customers and products considered to be of low money laundering risk:

  • 1. Customers that are public authorities (defined as a person holding a public office in Jersey). Section 4.9.3 of the Handbook for Regulated Businesses states (in Regulatory Requirements) that the relevant person must obtain and retain documentation establishing the applicant is entitled to use this concession.

  • 2. Pension, superannuation, or similar schemes and where contributions to the scheme are made by the employer or by deductions from wages and interests under the scheme may not be assigned.

  • 3. Insurance policies connected to a person’s employment with no surrender value and that may not be used as collateral for a loan.

  • 4. Insurance policies having a single premium of GBP 1,750 or less, or an annual premium of GBP750 or less.

  • 5. Customers whose securities are listed on a regulated market.10 Section 4.9.2 of the Handbook for Regulated Businesses states (in Regulatory Requirements) that a relevant person must obtain and retain documentation establishing that the customer has been admitted to trading on a regulated market, and that where a subsidiary of the customer is not wholly owned, identification and verification measures must be carried out in respect of beneficial owners and controllers not connected with the traded parent.

422. These Article 18 exceptions from the CDD requirements are generally consistent with the examples in the FATF Recommendations (and Methodology).

423. Article 18(7) of the MLO provides an exception from the requirement to perform some identification and verification measures in respect of an applicant (and its beneficial owners and controllers) that is a “regulated person” under the MLO or a person who carries on an equivalent business to any regulated person. This includes a bank, collective investment fund functionary, investment business, fund service business, or insurance business that is registered (or licensed) in Jersey, or a person who carries on an equivalent business to any of the foregoing. This provision does not provide an exemption in respect of CDD requirements for any third parties for whom the applicant is acting, or their beneficial owners or controllers (which are covered under Articles 16 or 17). Section 4.9.1 of the Handbook for Regulated Businesses states (in Regulatory Requirements) that a relevant person must retain documentation establishing that an applicant is entitled to benefit from this exemption. The assessors accept that this concession is consistent with the examples of reduced or simplified CDD contained in the FATF recommendations.

424. Article 18(8) of the MLO exempts from the requirement to identify and verify the identity of any person purporting to act on behalf of a customer, a person authorized to act on behalf of a customer who is not a relevant person, and who acts in the course of employment with a financial services business that is a regulated business or an equivalent business to a regulated business. The assessors understand that this exemption is directed at an employee of a trust company business who is authorized to act on behalf of a customer ofthat business that is not itself a relevant person, and who is acting in the course of his employment. The assessors note that, as a result of a recent amendment to Article 3 of the MLO, this provision would also exempt the relevant person from verifying the authority of the person to so act. The JFSC confirmed that the exemption should be narrowed so that the relevant person would not be exempted from verifying the authority of the employee of the financial services business to act on behalf of the customer.

425. Article 18(8A) of the MLO exempts attorneys and real estate agents from the requirement to verify the identity of a customer when entering into a relationship to enable the customer to purchase or sell real estate in Jersey. The justification for this is the very stringent requirements that are otherwise imposed on real estate transactions in Jersey by other government agencies.

426. In addition, Section 3.5 of the Handbook for Regulated Businesses contains (in Regulatory Requirements) a concession from CDD requirements when a relevant person acquires a business or block of customers. In such a case a relevant person must undertake sufficient due diligence on the seller to establish the level of CDD information and evidence held regarding the business to be acquired, and may rely on such information and evidence when the seller is a regulated person (as defined in the MLO) or carries on an equivalent business to any category of regulated business (as defined in the MLO), and the relevant person has assessed the seller’s CDD procedures as satisfactory. Such assessment must involve either sample testing or an assessment of all relevant CDD for the customers to be acquired.

427. Finally, Section 4.11 of the Handbook for Regulated Businesses contains an exemption from the verification requirements of Articles 13 and 3. This provides that, where a relevant person receives funds from a bank (that is a regulated person or carries on “equivalent business") that have come from an account in the sole or joint name of the applicant, then the receipt of funds from such account shall be considered satisfactory verification, where the product or service is considered very low risk. This section provides (in Regulatory Requirements) that this concession will only apply where the relevant person can demonstrate that an applicant does not present higher risk and it is reasonable to apply it, and that the product satisfies a number of conditions. These essentially mandate that all payments into the account must be received directly from the customer’s account at the other bank and not from any third parties and any payments from the account can only be made to the customer’s account at the other bank, except for withdrawals made in person by the customer where identity must be evidenced in the normal way. While the assessors agree that the ML and TF risks appear to be minimized where the above conditions are satisfied, it is not entirely clear that this acceptance of source of funds as principal means of verification of identity is entirely compatible with Recommendation 5. The assessors recommend that, if this concession is to be retained, the conditions should be tightened to exclude entirely the risk of abuse for money laundering by requiring that the funds received may be withdrawn only by being returned to their original source in the form and manner originally received.

428. The assessors found that, in general, the above concessions granted under MLO Article 18(8) and (8A) and in Section 3.5 of the Handbook for Regulated Businesses, while not similar to the examples contained in the FATF recommendations, appear to be based upon a reasonable process for the determination of low risk. The assessors also noted that, whereas Article 18(9) of the MLO provides that the concessions that are set out in Article 18 may not be used where a relevant person has knowledge or suspicion of money laundering or terrorist financing or in any situation which by its nature presents a higher risk of money laundering or terrorist financing, the concessions contained in the Handbook are not explicitly subject to both of those conditions (although they are excluded in higher risks situations in general).

429. The assessors also noted as a general matter that Article 18 of the MLO could be read to grant a complete exception from the identification requirements of Recommendation 5, rather than only a reduction in the level of requirements, as the Recommendations seem to permit. In this regard, the Jersey authorities take the position that ongoing monitoring of customers subject to these concessions is still required.

430. In terms of practical implementation, it was evident to the assessors that the concessions detailed above are of significant importance to a number of Jersey’s financial institutions and they have had extensive discussions with the JFSC regarding their application. The key objective of the concessions, as explained to the assessors, was to minimize duplication of CDD work and reduce the volume of documentation being transmitted between financial-sector participants, whether within Jersey or from abroad. The assessors were not in a position to assess in detail the degree of reliance placed by Jersey financial institutions on third parties in availing of these concessions but formed the view that there was considerable variation in the degree to which the institutions chose to rely on others as against conducting all of their own CDD checks. This raises a question regarding the effectiveness of implementation across the system. It was evident that, through its supervisory work, the JFSC also recognized the risks involved; a range of deficiencies was identified by the JFSC by means of the onsite inspection work which resulted in a requirement in each case for remedial action. An active program of remediation of CDD files was in the course of completion in a number of Jersey’s financial institutions at the time of the on-site visit. The JFSC noted a significant improvement in overall compliance from early 2008 onwards.

Risk—Simplification / Reduction of CDD Measures relating to overseas residents (c. 5.10):

431. The concessions available under Articles 16 and 17 of the MLO permit reliance for certain purposes on intermediaries and introducers located either in or outside Jersey. If they are located in another country, they may be relied upon if they carry on “equivalent business.” Article 5 of the MLO sets out the criteria that must apply for a person to be treated as carrying on equivalent business. In particular, Article 5(d) requires that the person being relied upon must be subject to requirements to forestall and prevent ML that are consistent with those in the FATF Recommendations. Section 1.7.3 of the Handbook for Regulated Businesses sets out the basis for determining whether a jurisdiction’s requirements are consistent and Appendix B lists those jurisdictions which the JFSC has considered and has assessed as being equivalent. A relevant person may assess whether an overseas jurisdiction that is not listed by the JFSC is “equivalent". It must follow the approach that is set out in Section 1.7 of the Handbook for Regulated Businesses and must be able to demonstrate the process that it has undertaken and the basis for its conclusion. Article 18 of the MLO also provides for reduced or simplified CDD measures to be applied to customers that in some cases may be resident in another jurisdiction, without a requirement that the relevant person make a determination that each such jurisdiction is in compliance with and has effectively implemented the FATF recommendations. In particular, the concessions in Article 18(3) through 18(6A) may be applied to customers in other jurisdictions, on the rationale that they are being applied to a low-risk product rather than customer. The concession in Article 18(7) may be applied to customers in other jurisdictions, but requires a determination that such customer carries on an “equivalent business.”

Risk—Simplified/Reduced CDD Measures Not to Apply when Suspicions of ML/TF or other high risk scenarios exist (c. 5.11):

432. Articles 16(8), 17(3), and 18(9) of the MLO each provides that the reduced or simplified measures authorized in each respective Article cannot be applied where there is suspicion of money laundering. Article 18 also provides that the concessions provided therein are not applicable “in any situation which by its nature can present a higher risk of money laundering. Articles 16 and 17 do not have a similar provision, and therefore are not fully compliant with the Interpretive Note to Recommendation 5.

Risk Based Application of CDD to be Consistent with Guidelines (c. 5.12):

433. Sections 3 and 4 of the Handbook for Regulated Businesses provide guidance on the application of a risk-based approach to CDD. Section 3 deals with the process to be followed in conducting a risk-based approach and Section 4 deals specifically with the application of a risk-based approach to the identification and verification of identity of customers that are individuals, trustees of express trusts, and legal bodies. Section 1.2 of the Handbook for Regulated Businesses explains the status of guidance. Paragraph 13 explains that guidance is provided to indicate ways in which statutory and regulatory requirements may be satisfied, but allows for alternative means to meet requirements. Paragraph 15 explains that, in complying with statutory and regulatory requirements, and in applying guidance, a relevant person should (where permitted) adopt an appropriate and intelligent risk-based approach and should always consider what additional measures might be necessary to prevent exploitation.

Timing of Verification of Identity—General Rule (c. 5.13):

434. Article 13(1) of the MLO provides that a relevant person must apply identification procedures before the establishment of a business relationship or before carrying out a one-off transaction, subject to Article 13(4) and (5). These exceptions to the requirement are discussed in the following section.

Timing of Verification of Identity—Treatment of Exceptional Circumstances (c.5.14 & 5.14.1):

435. Article 13(4) provides that verification of the identity of a customer may be completed as soon as reasonably practicable after the establishment of a business relationship if: (a) it is necessary not to interrupt the normal conduct of business; and (b) there is little risk of ML as a result of completing verification after establishment of the relationship.

436. Section 4.12 of the Handbook for Regulated Businesses also addresses the timing of identification and verification of identity. Section 4.12.1 states in “Regulatory Requirements” that verification may be completed after the initial establishment of the relationship if, in addition to satisfaction of the two requirements set forth above, all other necessary CDD information (including information on identity) has been obtained, verification is carried out as soon as reasonably practicable, the relevant person “highlights” to the customer its obligation to terminate the relationship at any time on the basis of non-completion of verification measures, and the money laundering risk is effectively managed. In addition, this section of the Handbook for Regulated Businesses provides that a relevant person must not pay funds away to a third party, other than to invest or deposit funds on behalf of a customer, until such time as identity has been verified.

437. Section 4.12.1 of the Handbook for Regulated Businesses states (in Guidance Notes) that the ML risks can be effectively managed where: (i) policies and procedures establish timeframes for the completion of verification procedures; (ii) the establishment of any relationship where identity has still to be verified has received appropriate authorization and the relationship is appropriately monitored-so that verification of identity is carried out as soon as is reasonably practicable; and (iii) appropriate limits or prohibitions are placed on the number, type and amount of transactions over an account.

438. Article 13(5) of the MLO provides that where a relevant person carries out two or more one-off transactions that are linked and where at a later stage it comes to the attention of any person handling those transactions that they are linked and exceed the applicable threshold, then verification must be completed as soon as reasonably practicable.

439. From discussions with financial institutions, it appeared to the assessors that some of them were making routine use of the scope to commence business relations prior to finalizing identification measures, on the basis that it was “necessary not to interrupt the normal course of business”. There was in some cases a very liberal interpretation of the word “necessary”. Given that much of the business in Jersey is non face-to-face for nonresidents, additional risk may arise from a liberal approach to the timing of CDD completion. In general, the financial institutions explained that they would commence the relationship only after the identification work was substantially complete, with only minor points still outstanding; some would accept funds but not allow further transactions until all identification measures were complete. However, the assessors were left with the impression, having regard to the inherent risks in their business, that some institutions were unduly relaxed with regard to the length of time allowed before all identification measures had been completed.

Failure to Complete CDD before commencing the Business Relationship (c. 5.15):

440. Under Article 14(1) of the MLO, if a relevant person is unable to apply identification procedures before the establishment of a business relationship or before carrying out a one-off transaction, it must not establish that business relationship or carry out that one-off transaction. Under Article 14(4) of the MLO, where it appears that two or more one-off transactions are linked and that the total amount of those transactions is EUR15,000 (or lower threshold, where applicable) or more, a relevant person must not carry out any further linked transactions in respect ofthat one-off transaction if it is unable to apply identification measures as soon as reasonably practicable. Under Article 14(5) of the MLO, where a relevant person suspects ML or FT and it is unable to apply identification measures in respect of any business relationship or one-off transaction, the relevant person shall not establish that business relationship, or shall not carry out that transaction, as the cases require. The requirement not to establish a relationship or not to carry out a one-off transaction under Article 14 of the MLO does not apply where a relevant person has consent to do so from an officer of the JFCU. The JFCU may consider providing such consent if it is concerned that a customer may be alerted to the relevant person’s suspicion or its work may be assisted by allowing a relationship or transaction to proceed.

441. Under Article 14(8) of the MLO where a relevant person does not establish a relationship or does not carry out a one-off transaction as a result of the application of Article 14, it must consider whether to make a report in line with Part 5 of the MLO.

442. In general, financial institutions confirmed that they complied with this requirement, although there appeared to the assessors to be undue tolerance of delay in completing identification measures in some cases. A number of institutions informed the assessors that they had filed SARs in cases where they had difficulty in obtaining necessary information.

Failure to Complete CDD after commencing the Business Relationship (c. 5.16):

443. Under Article 14(2) of the MLO, if a relevant person is unable to verify identity—where it is permitted to verify identity after the establishment of a relationship—it must terminate that relationship. Under Article 14(3) of the MLO, if a relevant person is unable to apply ongoing monitoring during a business relationship, then it must terminate that relationship. Under Article 14(4) of the MLO, where it appears that two or more one-off transactions are linked and that the total amount of those transactions is EUR15,000 or more (other than in the case of an MSB or casino), EUR1,000 (in the case of an MSB), or EUR3,000 (in the case of a casino) a relevant person must not complete a one-off transaction if it is unable to apply identification measures as soon as reasonably practicable. Under Article 14(5) of the MLO, where a relevant person suspects ML or FT, or has doubts about the veracity or adequacy of documents, data, or information previously obtained under CDD measures and it is unable to apply identification measures in respect of any business relationship or one-off transaction, the relevant person shall terminate that business relationship, or shall not complete that transaction, as the case requires. Under Article 14(7) of the MLO, if a relevant person is unable to apply identification measures in respect of an existing business relationship, it must terminate that relationship. The requirement to terminate a relationship or not to complete a one-off transaction under Article 14 of the MLO does not apply where a relevant person has consent to continue a relationship or complete a transaction from an officer of the JFCU. The JFCU may consider providing such consent if it is concerned that a customer may be alerted to the relevant person’s suspicion or its work may be assisted by allowing a relationship or transaction to proceed. Under Article 14(8) of the MLO where a relevant person terminates a relationship, or does not complete a one-off transaction as a result of the application of Article 14, it must consider whether to make a report in line with Part 5 of the MLO.

Existing Customers—CDD Requirements (c. 5.17):

444. Article 13(2) of the MLO provides that, where a relevant person has a business relationship with a customer that started before the MLO came into force in February 2008 (an existing customer), it must apply identification measures to that relationship at appropriate times after April 1, 2008. Article 13(3)(a) states that “appropriate times” for the application of identification measures means: “times that are appropriate having regard to the degree of risk of ML taking into account the type of customer, business relationship, product or transaction concerned;” and any time when ML is suspected. In addition, Article 13(2B) of the MLO applies the requirement for ongoing monitoring to all existing customers. This involves the scrutiny of transactions as required under Article 3(3)(a) for all customers, and ensuring that documents, data, and information that is held on an existing customer and which has been collected under the MLO or Money Laundering (Jersey) Order 1999 (in force between July 1, 1999 and February 4, 2008) and held prior to the MLO coming into force is kept up to date and relevant by undertaking reviews of existing records, including without limitation reviews when any inconsistency has been discovered as a result of applying the required scrutiny.

445. Section 9 of the Handbook for Regulated Businesses addresses existing customers. It requires (in Regulatory Requirements) a relevant person to risk assess each existing customer, and to apply identification measures to higher risk customers as soon as is practicable. In the case of other customers, an appropriate time to apply identification measures will include: where a transaction of significance takes place; and when a relevant person’s customer documentation standards change substantially. In the case of an existing customer that presents a lower or standard risk, Section 9 of the Handbook for Regulated Businesses anticipates that it may not be necessary to verify identity until such time as the relationship is assessed as presenting a higher risk.

446. The assessors question whether MLO Article 13(2), which requires the application of CDD measures to existing accounts at “appropriate times” as defined in Article 13(3), is consistent with Recommendation 5, which requires the application of CDD measures to existing customers “on the basis of materiality and risk and to conduct due diligence on such existing relationships at appropriate times.” In particular, given the increased robustness in the CDD requirements in the MLO and the new entities subject to the requirements since the MLO has come into effect, it would seem that it may be more appropriate to establish specific periods for updating customer identification, graduated on a risk basis.

447. As outlined above, Jersey’s financial institutions and other relevant persons have been engaged in a series of remediation exercises to bring their CDD records up to the standard of the latest version of the MLO. This work was mandated by the JFSC and has absorbed substantial resources. A risk-based approach was employed, with initial attention given to high-risk customers. A number of financial institutions confirmed to the assessors that their work in this regard was largely complete at the time of the on-site visit, while others still appeared to be in the midst of their remediation program.

Existing Anonymous-account Customers - CDD Requirements (c. 5.18):

448. As noted above, the JFSC informed the assessors that it was not aware of the existence of anonymous accounts, and they have been explicitly prohibited by Article 23B of the MLO, effective November 7, 2008 (and were contrary to requirements in effect prior thereto).

Summary - R.5

449. Against the background of the inherently medium/high-risk nature of Jersey’s financial-sector business, it was clear to the assessors that the JFSC has prioritized the implementation of effective AML/CFT measures and this was reflected in the high levels of awareness of the topic across the financial institutions. It was also evident that the financial institutions were closely involved in the development of the latest requirements which, while largely reflecting the FATF Recommendations, allow for a range of concessions, some of which are difficult to reconcile with the international standard.

Foreign PEPs—Requirement to Identify (c. 6.1):

450. Article 11 of the MLO requires a relevant person to maintain appropriate policies and procedures for the application of CDD procedures. These must have regard to the degree of risk of ML or FT and, under Article 1 1(3)(c), must include policies and procedures for determining whether a customer, a beneficial owner or controller of a customer, a third party for whom a customer is acting (or any beneficial owner or controller ofthat third party), or person acting, or purporting to act on behalf of a customer is a politically exposed person (PEP).

451. Article 15(6) of the MLO contains a detailed definition of a PEP that covers all aspects of the definition in the FATF Glossary. It includes individuals entrusted with public functions (with a list of many examples), a list of categories of family members, and categories of close associates.

452. Section 3.4.1 of the Handbook for Regulated Businesses states (in Regulatory Requirements) that risk-based systems and controls must be in place to determine whether a customer (or potential customer), owner or controller of a customer (or potential customer), or third party on whose behalf a customer (or potential customer) acts is a PEP. Sections 3.3.1 through 3.3.5 of the Handbook for Regulated Businesses set out the CDD to be applied to any customer. This includes requesting information, considering that information, and the use of external data sources. Section 3.4.1 of the Handbook for Regulated Businesses sets out (in Guidance Notes) how a relevant person may demonstrate that it has appropriate systems and controls for determining whether it is servicing a PEP. This includes assessing those jurisdictions with which customers are connected that pose the highest risk of corruption and establishing who are current or former holders of prominent public functions in those countries.

Foreign PEPs—Risk Management (c. 6.2; 6.2.1):

453. Article 15(5A) of the MLO (effective November 7, 2008) requires a relevant person to apply enhanced CDD measures that include specific and adequate measures where a relevant person proposes to have a business relationship or carry out a one-off transaction with a customer who is, is beneficially owned by, or is acting on behalf of, a PEP. Such measures must include senior management approval of the business relationship.

454. Under Section 3.4.1 of the Handbook for Regulated Businesses (in Regulatory Requirements), a relevant person must have clear policies and procedures for dealing with PEPs, including board or appropriate senior management approval to establish a relationship with a PEP, and to continue a relationship should a subsequent connection with a PEP be identified.

Foreign PEPs—Requirement to Determine Source of Wealth and Funds (c. 6.3):

455. Article 15(5A) of the MLO (effective November 7, 2008) requires (among otherthings), when a relevant person has or proposes to have a business relationship or carry out a one-off transaction with a customer who is, is beneficially owned by, or is acting on behalf of, a PEP, that the required specific and adequate measures include measures to establish the source of wealth of the PEP and source of funds involved in the business relationship or one-off transaction. In addition, Articles 13 and 3 of the MLO require a relevant person to assess the risk that any business relationship or one-off transaction will involve ML or FT, which includes obtaining appropriate information for assessing that risk. Section 3.3 of the Handbook for Regulated Businesses (in Regulatory Requirements) requires a relevant person to collect relevant CDD information. In the case of a higher risk customer, a relevant person may demonstrate that it has done so where it takes reasonable measures to establish the source of funds for a relationship or one-off transaction and source of wealth more generally.

Foreign PEPs—Ongoing Monitoring (c. 6.4):

456. Under Article 15(1) (a) of the MLO, a financial institution must apply, on a risk-sensitive basis, enhanced CDD measures to PEP relationships, which includes enhanced ongoing monitoring. Under Section 3.4.1 of the Handbook for Regulated Businesses (in Regulatory Requirements), a relevant person must have clear policies and procedures for dealing with PEPs, including enhanced scrutiny and regular oversight of the relationship at board or appropriate senior management level. Under Section 5.2 of the Handbook for Regulated Businesses (in Regulatory Requirements), a relevant person’s monitoring procedures must require more intensive scrutiny of PEPs.

Domestic PEPs—Requirements (Additional Element c. 6.5):

457. An individual that holds a prominent public function domestically is not included in the definition of a PEP. Normal CDD measures are applicable, and, where risk for a particular customer is assessed as being higher, enhanced CDD measures must be applied under Article 15(1)(b) of the MLO.

Domestic PEPs—Ratification of the Merida Convention (Additional Element c. 6.6):

458. Following enactment of the Corruption (Jersey) Law 2006, Jersey has requested the U.K. authorities to extend its ratification of the UN Convention against Corruption to include Jersey. Jersey authorities indicated that no date can be estimated for this as it is outside their control.

Effectiveness of implementation - R.6

459. In discussions with assessors regarding high-risk clients, PEPs were among the top categories identified by financial institutions. The assessors were informed that there is a large number of PEP-related accounts in Jersey though, on further analysis, it appears that many relate to relatively low-level officials and, in a number of cases, financial institutions opt to apply PEP requirements also to all domestic Jersey politicians and senior officials, although not required to do so. Among the customers classified as PEPs, the assessors understood that there are also significant foreign PEPs with substantial funds in or managed from Jersey. The financial institutions interviewed seemed to be well aware of the potential risks arising from PEPs and familiar with the CDD requirements. However, through its inspection work, the JFSC has identified that some banks have procedural weaknesses in this area that need to be rectified, as their implementation standards are not as effective as necessary.

Cross-Border Correspondent Accounts and Similar Relationships

460. Article 15(4B) of the MLO (effective November 7, 2008) requires a relevant person to apply specific and adequate measures where a relevant person that is a bank has or proposes to have a banking or similar relationship with an institution (a “respondent”) whose address for that purpose is outside Jersey. These measures include Paragraph 4 of the correspondent banking section of the Handbook for Regulated Businesses, which sets out (in Regulatory Requirements) what these enhanced measures must be.

Requirement to Obtain Information on Respondent Institution (c. 7.1) :

461. Article 15(4B) of the MLO (effective November 7, 2008) requires a relevant person to apply specific and adequate measures where a relevant person that is a bank has or proposes to have a banking or similar relationship with a respondent whose address for that purpose is outside Jersey. These measures include gathering specific information about the institution to understand fully the nature of its business, and determining the reputation of the institution and the quality of supervision, including whether it has been subject to money laundering investigation or regulatory action. Paragraph 4 of the correspondent banking section of the Handbook for Regulated Businesses sets forth (in Regulatory Requirements) generally the same requirements. The Guidance states that the reputation of an institution may be determined by assessing the correspondent’s stature and regulatory track record.

Assessment of AML/CFT Controls in Respondent Institution (c. 7.2):

462. Article 15(4B) of the MLO (effective November 7, 2008) requires that the specific and adequate measures required of a relevant person that is a bank that has or proposes to have a banking relationship with a foreign bank include assessing the institution’s systems and controls to combat money laundering in order to determine whether they are consistent with the requirements of the FATF recommendations, and their effectiveness. In addition, Paragraph 4 of the correspondent banking section of the Handbook for Regulated Businesses (in Regulatory Requirements) sets forth the same requirement.

Approval of Establishing Correspondent Relationships (c. 7.3):

463. Article 15(4B) of the MLO (effective November 7, 2008) requires that the specific and adequate measures required of a relevant person that is a bank that has or proposes to have a banking relationship with a foreign bank include requiring any new relationship to be approved by the senior management of the relevant person. In addition, Paragraph 4 of the correspondent banking section of the Handbook for Regulated Businesses requires the board of a relevant person that is a bank to approve new correspondent relationships.

Documentation of AML/CFT Responsibilities for Each Institution (c. 7.4):

464. Article 15(4B) of the MLO (effective November 7, 2008) requires that the specific and adequate measures required of a relevant person that is a bank that has or proposes to have a banking relationship with a foreign bank include recording the respective responsibilities of the relevant person and the institution to prevent and detect money laundering so that both parties clearly understand those responsibilities. In addition, Paragraph 4 of the correspondent banking section of the Handbook for Regulated Businesses contains (in Regulatory Requirements) the same requirement.

465. In discussions with the banks, the assessors did not identify any material instance in which a bank in Jersey was providing correspondent banking services to banks abroad.

Payable-Through Accounts (c. 7.5):

Article 15(4B) of the MLO (effective November 7, 2008) requires that the specific and adequate measures required of a relevant person that is a bank that has or proposes to have a banking relationship with a foreign bank include being satisfied that, in respect of customers of the institution who have services provided directly by the relevant person, that the institution has applied CDD measures at least equivalent to those set out in the MLO and is able to provide a copy, at the request of the relevant person, of the evidence, documents, data, and information obtained when applying such measures. In addition, Paragraph 4 of the correspondent banking section of the Handbook for Regulated Businesses contains (in Regulatory Requirements) the same requirement. The assessors did not identify any case where a Jersey bank had provided payable-through facilities.

Misuse of New Technology for ML/FT (c. 8.1):

466. Article 1 1(3)(b) of the MLO requires a relevant person to maintain appropriate policies and procedures which specify the taking of additional measures, where appropriate, to prevent the use for ML or FT of products and transactions which are susceptible to anonymity. In addition, Section 2.4 of the Handbook for Regulated Businesses (in Regulatory Requirements) requires that a relevant person “have systems and controls in place, or take appropriate measures, to guard against the use of technological developments in money laundering or financing terrorism schemes.”

467. However, neither the MLO nor the Handbook for Regulated Businesses refer specifically to any particular technological risks such as internet banking (establishing new account relationships by internet or providing services on a non face-to-face basis electronically to existing customers); the use of credit/debit cards as part of account relationships, particularly to nonresidents on a non face-to-face basis; security of computer systems, particularly if customer-accessible, to address the risk of fraud, phishing, or other improper access to customer information. It would be helpful, perhaps in conjunction with the financial institutions, to develop more detailed guidance for the Handbook for Regulated Businesses to improve the effectiveness of the current basic requirements.

Risk of Non Face to Face Business Relationships (c. 8.2 & 8.2.1):

468. Article 15(3) of the MLO requires a relevant person to apply on a risk sensitive basis enhanced CDD measures where a customer has not been physically present for identification purposes. Article 11(1) of the MLO requires a relevant person to maintain appropriate policies and procedures for the application of such measures, including both customer identification and ongoing monitoring. Article 11(3) (b) requires taking additional measures when appropriate to prevent the use for money laundering of products and transactions that are susceptible to anonymity.

469. Under Section 4.8 of the Handbook for Regulated Businesses (in Regulatory Requirements), a relevant person must perform an additional check to reduce the risk of identity fraud. A relevant person may demonstrate that the specific additional check undertaken is appropriate where it takes into account the risk assessment for the customer, matching the level of assurance that is given by the additional check to the risk that is presented by the customer. Additional checks include: verification of identity using a further identification method that is listed in Section 4.3.2 of the Handbook for Regulated Businesses; obtaining copies of identification documents certified by a suitable certifier;11 requiring the first payment for the product or service to be drawn on an account in the name of the customer at a bank that is subject to similar CDD standards; or telephone contact with the applicant.

470. Many financial-service relationships in Jersey are conducted on a non face-to-face basis. In discussions with the financial institutions, the assessors found that as such business was considered the norm in Jersey, it was typically not regarded as inherently high risk. However, a minority of the institutions interviewed said they were applying additional CDD measures to counter the risk. Overall, the assessors formed the view that nonresident non face-to-face business warranted a higher risk classification than it appeared to be receiving from the majority of financial institutions interviewed.

3.2.2. Recommendations and Comments

R.5

  • The authorities should conduct a risk-based review of the current scope of the concessions allowing reliance on third parties to conduct CDD and limit their availability to be strictly consistent with the FATF Recommendations.

  • Should the authorities decide to continue allowing source of funds to be used as a principal basis for verification of identity in certain low-risk circumstances, the requirements should be tightened further to eliminate any remaining risk of abuse for ML or FT purposes.

  • The authorities should review the permitted exemptions from CDD measures in Article 18 of the MLO to ensure that financial institutions must determine that the customer’s country of residence is in compliance with and has effectively implemented the FATF standards.

  • The authorities should amend their requirements to ensure that all concessions from conducting full identification measures are conditioned on the absence of specific higher risk scenarios.

  • The authorities should expand the current list of categories of higher-risk customers in the MLO to which enhanced CDD must be applied and consider including, for example, private banking and nonresident customers.

  • The JFSC should conduct a risk-based review of the use by relevant persons of the scope to defer completion of full identification requirements under Article 13(4) of the MLO and issue further guidance as needed to limit the practice.

  • The authorities should amend CDD requirements and guidance as necessary to ensure that, in addition to trusts, all other forms of legal arrangement are addressed adequately and consistently.

  • The authorities should amend their requirements to clarify that, when utilizing the concession permitting an employee of a relevant person to act on behalf of its customer, the relevant person must verify the employee’s authority to so act.

R.6

  • The JFSC should, including through its on-site examination program, continue to seek effective implementation by financial institutions of the latest CDD requirements for PEPs.

R.8

  • The authorities should issue more detailed guidance on the specific ML and FT risks of new and developing technologies, including for example in relation to e-money and e-commerce.

3.2.3. Compliance with Recommendations 5 to 8

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3.3. Third Parties And Introduced Business (R.9)

3.3.1. Description and Analysis

Introduction

471. As noted above, Article 16 of the MLO permits financial institutions and other relevant persons to establish a business relationship or carry out a one-off transaction (a) with an intermediary12 on behalf of a third party, or (b) with a customer introduced to the relevant person by an “introducer,”13 and rely on the identification measures performed (including documentation collected and retained) on that third party or introduced customer by the intermediary or introducer, subject to specified conditions. Article 17 of the MLO provides a concession, available under more limited conditions, for relevant persons to establish relationships with intermediaries on behalf of undisclosed third parties. That latter concession is discussed above under Recommendation 5.

Legal Framework:

472. Article 16 of the MLO applies in the case of an intermediary who acts as a customer to a relevant person for a third party (underlying customer) or a customer that is introduced to a relevant person by another person-the “introducer"-and sets out the circumstances in which a relevant person may place reliance on an intermediary or introducer to conduct CDD. In order to place reliance, a relevant person must determine under Article 16(1) of the MLO that it is appropriate to do so, and Section 4.10.1 of the Handbook for Regulated Businesses sets out the factors to be taken into account in the risk assessment. In addition, an introducer must consent to being relied on and must confirm that the customer that is introduced is an established customer. Reliance may be placed on the intermediary to have conducted the identification procedures that are described in Article 3(2)(b) or on the introducer to have conducted the identification procedures that are described in Article 3(2)(a) to (c) of the MLO—elements of the CDD process that are covered by criteria 5.3 to 5.5 (but not 5.6). The result of this is that the relevant person may not rely on the intermediary or introducer for information regarding the purpose and intended nature of the business relationship. However, this information would still be required by operation of MLO Articles 13 and 3(2)(d).

Requirement to Immediately Obtain Certain CDD elements from Third Parties (c. 9.1):

473. In order to place reliance on an intermediary or introducer under Article 16(4)(d) or (c)(ii), respectively, of the MLO, a relevant person must obtain in writing “sufficient information” about the third party for whom the intermediary is acting and any beneficial owner or controller of such third party (under Article 16(4)(d)), or about an introduced customer and any beneficial owner or controller of the introduced customer, any third party for whom the introduced customer is acting, any beneficial owner or controller of a third party for whom the introduced customer is acting, and any person purporting to act on behalf of an introduced customer (under Article 16(4)(c)). Section 4.10.3 of the Handbook for Regulated Businesses states (in Regulatory Requirements) that, for a relevant person to demonstrate that it has obtained “sufficient information” about an introduced customer, it must obtain a “customer information profile-in line with the guidance for individuals, trustees and legal bodies set out in Sections 4.3 to 4.5.” This section provides further that the “information provided in the profile will depend on the relevant person’s assessment of the risk presented by a particular individual, trustee or body.” The Handbook for Regulated Businesses contains as Appendix C “Equivalent Intermediary/Introducer Certificate To Be Provided to Relevant Person,” and states in Section 4.10.3 (Guidance Notes) that it is a “template customer information profile setting out customer information to be collected for intermediary and introduced relationships.”

474. The assessors note that there is no explicit requirement in Article 16 that the relevant person must obtain the identification information about the underlying or introduced customer immediately from the intermediary or introducer, as required for full compliance with the criteria of Recommendation 9. However, the authorities point out that the effect of Articles 13 and 3 is that this information must be obtained before the establishment of a business relationship.

475. Where it is intended to place reliance on an intermediary or introducer to apply identification procedures on any subsequent changes to any of the required CDD information, then under Section 4.10.3 of the Handbook for Regulated Businesses (Regulatory Requirement) “sufficient information” must also include the relevant person being satisfied that the intermediary or introducer will notify the relevant person of any material changes to the customer information.

Availability of Identification Data from Third Parties (c. 9.2):

476. In order to place reliance on an intermediary or introducer, under Article 16(4)(b) of the MLO a relevant person must obtain “adequate assurance” in writing from the intermediary or introducer that the introducer has completed the identification measures on the customer, that it holds the evidence of identification and the records of such evidence, that it will provide access to the evidence to the relevant person without delay upon request, and that (in the case of an introducer) the introduced customer is an established customer of the introducer. Article 16(7) of the MLO states that assurance is adequate if (a) it is reasonably capable of being regarded as reliable, and (b) the person relying on it is satisfied that it is reliable. Section 4.10.3 of the Handbook for Regulated Businesses states (in Guidance Notes) that a relevant person may demonstrate that an intermediary or introducer will provide CDD evidence without delay if it requires the intermediary or introducer to provide such evidence within five working days of a request, and that the relevant person can demonstrate adequate access to such evidence from an intermediary or introducer in a jurisdiction known for strict secrecy provisions, by periodically requesting such evidence be provided (and it is provided). The assessors find that, in the case of intermediaries or introducers located in such jurisdictions, guidance is not adequate to address the risks presented by such situations. In addition, utilization of the concession should also be conditioned on an agreement by the introducer to immediately transfer the CDD evidence to the relevant person upon cessation of business.

477. The assessors note that there is no requirement that a relevant person perform spot testing by requesting that an intermediary or introducer provide CDD information regarding underlying or introduced customers from time to time. Although not required by the FATF recommendations, this would be an effective means of ensuring the availability of CDD information.

Regulation and Supervision of Third Party (applying R. 23, 24 & 29, c. 9.3):

478. In order to place reliance on an intermediary or introducer under Article 16(4)(a) of the MLO, a relevant person must know or have reasonable grounds for believing that the intermediary or introducer is a person in respect of whom the JFSC discharges functions under the SBL or a person that carries on equivalent business.14 As noted in Section 4 of this report, the JFSC has only recently extended AML/CFT regulation to certain DNFBPs, including lawyers and accountants. Therefore, although these groups may technically fall within the scope of the concession, it is not appropriate for a financial institution to use them as intermediaries or introducers until such time as their AML/CFT requirements have been demonstrated to have been fully implemented. However, this concern is mitigated to some extent by the regulatory requirement that a relevant person must perform a risk assessment on the intermediary or introducer to determine whether it is appropriate to rely on them. Among the factors to be considered are the stature and regulatory track record of the intermediary or introducer, the adequacy of the AML/CFT framework and supervisory regime in its jurisdiction and period of time it has been in place, the adequacy of its AML/CFT measures, and previous experience and nature of business conducted with the intermediary or introducer. (Handbook for Regulated Businesses, Section 4 Paragraphs 153, 154.)

479. Article 5 of the MLO requires, inter alia, that an equivalent business must be subject to requirements to prevent money laundering that are consistent with those in the FATF Recommendations in respect of its business and must be supervised for compliance with those requirements by an overseas regulatory authority. This means an authority discharging a function that is the same or similar to a function of the JFSC in respect of preventing and detecting ML.

480. Within the context of this general concession permitting reliance on an intermediary or introducer to perform CDD (i.e., obtain and verify identity information regarding an underlying or introduced customer), the Handbook for Regulated Businesses permits deviations from the requirements of Article 16 in two situations: Section 4.10.4, which permits reliance on a group intermediary or introducer that does not satisfy the direct application of the “equivalent business” standard (discussed in next paragraph); and Section 4.10.5, which permits reliance on an intermediary in certain situations where the underlying customer is not identified to the relevant person (discussed in second to next paragraph).

481. Section 4.10.4 of the Handbook for Regulated Businesses (in Guidance Notes) contains a concession from the foregoing requirement that an intermediary or introducer must carry on equivalent business. It permits a relevant person to rely on an intermediary or introducer that is a branch or subsidiary in the same group as the relevant person and is registered to carry on financial services business in another country but is not directly subject to requirements to prevent money laundering consistent with the FATF Recommendations, so long as the intermediary or introducer is subject to supervision for compliance with group requirements to prevent money laundering by a foreign regulatory authority, and the group’s parent meets the conditions required of an “equivalent business” described above. The assessors do not think that a branch or subsidiary that is not directly subject to requirements consistent with the FATF Recommendations is effectively “regulated and supervised” for compliance with CDD requirements within the meaning of Recommendation 9, notwithstanding that it may be subject to group requirements. Accordingly, the assessors find that the definition of “equivalent business” in MLO Article 5, as interpreted by Section 4.10.4 of the Handbook for Regulated Businesses, is not fully consistent with Recommendation 9.

482. Section 4.10.5 of the Handbook for Regulated Businesses sets out (in Guidance Notes) certain situations where the relevant person provides a “low-risk product” or the product controlled or distributed by the intermediary presents a lower risk, such that the relevant person need not obtain identity information regarding each underlying customer for whom the intermediary acts. This occurs under Article 16 when the intermediary is itself subject to the MLO (i.e., is a relevant person), in cases of: (i) investment products controlled or administered by the intermediary that are closed-ended and where the proceeds of the investment are received from and returned to the investor (and not third parties); (ii) employee benefit schemes that are administered by the intermediary, funded either by the sponsor or by payroll deductions and for the benefit of the employees of the sponsor; and (iii) pooling of funds by the intermediary for specified purposes, including (among others) facilitation of immovable Jersey property transactions, and certain situations where funds are being held for a temporary period on an undisclosed basis pending transfer to another account. Use of Section 4.10.5 is also permitted when the relevant person accepts an aggregated deposit of customer funds from a bank account in the name of a Jersey regulated person or a financial services business regulated by the Guernsey Financial Services Commission or the Isle of Man Financial Supervision Commission, where the funds (and any income) may only be returned to the bank account from which they originated. Finally, this exception may be utilized where the customer is a Jersey law firm and the relevant person confirms that the funds relate to immovable Jersey property transactions. (This provision became redundant when lawyers in Jersey became subject to the SBL in September 2008.) The assessors agree that the particular products appear to be low risk and understand that these concessions are based upon the requirement in Article 16(4)(d) of the MLO that the relevant person obtain “sufficient information about the customers from whom the intermediary is acting to enable the relevant person to assess the risk of money laundering involving that customer.” The assessors also concur that the Handbook for Regulated Businesses (in Guidance Notes) is interpreting what may constitute “sufficient information about the customers” in these circumstances.

Adequacy of Application of FATF Recommendations (c. 9.4):

483. As noted above, an equivalent business must be subject to requirements to prevent money laundering that are consistent with the FATF Recommendations. In determining whether a jurisdiction’s requirements to combat money laundering or terrorist financing are consistent with the FATF Recommendations, Section 1.7.2 of the Handbook for Regulated Businesses, entitled “equivalent jurisdictions,” includes a reference to Appendix B, which contains a nonexclusive list of countries that the JFSC considers equivalent jurisdictions, and Section 1.7.3 includes factors that the JFSC will consider (and that relevant persons are to consider) in determining equivalence. These include whether requirements are established by law, regulation, or other enforceable means: whether the jurisdiction is a member of the FATF, a Member State of the EU, a member of the European Economic Area, or another Crown Dependency; the legislation and other requirements in place in that jurisdiction; recent independent assessments of the jurisdiction’s framework to combat ML and FT, such as those conducted by the FATF, the World Bank and the IMF; and other publicly available information concerning the effectiveness of a jurisdiction’s framework.

Ultimate Responsibility for CDD (c. 9.5):

484. Article 16(1)(b) of the MLO provides that, despite reliance being placed on the intermediary or introducer, the relevant person remains liable for any failure to apply identification measures.

Effectiveness of implementation

485. From discussions with financial institutions and other relevant persons, the assessors were given to understand that intermediated and introduced business was an important source of new and continuing business for Jersey and that the facility to place reliance on intermediaries and introducers to conduct elements of the required CDD was seen as significant in terms of efficiency. However, the manner of use of the concession and the extent of its use varied across institutions, with some institutions opting to replicate the full CDD measures as part of the client acceptance policy, while others appeared to place maximum reliance on the intermediary or introducer.

486. Among the factors15 which may determine the effectiveness of implementation of the concession are the following:

  • With the inclusion of certain Jersey-regulated DNFBPs within the potential scope of the concession, as noted in section 4 of this report, the AML/CFT measures for a number of relevant categories of DNFBP in Jersey (particularly lawyers and accountants) had only recently been introduced and the effectiveness of their implementation had not been tested in practice.

  • Difficulty may arise in practice in determining whether a foreign introducer is, in reality, regulated and supervised specifically for AML/CFT purposes (rather than for prudential or market practice purposes).

487. Overall, while pragmatic and broadly in line with the terms of Recommendation 9, the application of the concession for introduced business has the potential to increase reputational risk for Jersey and its financial institutions and warrants close monitoring.

3.3.2. Recommendations and Comments

  • The authorities should explicitly require that a relevant person must obtain all necessary CDD information from the intermediary or introducer immediately and should consider requiring relevant persons to perform spot-testing of an intermediary or introducer’s performance of CDD obligations.

  • The authorities should limit the concession allowing financial institutions to rely on intermediary or introducers to conduct CDD in the following cases:

    • ■ intermediaries or introducers outside Jersey that could be legally restricted in providing CDD evidence to Jersey institutions, and

    • ■ certain domestic DNFBPs until newly-introduced AML/CFT requirements have been fully implemented.

  • The authorities should eliminate the concession in the Handbook for Regulated Businesses permitting reliance on an intermediary or introducer that is a group member not itself subject to, nor supervised for compliance with, CDD requirements compliant with Recommendation 5.

3.3.3. Compliance with Recommendation 9

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3.4. Financial Institution Secrecy or Confidentiality (R.4)

3.4.1. Description and Analysis

Inhibition of Implementation of FATF Recommendations (c. 4.1):

488. Although there are no statutory financial institution secrecy provisions under Jersey law that would inhibit the implementation of the FATF Recommendations, there is however, strict application by financial institutions of the common law duty of confidentiality in respect of their client information, subject to exceptions for specified purposes. These exceptions known as the Tournier principles and based upon the leading U.K. case Tournier. v. National Provincial and Union Bank of England (1924), arise where the disclosure is required by statute, there is a public duty to disclose, disclosure is in the financial institution’s interest, or there is express or implied customer consent.

Provisions relevant to AML/CFT include the following:

489. Articles 34D of the POCL, 40A of the DTOL, and 23 of the TL each make it an offense not to report knowledge or suspicion of laundering the proceeds of criminal conduct and are the primary provisions under which financial institutions report suspicions to the JFCU. This topic is discussed in detail in the assessment of Recommendation 13 and elsewhere in Section 3 of this report, including the powers of law enforcement agencies and the JFCU in particular to gain access to confidential client information for purposes of their investigations. In brief, a court order (“production order”) or warrant is required for such access, thus overriding the duty of confidentiality. This is provided for in Article 41A of the POCL, Article 42 of the DTOL, and Article 31 of the TL. In addition, all three laws make provision for the JFCU to access customer information and to monitor transactions over accounts (Article 41A of the POCL, Article 44A of the DTOL, and Articles 32 and 33 of the TL). Article 21(4) of the MLO also provides for additional information to be provided to the JFCU where a SAR fails to include sufficient information to allow the JFCU to properly analyze the contents.

490. While there is no provision that explicitly permits financial institutions generally to provide information to each other where necessary for AML/CFT purposes, Article 22A of the MLO provides that a financial institution may disclose information for such purposes to another part of its group or network, where appropriate to do so for the purpose of preventing and detecting money laundering. In practice, financial institutions did not identify to the assessors any confidentiality-related difficulties in exchanging information between themselves for AML/CFT purposes when the exchange is conducted in accordance with normal industry practices or in the course of meeting their CDD requirements pursuant to Recommendations 7 or 9 or SR VII.

491. With regard to access by supervisory authorities to confidential information held by financial institutions and other relevant persons, the relevant provisions are contained in the SBL, which came into effect in September 2008, regulatory laws (which have been in force for a number of years), and JFSC law. Article 8 of the SBL gives the supervisor (the JFSC) or its duly authorized agent broad powers to enter the supervised person’s premises, to examine the supervised person and to require the supervised person to supply information and answer questions.

492. Article 39 of the SBL authorizes the JFSC to enter into mutual assistance arrangements with overseas supervisory authorities and to conduct the investigation on behalf on another regulatory authority where requested by that authority for purposes of assisting it in the conduct of its functions.

3.4.2. Recommendations and Comments

  • Provide explicitly that financial institutions do not breach their confidentiality duty in exchanging customer information between themselves for AML/CFT purposes.

3.4.3. Compliance with Recommendation 4

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3.5. Record keeping and wire transfer rules (R.10 & SR.VII)

3.5.1. Description and Analysis

Legal Framework:

Record-Keeping & Reconstruction of Transaction Records (c. 10.1 & 10.1.1):

493. Under Article 19(2)(b) and Article 20(3) of the MLO, a relevant person must keep a record containing details relating to each transaction carried out in the course of any business relationship or one-off transaction for a period of five years commencing with the date on which the transaction is completed. Under Article 20(5), the JFSC may notify the relevant person of a record retention period longer than five years, and such longer period shall apply instead of five years. This requirement may be applied regardless of whether the business relationship is ongoing or has been terminated.

494. Article 19(3) of the MLO requires records of transactions that are kept to be sufficient to enable the reconstruction of individual transactions. Under Section 8.3 of the Handbook for Regulated Businesses (as Regulatory Requirements), records must contain the following details:

  • The name and address of the customer;

  • If a monetary transaction, the kind of currency and the amount;

  • If the transaction involves a customer’s account, the number, name or other identifier for the account;

  • The date of the transaction;

  • Details of the counterparty, including account details; and

  • The nature of the transaction.

Record-Keeping for Identification Data, Files and Correspondence (c. 10.2):

495. Under Article 19(2)(a) and Article 20(1) of the MLO, a relevant person must keep a record comprising:

  • a copy of the evidence of identity obtained pursuant to the application of CDD measures or information that enables a copy of such evidence to be obtained; and

  • all the supporting documents, data or information that have been obtained in respect of a business relationship, for a period of at least five years commencing with the date on which the business relationship ends.

496. Under Article 19(2)(a) and Article 20(2) of the MLO, a relevant person must keep a record comprising:

  • a copy of the evidence of identity obtained pursuant to the application of CDD measures or information that enables a copy of such evidence to be obtained; and

  • all the supporting documents, data or information that have been obtained in respect of a one-off transaction which is the subject of CDD measures, for a period of at least five years commencing with the date on which the one-off transaction is completed.

497. Under Article 20(5), the JFSC may notify to the relevant person a record retention period longer than five years, and such longer period shall apply instead of five years. Where a relevant person is an introducer or intermediary for another relevant person and has given its assurance to that relevant person that it will retain the evidence as required and make it available without delay at the request ofthat relevant person, it is required to do so under Article 19(5) of the MLO (added as of November 7, 2008).

Availability of Records to Competent Authorities in a Timely Manner (c. 10.3):

498. Article 19(4) of the MLO requires a relevant person to keep records in such a manner that those records can be made available on a timely basis to the JFSC, Police officer or Customs officer for the purposes of complying with a requirement under any enactment

Effectiveness of implementation - R. 10

499. Financial institutions interviewed during the on-site visit confirmed that they retain records of account opening and customer correspondence and of transactions for a minimum of the five period required and, for some institutions, considerably longer. No issue was identified that could present a barrier to access to this information by the JFSC or to law enforcement agencies in exercise of their powers under proper procedure. However, having regard to records that may be maintained outside Jersey arising from the use of concessions regarding intermediaries or introducers and despite being included within the scope of the mandatory risk assessment, there remains a risk in practice that such third parties might be legally restricted or experience delay in meeting their obligations to provide records to Jersey.

Obtain Originator Information for Wire Transfers - Introduction:

500. Because Jersey is in monetary union with the U.K. and its service providers make full use of U.K. domestic payment systems, in accordance with Article 18 of EU Regulation 1781/2006, the U.K. Treasury applied to the EU for, and was granted on December 8, 2008, a derogation to be applied to EU Regulation 1781/2006.16 The derogation provides for EUmember states to establish agreements with territories outside the EU with whom they share a monetary union and payment and clearing systems to allow them to be treated as if they were part of the Member State concerned, so that the reduced information requirement that is set out in the Regulation for intra-EU transfer can also apply to payments passing between that Member State and its associated territory. The derogation would not apply between that territory and any other EU Member State. The Jersey authorities are now close to concluding the necessary agreement with the U.K. which will formalize the transitional provisions that have applied since 2007 and which have allowed that payments made included reduced information. Thus, transfers within the U.K. Payment Area (the U.K., Jersey, Guernsey, and Isle of Man) are treated as domestic transfers under SR VII, but transfers between Jersey and other EU Members would continue to be treated as cross-border transfers.

501. The Jersey authorities have implemented SR VII by enacting as secondary legislation based on EU Regulation 1781/2006—WTR—which came into force in July 2007 and was updated in December 2007. The Handbook for Regulated Businesses contains a separate section with detailed guidance on the WTR. The Regulations are widely drawn and intended to cover all types of funds transfers that are made by electronic means other than those specifically exempted. The coverage includes international payment transfers made via SWIFT, EUR payment systems, and transfers within the U.K. Payment Area via the U.K. Clearing House Automated payments System (CHAPS) and the U.K. Bankers’ automated Clearing Services (BACS). Consistent with the EU Regulation, the WTR does not apply to payments between financial institutions as principal or to credit/debit card transactions (Regulation 5).

Obtain Originator Information for Wire Transfers (applying c. 5.2 & 5.3 in R.5, c.VII.1):

502. Except for transfers within the U.K. Payment Area, Regulation 6(1) of the WTR requires the Payment System Provider (“PSP”) of the payer to ensure that transfers of funds are accompanied by complete information on the payer. Regulation 6(5) of the WTR requires the PSP of the payer to keep for five years a record of complete information on the payer that accompanies a transfer of funds. For the purpose of the WTR, a reference to complete information on the payer is a reference to the payer’s name, address and account number, except that:

  • the payer’s address may be substituted with the payer’s date and place of birth, customer identification number or national identity number; and

  • if the account number of the payer does not exist, the payer’s PSP shall substitute it with a unique identifier, which allows the transaction to be traced back to the payer.

503. Regulation 6(2) of the WTR requires the PSP of the payer to verify, before transferring the funds, the complete information on the payer on the basis of documents, data or information obtained from a reliable and independent source. In the case of a transfer from an account, under Regulation 6(3) of the WTR the complete information on a payer shall be deemed to have been verified if the PSP of the payer is a relevant person that has complied with the CDD requirements of the MLO. In the case of a one-off transaction, under Regulation 6(4) of the WTR, the complete information on the payer shall be deemed to have been verified if the transfer consists of a transaction of an amount of EUR1,000 or less, the transfer is not a transaction that is carried out in several operations that appear to be linked that together comprise an amount of more than EUR1,000, and the PSP does not suspect that the payer is engaged in ML or FT. In the case of payments within the U.K. Payment Area, Regulation 7(1) provides that the transfer of funds need only be accompanied by the payer’s account number or a unique identifier allowing the transaction to be traced back to the payer.

Inclusion of Originator Information in Cross-Border Wire Transfers (c. VII.2):

504. Except in the case of transfers within the U.K. Payment Area, Regulation 6(1) of the WTR requires the PSP of the payer to ensure that transfers of funds are accompanied by complete information on the payer. In the case of batch transfers, the obligation to include complete information on the payer in each transfer shall not apply in the case of a batch transfer from a single payer if the batch file contains the complete information on the payer; and the individual transfers bundled together in the batch file carry the account number of the payer or a unique identifier.

Inclusion of Originator Information in Domestic Wire Transfers (c. VII.3):

505. In the case of transfers in the U.K. Payment Area, Regulation 7(1) of the WTR provides that the transfer of funds need only be accompanied by the payer’s account number or a unique identifier allowing the transaction to be traced back to the payer. However, under Regulation 7(2) of the WTR, if the PSP of the payee so requests, the PSP of the payer shall, within three working days after the day on which the provider receives the request, make the complete information on the payer available to the PSP of the payee. Regulation 15 of the WTR, in conjunction with Articles 42 and 44A of the DTOL, Articles 40 and 41A of the POCL, and Articles 31 to 33 of the TL, provides for an order to be made by the Bailiff (Jersey’s chief judge) that a PSP shall: make complete information on the payer available within such period as the order may specify; and provide records in relation to the payer.

Maintenance of Originator Information (c.VII.4):

506. Regulation 13 of the WTR requires an intermediary PSP service provider to ensure that all received information on the payer that accompanies a transfer of funds is sent with the transfer. Regulation 9(1) of the WTR requires the PSP of the payee to determine whether fields within the messaging or payment and settlement system that include information on the payer have been completed in accordance with the characters or inputs admissible within the conventions ofthat system. Regulation 9(2) of the WTR requires the PSP of the payee to have effective procedures in place to detect cases where there is not complete information on the payer (or that information that is required by Regulation 7 for transfers within the U.K. Payment Area is missing).

507. Regulation 14(6) of the WTR provides that an intermediary PSP which has used a system with technical limitations which prevents the information on the payer from accompanying the transfer of funds shall keep for five years records of all information on the payer that it has received.

Risk Based Procedures for Transfers Not Accompanied by Originator Information (c. VII.5):

508. Regulation 9(1) of the WTR requires the PSP of the payee to determine whether fields within the messaging or payment and settlement system that include information on the payer have been completed in accordance with the characters or inputs admissible within the conventions ofthat system. Regulation 9(2) of the WTR requires the PSP of the payee to have effective procedures in place to detect cases where there is not complete information on the payer (or that information that is required by Regulation 7 for transfers from the U.K. Payment Area is missing). Paragraph 38 of the wire transfers section of the Handbook for Regulated Businesses (regulatory requirement) requires a relevant person that is a PSP to subject incoming payment traffic to an appropriate level of post-event risk-based sampling to detect non-compliant payments. Regulation 10(1) of the WTR provides that if the PSP of the payee becomes aware that information on the payer required by the WTR is missing or incomplete when receiving transfers of funds, the PSP of the payee shall: reject the transfer; ask for the complete information on the payer; or take another action that is specified by an Order of the Minister for Treasury & Resources. Provision for additional action or steps to be taken in Regulation 10(1) followed industry concern that the use of GB International Bank Account Numbers (IBAN) by banks in the Channel Islands would not permit PSPs in EUmember states to distinguish between intra-EU transfers (to the U.K.) and cross-border transfers (to the Channel Islands) - resulting in a significant volume of incoming transfers failing to include complete information. In practice, this has not proved to be a problem since routing is, in fact, dependent upon a bank’s Bank Identification Code (BIC) rather than customer IBANs, and JE or GU BICS tend to be used in the Channel Islands, rather than GB BICs. Consequently, no additional action or steps have been permitted, nor is it likely that any will. Under Regulation 10(3) of the WTR, if the PSP of the payer regularly fails to supply the information on the payer required by the WTR, the PSP of the payee must report that fact to the JFCU and the JFSC. Under Regulation 10(4) of the WTR, if the PSP of the payer regularly fails to supply the information on the payer required by the WTR, the PSP of the payee must take steps to ensure that the PSP of the payer complies with the requirements to supply information, which may include: issuing warnings to the PSP of the payer; and setting deadlines for the PSP of the payer to comply with the requirements as to supply of information. Under Regulation 10(5) of the WTR, if, after the PSP of the payee has taken steps, the PSP of the payer is still regularly not providing complete information, it must either: reject any future transfers of funds from that PSP; or decide whether or not to restrict or terminate its business relationship with the provider. Regulation 11 of the WTR provides that, where there is missing or incomplete information on the payer in a transfer, and where the PSP knows or suspects, or has reasonable grounds for suspecting, that a person is engaged in money laundering in whole or in part because information on a transfer is missing or incomplete, it must report that knowledge or suspicion to the JFCU.

Monitoring of Implementation (c. VII.6):

509. Regulation 14A of the WTR charges the JFSC with effectively monitoring PSPs and taking necessary measures for the purpose of securing compliance with the requirements of the WTR. Regulation 14B sets out the powers that are available to the JFSC to monitor compliance. This includes the power to: Require a PSP to provide information or documents and to answer questions (Regulation 14B(2)); Appoint an inspector to investigate and report to the JFSC (Regulation 14B(3)); Enter and search premises with a Police officer (Regulation 14B(6)). Regulation 14B also provides the JFSC with a gateway through which to pass information to other supervisors. In 2008, 16 risk-themed examinations of banks were conducted covering corporate governance, CDD requirements, monitoring, reporting and compliance with the WTR.

Application of Sanctions (c. VII.7: applying c.17.1 – 17.4):

510. Regulation 14C of the WTR sets out the offenses that apply under the WTR where there is failure to follow a requirement set out therein. Regulation 14D of the WTR sets out the penalties attached to offenses, typically imprisonment for two years and an unlimited fine. In addition, where a PSP fails to comply with a Regulatory Requirement that is set out in the wire transfers section of the Handbook for Regulated Businesses, the JFSC may use the powers that are set out in the SBL. These powers include the power to: Impose a condition on a license (Article 17(3) of the SBL); issue a direction (Article 23 of the SBL); and issue a public statement (Article 26 of the SBL). These powers largely mirror those that are also available to the JFSC under the BBJL and FSJL (which cover PSPs). In addition, the JFSC has a power to revoke a PSP’s license to operate under the BBJL (in the case of a PSP that is a deposit-taker) or FSJL (in the case of a PSP that is a money service business). This is because failure to follow Codes of Practice that are issued under the BBJL or FSJL provides a ground for revoking a license (and it is a requirement of such Codes of Practice that any requirements that are set out in Codes of Practice issued under the SBL must be followed). In the case of a PSP that is not required to register under the BBJL or FSJL (see 3.10 - criterion 3.11.1) the JFSC may direct that PSP to cease its activities.

Additional elements: elimination of thresholds (c. VII.8 and c. VII.9) (c. VII.8 and c. VII.9):

511. There is no requirement in place to require all incoming or outgoing cross-border transfers under EUR/USD 1,000 to contain full and accurate originator information (other than in cases where a transaction is carried out in several operations that appear to be linked that together comprise an amount of more than EUR1,000 or the PSP suspects money laundering).

Effectiveness of implementation

512. At the time of the on-site visit, the Jersey banks were already operating on the basis of the (then-pending) EU derogation. In interviews, the banks confirmed that their policy was to provide full originator information with all outgoing wire transfers, but transfers to the U.K., Isle of Man, and Guernsey were treated as domestic and put through the U.K. clearing system. As is normal for transactions ofthat nature, full originator information did not accompany the transfers (though either a name or unique identifier was being provided).

513. While, under SR.VII, the primary responsibility for providing originator information rests with the remitting bank, the recipient bank also has secondary responsibilities on receipt of wire transfers omitting full originator information. In discussions with banks, a number indicated that their procedure is limited to spot checking the incoming transfers for originator information. It was not clear how many such transfers were followed up and whether any were held pending the provision of originator details. Some banks explained that they monitored patterns of missing details and could follow up with banks that were habitual offenders. In the assessors’ view, this approach falls short of the “effective risk-based procedures for identifying and handling” such transfers, as called for by SR.VII.

3.5.2. Recommendations and Comments

R.10

  • [none]

SR.VII

  • The authorities should take steps to ensure a stricter approach by Jersey financial institutions when dealing with incoming wire transfers that lack originator information.

3.5.3. Compliance with Recommendation 10 and Special Recommendation VII

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3.6. Monitoring of Transactions and Relationships (R.11 & 21)

3.6.1. Description and Analysis

Legal Framework

514. Pursuant to Article 15(1)(b) of the MLO, a relevant person must apply on a risk-sensitive basis enhanced CDD measures in any situation which by its nature can present a higher risk of ML. Article 11(1) of the MLO requires a relevant person to maintain appropriate policies for the application of CDD measures, which must have regard to the risk of ML and FT. Section 5 of the Handbook for Regulated Businesses addresses monitoring of activity and transactions.

Special Attention to Complex, Unusual Large Transactions (c. 11.1):

515. Article 15(1)(b) of the MLO provides that a relevant person must apply on a risk-sensitive basis enhanced CDD measures in any situation which by its nature can present a higher risk of money laundering or (by definition) terrorism financing. Article 11(1) of the MLO requires a relevant person to maintain appropriate policies and procedures for the application of CDD measures, which must have regard to the risk of money laundering and terrorism financing. In particular, under Article 11(3) of the MLO, policies and procedures must provide for the identification and scrutiny of complex or unusually large transactions, and unusual patterns of transactions which have no apparent economic or visible lawful purpose. Section 5 of the Handbook for Regulated Businesses addresses monitoring of transactions. Section 5.2 states (in Regulatory Requirements) that, when conducting monitoring procedures, more intensive scrutiny must be devoted to higher-risk customers and activity, including (among other examples) complex transactions, unusual large transactions, and unusual patterns of transactions that have no apparent visible lawful purpose.

Examination of Complex & Unusual Transactions (c. 11.2):

516. Section 5.2 of the Handbook for Regulated Businesses provides (in Regulatory Requirements) that the monitoring procedures of a relevant person must examine complex transactions, unusual large transactions, and unusual patterns of transactions which have no apparent economic or visible lawful purpose, to determine their background and purpose, to establish whether there is a rational explanation for these transactions, and to document these findings in writing. Such records would be subject to the recordkeeping requirements contained in Article 20 of the MLO, which are described in the following paragraph.

Record-Keeping of Findings of Examination (c. 11.3):

517. Under Article 19(2)(a) and Article 20(1) of the MLO, a relevant person must keep a record comprising all the supporting documents, data or information that have been obtained in respect of a business relationship for a period of at least five years commencing with the date on which the business relationship ends. Under Article 19(2)(a) and Article 20(2) of the MLO, a relevant person must keep a record comprising all the supporting documents, data or information that have been obtained in respect of a one-off transaction which is the subject of CDD procedures for a period of at least five years commencing with the date on which the one-off transaction is completed. Under Article 19(2)(b) and Article 20(3) of the MLO, a relevant person must keep a record comprising details relating to each transaction carried out in the course of a business relationship or one-off transaction. In relation to each transaction, it must keep the records for a period of five years commencing with the date on which all activities taking place within the course of the transaction were completed. In furtherance of these requirements, Section 8.4.3 of the Handbook for Regulated Businesses provides (in Regulatory Requirements) that a relevant person must keep adequate and orderly records containing the findings of reviews of complex transactions, unusual large transactions, and unusual patterns of transactions which have no apparent economic or visible lawful purpose, for the respective periods referenced above.

Effectiveness of implementation

518. In discussions with the financial institutions, the assessors found that all had developed or were in the course of developing risk-based policies that included special attention to unusual transactions and patterns of transactions. Material transactions that were inconsistent with the customer profile were identified, considered, and queried where warranted.

Special Attention to Countries Not Sufficiently Applying FATF Recommendations (c. 21.1 & 21.1.1):

519. Article 15(1)(b) of the MLO (effective November 7, 2008) requires that a relevant person must apply on a risk-sensitive basis enhanced CDD measures in any situation which by its nature can present a higher risk of ML. Article 11(1) of the MLO requires a relevant person to maintain appropriate policies for the application of CDD measures, which must have regard to the risk of ML and FT. Section 5 of the Handbook for Regulated Businesses addresses monitoring of activity and transactions.

520. Article 15(1)(a) of the MLO states that a relevant person must apply on a risk-sensitive basis enhanced CDD measures in certain specified situations. These include, pursuant to Article 15(3A) (effective November 7, 2008) where a relevant person has, or proposes to have, a business relationship with, or proposes to carry out a one-off transaction with, a person (which term includes both legal persons and financial institutions) connected with a country or territory that does not apply, or insufficiently applies, the FATF recommendations. In addition, Article 1 1(3)(d) (effective November 7, 2008) requires that relevant persons must have appropriate policies and procedures for, among other things, determining whether a business relationship or transaction, or proposed business relationship or transaction, is with a person connected with a country or territory that does not apply, or insufficiently applies, the FATF recommendations.

521. Section 3 of the Handbook for Regulated Businesses deals with factors to consider when establishing a business relationship or conducting a one-off transaction. In addition to considering countries or territories which do not, or insufficiently, apply the FATF Recommendations and those subject to EU or UN sanctions, Section 3.3.4.1 says that the following countries may also be considered to present a higher risk, those that have high levels of organized crime, those that have strong links with terrorist activities, and those which are vulnerable to corruption. Section 5 of the Handbook for Regulated Businesses addresses monitoring of transactions. Section 5.2 states (in Regulatory Requirements) that, when conducting monitoring procedures, activity and transactions connected with jurisdictions which do not, or insufficiently apply, the FATF Recommendations must be considered to be higher risk activity and transactions.

522. Section 5.2.1 of the Handbook for Regulated Businesses states that, in determining which jurisdictions do not, or insufficiently apply, the FATF Recommendations, a relevant person may consider findings of reports conducted and published by the FATF, FATF-style regional bodies, the Offshore Group of Banking Supervisors (OGBS), the IMF, and the World Bank. It makes reference to Appendix D. Appendix D to the Handbook for Regulated Businesses provides details of jurisdictions that are covered by a FATF statement or statement made by one or more jurisdictions, with respect to the regime to combat money laundering or and terrorist financing, plus any associated public statement. The table is updated as and when the JFSC becomes aware of any necessary amendments.

Examinations of Transactions with no Apparent Economic or Visible Lawful Purpose from Countries Not Sufficiently Applying FATF Recommendations (c. 21.2):

523. Section 5.2 of the Handbook for Regulated Businesses provides (in Regulatory Requirements) that the monitoring procedures of a relevant person must establish whether there is a rational explanation (an apparent economic or visible lawful purpose) for activity and transactions that are connected with jurisdictions which do not, or insufficiently apply, the FATF Recommendations, and document these findings in writing. Under Articles 19(2)(a) and 20(1) of the MLO, a relevant person must keep a record comprising all the supporting documents, data or information in respect of a business relationship for a period of at least five years commencing with the date on which the business relationship ends. Under Articles 19(2)(a) and 20(2) of the MLO, a relevant person must keep a record comprising all the supporting documents, data, or information in respect of a one-off transaction which is the subject of CDD measures for a period of at least five years commencing with the date on which the one-off transaction is completed. In furtherance of these requirements, Section 8.4.3 of the Handbook for Regulated Businesses provides (in Regulatory Requirements) that a relevant person must keep adequate and orderly records containing the findings of reviews of activity and transactions connected with jurisdictions which do not, or insufficiently, apply the FATF Recommendations.

Ability to Apply Counter Measures with Regard to Countries Not Sufficiently Applying FATF Recommendations (c. 21.3):

524. Article 23C of the MLO (effective November 7, 2008) authorizes the Minister to direct any relevant person to do, or not to do, certain things with a customer who is situated or incorporated in a country or territory that the FATF has applied countermeasures to. These include not to enter into a business transaction or to carry out a one-off transaction; not to proceed any further with a business relationship or one-off transaction; to impose any prohibition, restriction or limitation on, or to apply enhanced CDD to, a business relationship or one-off transaction, in each case with any person situated or incorporated in a country or territory to which the FATF has applied countermeasures.

525. The assessors note that the list of possible countermeasures that the Minister may impose appears adequate, but notes that the Minister’s authority to do so is subject to a country or territory to which “the FATF has applied countermeasures.” This appears to be narrower than the authority to apply such measures to countries and territories that continue not to apply or insufficiently apply the FATF Recommendations.

Effectiveness of implementation

526. One of the main risk factors typically identified to the assessors by financial institutions was country risk, focusing in particular on jurisdictions known to have no or weak implementation of AML/CFT controls. Potential customers and transactions from such jurisdictions attracted particular scrutiny.

527. The authorities did not identify for the assessors any instance where they applied or sought to apply countermeasures against another jurisdiction.

3.6.2. Recommendations and Comments

R.21

  • The authorities should amend the power to apply countermeasures to remove the limitation tying it to the actions of the FATF.

3.6.3. Compliance with Recommendations 11 & 21

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3.7. Suspicious Transaction Reports and Other Reporting (R.13-14,19, 25 & SR.IV)

3.7.1. Description and Analysis

Legal Framework:

528. Requirements regarding the reporting of suspicion of money laundering and terrorist offenses are provided for in Articles 40 and 40A of the DTOL, Articles 34A and 34D of the POCL, and Articles 20 and 23 of the TL. Each law contains a reporting provision in respect of any person in a trade, profession, or employment, as well as provisions that apply to a relevant person and individuals that are employed by a relevant person. The report must be made to a Police or Customs officer or to a MLRO or other designated officer in a relevant person in line with internal procedures established by an employer. In the case of a relevant person, those procedures are set out in Article 21 of the MLO. Failure to maintain such procedures constitutes an offense. Section 6 of the Handbook for Regulated Businesses also addresses reporting.

Requirement to Make STRs on ML and TF to FIU (c. 13.1 & IV.1):

529. Provisions regarding the reporting of suspicions of money laundering and terrorism financing offenses are set out in two separate and distinct articles in each of Jersey’s three relevant laws.17 With respect to financial institutions, each of Articles 34D of the POCL, 40A of the DTOL, and 23 of the TL provides that an employee of a relevant person commits an offense if he or she knows or suspects, or has reasonable grounds for knowing or suspecting, that another person: is engaged in ML or drug money laundering; or has committed an offense under any of Articles 15 to 18 of the TL, and does not report that information or other matter to a Police or Customs officer, or to a MLRO or other designated officer consistent with procedures established by his or her employer (which must be consistent with Article 21 of the MLO). Where a report is not made, then the employer (the relevant person) also commits an offense.

530. Article 21(1)(c) of the MLO sets out the reporting procedures that a relevant person is obliged to maintain under Articles 34D of the POCL, 40A of the DTOL, and 23 of the TL and failure to maintain such procedures constitutes an offense. Where a report is made then it must be to a MLRO, or other designated officer. Article 21(1)(h) of the MLO then provides for the information or other matter contained in a report to be disclosed to a “designated Police officer or designated customs officer” where the person who has considered the report knows or suspects or has reasonable grounds for knowing or suspecting that another person is engaged in money laundering or terrorist financing. Pursuant to Article 6 of the MLO, the JFCU has been designated as the appropriate recipient of such reports. In line with these provisions in the MLO, amendments to the POCL, DTOL, and TL have been adopted by the States that provide for a report to be made to a “designated” Police or Customs officer. The Privy Council approval of these amendments was pending at the time of the assessment, but the assessors believe that the provisions in the MLO are adequate to designate the JFCU as the reporting office.

531. The offense that arises for failing to report under the POCL applies to funds that are the proceeds of any offense in Jersey for which a person is liable on conviction to imprisonment for a term of one or more years. The offense for failing to make a report under the DTOL covers drug money laundering. Together, they cover a range of offenses in each of the designated categories of offenses under FATF Recommendation 1.

532. The assessors considered carefully whether the relevant provisions of the POCL, DTOL and TL, in creating an offense for failing to report when the required conditions are met rather than overtly requiring reporting of suspicions, are fully in line with Recommendations 13 and SR.IV, for compliance with which only a direct reporting requirement is acceptable. In practice, the inverted nature of the reporting requirement does not appear to impact negatively on the decisions of relevant persons to report and, on balance, the assessors were satisfied that the current Jersey requirement is equivalent in law to a direct reporting requirement.

533. The assessors noted the internal reporting requirement codified in the MLO to report suspicions to the MLRO (or deputy MLRO), rather than to the JFCU, and had some reservations that the effect of the internal processes involved could be to slow down the reporting process or even in some cases deter reports from being filed. This is discussed further below in assessing the effectiveness of the current requirements.

534. Finally, Article 34D(6) of the POCL provides that a person does not commit an offense for failure to disclose information that comes to the person’s attention in the course of employment in a financial services business that is required to train the employee but has failed to do so, and the training, if given, would have been material. In such a situation, the assessors understand that the institution could be subject to sanction for failing to report as well as failing to train adequately its employees.

STRs Related to Terrorism and its Financing (c. 13.2):

535. The reporting provision applies to a relevant person where he knows or suspects, or has reasonable grounds for knowing or suspecting, that another person has committed an offense under any of Articles 15 to 18 of the TL.

536. Articles 15 to 17 of the TL make it an offense to: (a) fund-raise for the purposes of terrorism; (b) use and possess property that is used or may be used for the purposes of terrorism; and (c) enter into or become concerned in an arrangement as a result of which property is made available or is to be made available to another, where a person knows or has reasonable cause to suspect that it will or may be used for the purposes of terrorism. Article 18 of the TL makes it an offense to handle the proceeds of a terrorist offense.

537. The offense that arises from failing to make a report under the TL applies where the person has reasonable grounds to suspect, or knows or suspects, that another person has committed any of the terrorist financing offenses included in these Articles.

No Reporting Threshold for STRs (c. 13.3):

538. All suspicious transactions, including attempted transactions, must be reported under Article 34D of the POCL, 40A of the DTOL, and 23 of the TL. This is on the basis that the reporting threshold is knowing or suspecting, or having reasonable grounds for knowing or suspecting, that another person is engaged in ML or has committed an offense under any of Articles 15 to 18 of the TL; there is no need for there to be any transaction, nor is there any monetary threshold. Section 2.4 of the Handbook for Regulated Businesses (in Regulatory Requirements) contains a requirement for systems and controls to enable a relevant person to report to the JFCU when the person knows, suspects or has reasonable grounds to know or suspect that another person is involved in ML or FT, including attempted transactions. Although this explicit reference to attempted transactions is in other enforceable means, the assessors take the view that the requirement in the POCL is sufficiently clear to cover attempted transactions. Financial institutions confirmed that they consider themselves under an obligation to report suspicious attempted transactions.

Making of ML and TF STRs Regardless of Possible Involvement of Tax Matters (c. 13.4, c. IV.2):

539. The offense for failure to report applies to all suspicious transactions, including those that involve tax, and such suspicious transactions must be reported, therefore, under Articles 34D of the POCL, 40A of the DTOL, and 23 of the TL. Article 34D of the POCL concerns the reporting of knowledge or suspicion of money laundering, which in turn is defined in Articles 32 and 33 as assisting another to retain the benefits of, or the acquisition, possession or use of, proceeds of “criminal conduct,” and criminal conduct is in turn defined as any offense for which a person is liable on conviction to imprisonment for one or more years. While there is no separate statutory offense of tax evasion per se in Jersey, failure to submit a tax return is an offense and such conduct could be (and has been) prosecuted as “serious fraud” and as such, constitutes a predicate offense for money laundering. Section 2.7.5 of Part 2 of the Handbook for Regulated Businesses explains that any fraud-related offense, including fiscal offenses (such as tax evasion) and exchange control violations, is capable of predicating an offense of ML in Jersey.

Additional Element - Reporting of All Criminal Acts (c. 13.5):

540. As described in section 2 of this report, Jersey does not require dual criminality; all predicate offenses for money laundering therefore extend to any conduct committed abroad, regardless of whether or not the conduct constitutes an offense in the country where it was committed.

Effectiveness of implementation

541. All of the financial institutions interviewed by the assessors were very familiar with their responsibilities with regard to reporting of suspicions of ML or FT to the JFCU. As can be seen from the following table (using classifications employed by the JFCU), financial institutions have been accounting for more than 60 percent of the SARs received by the JFSC in the period 2005-08. Discussions with the JFCU indicated their general satisfaction with the quantities and quality of the reports received and with the follow-up cooperation of the financial institutions.

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542. With regard to the efficiency of the SAR reporting process, the internal review processes, as noted above and set out in Article 21 of the MLO, appear to have the potential to delay the submission of SARs to the JFCU. While the assessors acknowledge that care is needed on the part of the reporting institutions in determining whether transactions and events warrant reporting to the JFCU and that the process should be subject to appropriate internal controls, there were indications from discussions with financial institutions that the decision process may be taking longer (a week was indicated to the assessors in some institutions as typical unless the case was identified as urgent) than would be helpful from the perspective of the JFCU. It is the processes in each financial institution that determine the length of time taken to decide on SAR submission and the degree of discretion allowed to staff in determining what is considered suspicious. The assessors are of the view that the system should be reviewed carefully to seek to improve overall efficiency and effectiveness.

Protection for Making STRs (c. 14.1):

543. Articles 32(3)(a), 33(5)(a), 34A(3), and 34D(9) of the POCL and Articles 37(3)(a), 38(5)(a), 40(4), and 40A(9) of the DTOL state that disclosures made thereunder shall not be treated as a breach of any restriction imposed by statute, contract or otherwise. Where a report is made under the TL, Articles 21(3) and 24 state that disclosure shall not be treated as a breach of any restriction on the disclosure of information (however imposed). Where information is provided to the JFCU in accordance with internal reporting procedures asset out in Article 21(2) or (4) of the MLO, Article 37(3) of the POCL provides that disclosure shall not be treated as a breach of any restriction imposed by any enactment or contract or otherwise “or involve the person making it in any liability of any kind.” Protection is available even if a person does not know precisely what the underlying criminal activity is, and regardless of whether illegal activity has actually occurred.

544. Some of the provisions listed above are particularly relevant to financial institutions and their employees, while others apply to any person in the course of a trade, profession, or employment. While financial institutions did not raise any concerns with the assessors regarding the breadth of protection afforded by these provisions in the context of reporting suspected money laundering or terrorism financing, the provisions do not comply fully with the FATF Recommendations, because there is no limitation that the protection should apply only where the report is made in good faith.

Prohibition Against Tipping-Off (c. 14.2):

545. Articles 35 of the POCL and 41 of the DTOL each provide that a person is guilty of a “tipping-off” offense if a person knows or suspects that a report has been made to a Police or Customs officer (or to a MLRO or other designated officer in line with procedures established by an employer), and that person discloses to any person information or any other matter that is likely to prejudice any investigation that might be conducted following disclosure. Each of these provisions has been amended to include within the offense a disclosure of a report that will be made, to prevent tipping off prior to the report being filed. The amendments have been approved by the States and were awaiting Privy Council approval at the time of the assessment. Article 35 of the TL provides that a person is guilty of a “tipping-off” offense if a person knows or has reasonable cause to suspect that a disclosure has been or will be made to a Police or Customs officer (or to a MLRO or other designated officer in line with procedures established by an employer), and that person discloses to any person anything which is likely to prejudice any investigation that might be conducted following disclosure.

546. Recommendation 14 states that financial institutions and their directors, officers and employees should be prohibited by law from disclosing the fact that an SAR has been filed, whereas the provisions of Jersey law referenced above base the offense on a disclosure that is likely to prejudice an investigation. The assessors have considered whether the likelihood of prejudice to an investigation would necessarily be as broad a prohibition as that required by Recommendation 14, and have concluded that the Jersey prohibition is not sufficiently broad. For example, it would seem possible for an individual to conclude, possibly even in good faith, that a disclosure would not be likely to prejudice an investigation, and prosecution in such a case could be problematic.

Additional Element—Confidentiality of Reporting Staff (c. 14.3):

547. Articles 40B of the DTOL, 29 of the POCL, and 24A of the TL provide that information disclosed in a SAR shall not be disclosed other than specifically as permitted by provisions of each of those laws. Where such disclosures are permitted, it is not JFCU practice to disclose personal details of staff of reporting institutions to overseas FIUs. Indeed, the content of SARs will be sanitized to protect the source. The one exception to this is where SARs are shared with the JFSC—where they are shared in their entirety to assist the JFSC with its statutory functions.

Consideration of Reporting of Currency Transactions Above a Threshold (c. 19.1):

548. Jersey’s AML/CFT Strategy Group last considered the feasibility of implementing a currency-reporting system in September 2007. Introduction of such a system was ruled out on the following grounds: the JFCU already receives a significant number of suspicious activity reports and a threshold-based transaction reporting system might adversely impact on its operational effectiveness—by diluting its focus to reports relating to circumstances that are considered to be suspicious merely by virtue of the amount involved; Use of automated pattern recognition software might undermine the ethos behind the Island’s AML/CFT framework—which places considerable emphasis, and responsibility, on a relevant person knowing its customer well; few European jurisdictions have implemented such a system, and its effectiveness in Jersey would likely be reduced if surrounding jurisdictions did not have similar systems. Also relevant persons—most of which are subsidiaries or branches of European companies—may be resistant to incurring costs in, and devoting resources to, developing systems and procedures to accommodate such a system, where they could not rely on group expertise. Finally, the size of a transaction is only one element of risk, and the setting of a financial threshold for reporting transactions is inevitably arbitrary and would ignore other significant risks.

Additional Element—Computerized Database for Currency Transactions Above a Threshold and Access by Competent Authorities (c. 19.2): Additional Element—Proper Use of Reports of Currency Transactions Above a Threshold (c. 19.3):

549. Not applicable

Feedback to Financial Institutions with respect to STR and other reporting (c. 25.2):

550. As noted in the analysis of Recommendation 26, the financial institutions expressed broad satisfaction of the level of feedback they have been receiving following the submission of SARs to the JFCU. All SARs received are acknowledged. The financial institutions accept that all SARs are given consideration and informed the assessors that there is a significant level of direct follow-up with them by the JFCU with regard to individual reports. The institutions are aware that it will not be feasible in many cases for the JFCU to keep them informed of progress in any investigations that result from the submitted reports, particularly as many cases result in the matter being passed to other relevant jurisdictions. However, the financial institutions expressed appreciation for those occasions where the JFCU was in a position to inform them of the outcome of particular SAR-related enquiries. At the broader level of industry feedback on typologies, a joint JFCU, JFSC, and Law Officers’ Department publication - “Typologies from a Jersey Perspective” was issued in October 2008 and includes information on typologies and trends internationally and those which are identified as emerging within the industry locally.

3.7.2. Recommendations and Comments

R.13

  • The JFCU and JFSC should consider steps to enhance the timeliness of reporting of suspicious transactions to the JFCU.

R.14

  • The law should be amended to limit protection for those reporting suspicious transactions to those acting in good faith.

  • The tipping-off offense should be broadened by removing the limitation referring to situations that might prejudice an investigation.

SR.IV

  • The JFCU and JFSC should consider steps to enhance the timeliness of reporting of suspicious transactions to the JFCU.

3.7.3. Compliance with Recommendations 13,14,19 and 25 (criteria 25.2), and Special Recommendation IV

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Internal controls and other measures

3.8. Internal Controls, Compliance, Audit and Foreign Branches (R.15 & 22)

3.8.1. Description and Analysis

Establish and Maintain Internal Controls to Prevent ML and TF (c. 15.1, 15.1.1 & 15.1.2):

551. Pursuant to Article 11(1) MLO, in order to prevent and detect money laundering (defined to include financing of terrorism), financial institutions and other relevant persons are required to maintain appropriate policies and procedures in relation to: customer due diligence measures; reporting; record-keeping; screening of employees; internal control; risk assessment and management; and monitoring and management of compliance with, and