Key Findings

Guernsey’s comprehensive AML/CFT legal framework provides a sound basis for an effective AML/CFT regime. Most shortcomings identified during the assessment are technical in nature. Some of the deficiencies were addressed by the authorities immediately after the onsite visit. Money laundering (ML) and the financing of terrorism (FT) are criminalized fully in line with the FATF standard and the legal framework provides an ability to freeze and confiscate assets in appropriate circumstances. As of the assessment date, there had been no prosecutions or convictions for terrorist financing. Guernsey is able to freeze the assets of those covered by UN Security Council Resolutions 1267 and 1373 and successor regulations through administrative orders issued by the Attorney General.

The Financial Intelligence Unit (FIU) for the Bailiwick of Guernsey, a law enforcement type of FIU, is the Financial Intelligence Service (FIS). The FIS primarily performs a pre-investigative and intermediary role before disseminating relevant information not only to domestic authorities but also to counterpart FIUs. There is clear separation between the intelligence and the investigative side of the handling of the suspicious transaction reports, enhancing the transparency of the process. However, the FIS and the other law enforcement agencies should endeavor to enhance their performance in terms of cases for investigation for money laundering activity, particularly as a stand-alone offense.

Guernsey, through the Financial Services Commission (GFSC), has established a risk-based approach to AML/CFT. The preventive measures are largely in line with the FATF Recommendations. The GFSC has adequate authority and powers to supervise financial institutions, including money transfer systems with respect to compliance with existing AML/CFT laws, regulations, and rules. However, powers to sanction financial institutions for noncompliance issues, particularly applying discretionary financial penalties regime could be enhanced to ensure that the penalties are dissuasive and proportionate to the severity of the violation or level of noncompliance.

The preventive measures for DNFBPs mirror those for financial institutions. Supervision and regulation of DNFBPs, with the exception of eCasinos, is conducted by the GFSC. ECasinos are regulated and supervised by the Alderney Gambling Control Commission (AGCC). Shortcomings noted within the DNFBPs were related to CDD, recordkeeping, risks associated to non face-to-face transactions, licensing measures, and effectiveness issues in the eCasinos sector. There were also a number of shortcomings noted within the legal framework applicable to DNFBPs dealing with exemptions to the sectors.

Sound measures are in place to ensure that legal persons incorporated in the Bailiwick are transparent and that accurate, adequate and current information concerning beneficial ownership is available to law enforcement and other competent authorities. Trusts are recognized and well established under Guernsey law but are not subject to any registration or filing requirements. In most cases trusts require involvement of a regulated trustee who is subject to the full range of AML/CFT requirements. For trust arrangements that are not administered by a licensed TCSP some concerns remain with respect to the availability of accurate and complete beneficial ownership information. A registration regime for NPOs has been established although it does not apply to all charitable organizations. Information on the purpose and objectives of the NPO and the identity of the persons who own, control or direct their activities is not publicly available. Sanctions for non-compliance with registration requirements are not effective and dissuasive.

Guernsey has effective mechanisms for coordination and cooperation among all domestic AML/CFT stakeholders including an active policy coordination committee. The legal framework for mutual legal assistance (MLA) and extradition is sound and the majority of requests seem to be processed in a timely and constructive manner. Bailiwick law allows for the provision of all types of assistance as required by the Vienna and Palermo Conventions in money laundering, terrorism financing or predicate offense cases.

Both money laundering and terrorism financing are extraditable offenses. The Guernsey extradition regime is still managed by the UK authorities by virtue of the UK Extradition Act 1989. No extraditions are on record under that Act, but formally the legal framework is comprehensive and solid. As for non MLA related assistance, although limited in its possibilities to directly collect financial information at intelligence level, the cross-border cooperation at FIS and police level constitutes an essential part of their assignment. The FIS and police follow a constructive approach to all serious requests and consent to use the supplied information for intelligence purposes has never been refused.

Legal Systems and Related Institutional Measures

Financing of Terrorism Provisions

Guernsey is a party to the International Convention for the Suppression of the Financing of Terrorism and has criminalized terrorism financing fully in line with the international standard. The provisions of the Terrorism law and the Terrorism (UN Measures) (Channel Islands) Order 2001 allow for a prosecution of the provisions or collection of funds with the unlawful intention or in the knowledge that they are to be used in full or in part to carry out a terrorist act, by a terrorist organization or by an individual terrorist. At the time of the on-site visit, there had been no prosecutions or convictions for terrorist financing.

Confiscation

Guernsey has a comprehensive legal framework to identify, freeze, seize and confiscate criminal assets. As additional financial sector money laundering and predicate activity is detected, the legal provisions should be used to secure and confiscate proceeds of such criminal activities.

Freezing of Funds

Guernsey’s legal framework and procedures for implementing UNSCRs 1267 and 1373 are largely sufficient but it is too soon to assess the effectiveness of recent enhancements in the guidance that the authorities provide to the financial sector and others. The legal framework should more clearly reflect that designated persons are not to receive prior notice of freezing actions.

Financial Intelligence Unit

The Financial Intelligence Unit (FIU) for the Bailiwick of Guernsey is the Financial Intelligence Service (FIS), specifically designated as such by law on May 17, 2010, officially recognizing the long-standing practice of channeling all STRs to the Financial Intelligence Service as a subdivision within the Financial Investigation Unit of the Customs and Immigration Service. Although a law enforcement type Financial Intelligence Unit, the FIS primarily performs a pre-investigative and intermediary role before disseminating relevant information not only to domestic authorities but also to counterpart FIUs. Consequently the dissemination rate is rather high, ranging from 70 percent to 86 percent of the total number of STRs received.

The FIS has access to a whole range of law enforcement, administrative and commercial information but makes little use of the administrative sources. Direct access to financial information is quite restricted: there is only a legal permission to query the reporting entity for information complementary to the initial disclosure and the possibility to request the supervisory authorities for information in their possession. Access to other additional financial information is only available through a court order. The FIS is quite active in the international scene and systematically shares information for intelligence purposes with its counterpart FIUs.

Overall, the FIU/FIS 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. The system is geared to ensure that the STRs are appropriately dealt with in a focused and professional manner. The clear separation between the intelligence and the investigative side of the handling of the reports particularly enhances the transparency of the process. The FIS should however endeavor to enhance its performance in terms of cases for investigation for money laundering activity, particularly as a stand-alone offense. The system is still predominantly geared to take on the local predicate criminality and related money laundering. The challenge of investigating and prosecuting foreign predicated money laundering as an autonomous offense working on the basis of the evidence gathered in its own jurisdiction still has to be met.

The law enforcement authorities are adequately resourced and trained and have a sufficient legal arsenal at their disposal to effectively conduct a money laundering investigation, but still the results are modest. Great emphasis is placed on making information available to the overseas agencies, which is commendable in itself but carries the risk of overreliance on foreign law enforcement taking the initiative, while the money laundering activity in the Bailiwick continues to take place. As for the judicial side progress is being made, as witnessed by the pending autonomous money laundering case. Still, the judicial authorities should further develop their expertise in this domain by putting more effort and emphasis on the development of case law on stand-alone money laundering based on evidence collected in and by its own jurisdiction.

The cross-border cash declaration regime installed by the Cash Controls Law 2007 brought the Bailiwick in line with the corresponding EC Regulation 1889/2005 and adequately covers the physical and freight cross-border cash transportation. The controls are effectively implemented, with frequent declarations and STRs filed by the Post Office which actually resulted in a sizable amount seized and confiscated. As for cash transported by post the Bailiwick authorities have taken corrective action to address the deficiencies in the declaration regime by bringing the mail declaration system in line with the cash importation regime by freight.

Preventive Measures—Financial Institutions

The primary legislative foundation for customer due diligence (CDD) and other preventive measures is the Proceeds of Crime (Bailiwick of Guernsey) (POC) Law 1999. The specific requirements are set out in detail in secondary legislation in the Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007 (FSB Regulations). This is supplemented by a Handbook issued by the GFSC in 2007 which includes further requirements–which qualify as other enforceable means (OEM)–as well as guidance. The updating of the requirements in 2007 followed extensive consultations with industry and sought to address all the requirements of the international standard.

Guernsey’s Financial Services Commission (GFSC) has established a risk-based approach to AML/CFT, including for preventive measures for financial institutions that address a vast majority of the CDD elements of the international standards in almost all respects and shortcomings identified during the assessment are largely technical. Customers and beneficial owners are required to be identified in all cases; detailed requirements apply to legal entities and trusts; enhanced due diligence is required for higher risk customers, including politically exposed persons (PEPs); records of customer identification must be kept up-to-date and all documentation, including transactions and customer information, must be retained for at least five years; and suspicious activity is effectively required to be reported to the FIU.

With respect to financial secrecy, there are no legal impediments that could inhibit the implementation of the FATF Recommendations. There are effective mechanisms in place to provide for the right of confidentiality of financial information as well as access to information by the competent authorities. There are requirements in place for financial institutions to pay special attention to all complex, unusual large transactions and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose. The same applies to the requirements to give special attention to business relations and transactions from countries which do not follow or insufficiently apply the FATF Recommendations.

All categories of financial institutions appear to be reporting suspicious transactions. The laws providing legal protection for those filing were recently amended to be limited to those acting in good faith and the tipping-off offence was also amended to eliminate any technical noncompliance with the international standard.

Financial institutions are required to establish internal programs and controls to implement the requirements of the AML/CFT laws, regulations, and rules; however, there is no requirement for maintaining an adequately resourced and independent audit function in financial institutions. Measures to prevent the establishment of shell banks and to prevent financial institutions from dealing with shell banks are adequate.

The GFSC has been given adequate authority and powers to supervise financial institutions, including money transfer systems, and ensure compliance with existing AML/CFT laws, regulations, and rules. At the time of the visit, inspections of AML/CFT matters were risk-based and considered adequate in scope. Some financial institutions, as a result of the inspections, have been required to implement remedial measures to strengthen their overall AML/CFT preventive regime, including bringing their CDD information (including on beneficial owners) into line with the latest requirements, improving their internal control systems, and providing additional training.

The GFSC has also broad powers to sanction financial institutions for noncompliance issues and has used these powers in numerous occasions; however, the discretionary financial penalties available to the GFSC are not considered dissuasive and proportionate given that the GFSC can only impose fines for up to £200,000; which is considered too low, for violations of any provisions of the prescribed laws.

Nevertheless, the GFSC authorities need to exercise additional oversight to further strengthen the existing regime, particularly in certain aspects related to CDD. In this area, the authorities need to expand the list of higher-risk customers to which enhanced due diligence must be applied and consider including private banking and non-resident customers.

There are also shortcomings with respect to:

• introducers or third parties – where the authorities should not include third parties from neighboring jurisdictions before satisfying themselves that the third parties are adequately regulated and supervised; and ensure that jurisdictions listed by the FATF as having deficiencies in its AML/CFT are not included in the list of permitted introducers or third parties;

• internal policies, controls, and audit establish an obligation for FSBs to maintain an adequately resourced and independent audit function to test compliance with the AML/CFT policies, procedures, and controls.

Preventive Measures—Designated Non-Financial Businesses and Professions

The preventive measures for lawyers, accountants and estate agents are outlined in the Proceeds of Crime (Bailiwick of Guernsey) (POC) Law, 1999. The specific requirements are set out in the Criminal Justice (Proceeds of Crime) (Legal Professionals, Accountants and Estate Agents) Regulations, 2008 (PB Regulations). This is supplemented by a Handbook issued by the GFSC in 2008 which includes further requirements-which qualify as other enforceable means. Requirements for eCasinos are outlined in the Alderney eGambling Ordinance, 1999 and supported by the Alderney eGambling Regulations, 2009. Trust Company and Service Providers (TCSPs) and bullion dealers have the same requirements as financial services businesses.

The Guernsey Financial Services Commission (GFSC) is responsible for supervising lawyers, accountants, estate agents, TCSPs and bullion dealers. The Alderney Gambling Control Commission (AGCC) supervises eCasinos. Substantial efforts have been made in implementing preventative measures for all DNFBPs. However, risks in the eCasinos sector are not fully mitigated and some shortcomings exist in the implementation of preventive measures for DNFBPs supervised by the GFSC.

Customer due diligence measures are applied to all customers and beneficial owners; detailed requirements apply to legal entities and TCSPs; ongoing due diligence is conducted on ongoing business relationships; enhanced due diligence is conducted for higher risk categories including PEPs; records of customer identification are kept up to date and all documentation is retained for at least five years.

A number of shortcomings have been identified with respect to CDD and record keeping requirements for DNFBPs. On-line verification methods used by eCasinos are not sufficiently reliable; requirements to mitigate against the risk associated with non face-to-face transactions in the eCasinos sector are not in line with the standard; and eCasinos have not effectively implemented the requirement to pay special attention to complex and unusual transactions.

The statutory framework and its implementation by DNFBPs supervised by the GFSC also had a number of shortcomings. The exemption for individuals who as act as a director for six companies or less is not in line with the standard; lawyers, accountants and estate agents are not required to determine whether potential customers are PEPs; guidance provided by the GFSC on low and high risk jurisdictions is contradictory; the GFSC has not identified legal arrangements and TCSPs as high risk; and reliance should not be placed on introducers or intermediaries who are DNFBPs.

Substantial efforts have also been made in implementing STR reporting and internal control requirements. Entities are required to report STRs to the FIU including attempted transactions; adequate protections exist for STR reporting and tipping off; entities are required to establish and maintain internal procedures to prevent ML and TF; policies and procedures are tested; compliance officers must be appointed and screening procedures are in place when hiring employees.

A number of improvements could be made to enhance the effectiveness of STR reporting and internal controls. The number of reports submitted by the eCasinos sector could be increased to better reflect the ML risk and the size of the industry. ECasinos should provide training to all their employees.

The GFSC and the AGCC have the necessary powers and authority to supervise the DNFBP sector. Both commissions have implemented robust supervisory programs that, with one exception, have the necessary resources to provide comprehensive oversight of the DNFBP sectors including the necessary sanctions and penalties to address non-compliance. Guidance issued by the commissions receives positive feedback from industry.

Although the AGCC does conduct extensive background checks on individuals seeking an eGambling license the absence of consistent police record checks creates a risk that the industry may be infiltrated by criminals. Also, the resources dedicated to the supervision of TCSPs should be increased to address the reduced number of examination in this high risk sector.

Legal Persons and Arrangements & Non-Profit Organizations

Guernsey and Alderney laws allow for the incorporation of limited, unlimited or mixed liability companies as well as of limited liability partnerships (LLPs), subject to registration with the Guernsey or Alderney companies registries. More than 18,000 companies were registered in Guernsey and 530 in Alderney at the time of the assessment. Sark does not provide for the incorporation of companies on the island.

The Bailiwick has three measures in place to obtain, maintain, and verify beneficial ownership information for companies and LLPs, namely: for the majority of Guernsey companies, the requirement to have a registered agent, who in term has an obligation to “take reasonable steps” to ascertain the identity of persons who are beneficial owners of the company; for the majority of Bailiwick companies (Guernsey and Alderney) and limited partnerships, the requirement to utilize a licensed Trust and Company Service Provider (TCSP), who in turn is subject to and in most cases supervised for compliance with the CDD obligations under the AML/CFT regime; for all Bailiwick companies (Guernsey and Alderney) and limited partnerships, the obligation to provide certain beneficial ownership information to the relevant registry (Alderney companies registry, Guernsey company registry or Guernsey partnership registry) and to update such information.

In addition, all Bailiwick companies (Guernsey and Alderney) and limited partnerships have a legal obligation to maintain shareholder, director and partner registers and to file annual returns with the Alderney and Guernsey Company Registrars.

The above mentioned measures are supported by investigative and other powers of LEAs and the GFSC to obtain access to information held by FSBs, TCSPs and other entities and persons.

In sum, those measures put the Bailiwick in a very strong position to ensure that legal entities are transparent and that accurate, adequate and current information concerning beneficial ownership and control of all legal persons is available to law enforcement and other competent authorities.

Trusts have been recognized under Guernsey law for many years and the trust concept is well established in the island. The Trust (Guernsey) Law 2007 is the main piece of legislation governing such legal arrangements. No statistics are maintained on the number of Guernsey trust arrangements or the volume of trust assets administered in Guernsey. Alderney and Sark laws do not provide for the creation of trusts.

Trusts are not subject to any registration or filing requirements. However, with few exceptions, acting as a trustee is a regulated activity and, as such, is subject to the full range of AML/CFT requirements, including the obligation to identify and verify the identity of beneficial owners and to keep such information complete, accurate and updated. Concerns remain with respect to the availability of accurate and complete beneficial ownership information for trust arrangements that are not administered by a licensed TCSP.

Substantive efforts have been made to mitigate the terrorism financing risks associated with NPOs although a number of changes are required to enhance the effectiveness of the regime. A registration regime for NPOs has been established although it does not apply to all charitable organizations. Information mechanisms both domestically and internationally are robust and the authorities have the capacity to undertake investigations relating to terrorism financing and NPOs. Efforts have been made to protect the NPOs sector from terrorism financing through outreach and oversight but the outreach was not provided to the entire sector and oversight has been limited to manumitted organizations administered by TSCPs. Information on the purpose and objectives of the NPOs and the identity of the persons who own, control or direct their activities is not publicly available. Furthermore, sanctions for non-compliance with registration requirements are not effective and dissuasive.

National and International Co-operation

Guernsey has effective mechanisms for coordination and cooperation among all domestic AML/CFT stakeholders including an active policy coordination committee. There is regular consultation and coordination on both policy and operational levels, and the ongoing development and refinement of a common vision and strategy including regular internal assessments against the strategy.

Mutual Legal Assistance and Extradition

The legal framework for mutual legal assistance (MLA) and extradition is sound and the majority of requests seem to be processed in a timely and constructive manner. Bailiwick law allows for the provision of all types of assistance as required by the Vienna and Palermo Conventions in money laundering, terrorism financing or predicate offense cases. The provision of MLA is not subject to any unreasonable, disproportionate or unduly restrictive conditions and the statistics provided by the authorities indicate that since 2007 the majority of requests have been implemented in an efficient and timely manner. Both money laundering and terrorism financing are extraditable offenses.

The Guernsey extradition regime is still managed by the UK authorities by virtue of the UK Extradition Act 1989, the Bailiwick being only marginally involved in the process. No extraditions are on record under that Act, but formally the legal framework is comprehensive and solid.

As for non MLA related assistance, although limited in its possibilities to directly collect financial information at intelligence level, the cross-border cooperation at FIS and police level constitutes an essential part of their assignment, as shown by relatively high volume of information exchange traffic. Of the STRs disseminated, some 60 percent have an overseas destination. The FIS and police follow a constructive approach to all serious requests and consent to use the supplied information for intelligence purposes has never been refused.