Guernsey
Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism

This report provides a summary of the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) measures in place in Guernsey at the time of the mission or shortly thereafter. The assessors reviewed the institutional framework; the relevant AML/CFT laws, regulations, guidelines, and other requirements; and the regulatory and other systems in place to deter and punish money laundering (ML) and the financing of terrorism (FT) through financial institutions and Designated Non-Financial Businesses and Professions (DNFBP). The assessors also examined the capacity, implementation, and effectiveness of all these systems.

Abstract

This report provides a summary of the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) measures in place in Guernsey at the time of the mission or shortly thereafter. The assessors reviewed the institutional framework; the relevant AML/CFT laws, regulations, guidelines, and other requirements; and the regulatory and other systems in place to deter and punish money laundering (ML) and the financing of terrorism (FT) through financial institutions and Designated Non-Financial Businesses and Professions (DNFBP). The assessors also examined the capacity, implementation, and effectiveness of all these systems.

1. GENERAL

1.1. General Information on Guernsey

Geography and Population

1. The Bailiwick of Guernsey is located in the English Channel, in the gulf of St. Malo off the north-west coast of France. Although geographically the islands form part of the British Isles, politically they do not form part of the United Kingdom. The Bailiwick comprises the principal islands of Guernsey (population 62,000), Alderney (population 2,000) and Sark (population 600), together with other smaller islands.

The Government

2. The island of Guernsey’s legislative assembly is the States of Deliberation, also known as the States of Guernsey. It comprises the President of the Royal Court of Guernsey (the Bailiff) as ex-officio Presiding Officer, 45 People’s Deputies, two Representatives of the States of Alderney, and the two Law Officers of the Crown. The People’s Deputies are elected by universal adult suffrage. The island is divided into seven constituencies, each electing either six or seven members. The Alderney representatives are elected annually by the States of Alderney. The States of Deliberation sit for a term of four years, after which there is a general election. The Chief Minister is elected by the People’s Deputies. He chairs the Policy Council, which comprises the Ministers of the 10 Government Departments.

3. Alderney is self-governing, its constitutional legislation being the Government of Alderney Law. The island is governed by the States of Alderney, which consists of a President and 10 States members, all elected by universal suffrage. The President convenes and chairs the monthly States meetings and holds office for four years. States members also hold office for a period of four years. Elections are held every two years, when half the 10 States members become eligible for re-election. There is no bar on a retiring States member seeking re-election. Thus, continuity at all levels is maintained. Routine matters of government are performed by three committees: Policy and Finance, General Services and Building and Development Control. Between them, they deal with all aspects of the island’s finances and day-to-day administration. The Policy and Finance Committee, consisting of all 10 States members, has responsibility for eGambling.

4. As a consequence of arrangements in 1948 for some key services to be provided in Alderney by the States of Guernsey, Alderney falls under the fiscal authority of Guernsey and Guernsey’s provisions on taxation apply in Alderney. The States of Alderney has no authority to raise revenue itself through such taxes.

5. The Chief Pleas is Sark’s legislative body. It consists of 28 elected members (Conseillers) who are elected for a four-year term, half of the Conseillers being elected every two years. The Chief Pleas is required by statute to meet four times a year with extraordinary meetings called when necessary. Meetings are chaired by the President (who is currently also the Seneschal, the judge/magistrate) or his deputy and must be in the presence of the Seigneur (who holds the island in Fief to the Crown) or his deputy. The General Purposes and Advisory Committee and the Finance and Commerce Committee of the Chief Pleas have responsibility for the finance sector and AML/CFT. Sark does not have a civil service and this function is carried out by unpaid elected Conseillers.

Relationship with the United Kingdom

6. The Bailiwick is a Crown Dependency (i.e., a dependency of the English Crown). The Queen of England in Council exercises supreme legislative and judicial powers in the Bailiwick and has ultimate responsibility for the good government of the islands. The Crown acts through the Privy Council on the recommendations of the Ministers of Her Majesty’s Government in their capacity as Privy Counsellors. The U.K. Ministry of Justice acts as the point of contact between the political authorities in the Bailiwick and the Crown but is not otherwise involved in the islands’ internal affairs. The Ministry of Justice is responsible for ensuring that laws approved by the parliament in the Bailiwick are placed before the Privy Council for Royal Sanction. The U.K. Parliament does not legislate on behalf of the Bailiwick without first obtaining its consent. The extension of an Act of Parliament to the Bailiwick is exceptional. Where uniform legislation is required, the ordinary practice is for the Bailiwick to enact its own “mirror” legislation.

7. The Bailiwick is not, and has never been, represented in the U.K. parliament. The Bailiwick is, and always has been, legislatively independent from the United Kingdom with the full capacity to legislate for the islands’ insular affairs. The Bailiwick’s right to raise its own taxes is a long recognized constitutional principle. The Government of the United Kingdom does not provide any direct financial assistance to the Bailiwick.

8. The United Kingdom is responsible for the Bailiwick’s international relations and for its defense. In recent years, the U.K. has recognized the appropriateness of the Bailiwick having greater independence with respect to international relations, particularly where those affairs relate to matters within the competence of the Bailiwick political authorities. The Bailiwick has never been an overseas territory nor a colony and the constitutional relationship is distinctly different from that of the British Overseas Territories.

Legal System and the Role of the Law Officers

Criminal law system

9. The criminal law of the Bailiwick of Guernsey is substantially similar but not identical to English law.

Criminal courts

10. The judicature of the island of Guernsey is divided into three parts, namely, the Magistrate’s Court (which has limited jurisdiction), the Royal Court (which has unlimited criminal jurisdiction) and the Guernsey Court of Appeal. In Alderney, there is the Court of Alderney and in Sark the Court of the Seneschal. They have limited jurisdiction. More serious cases from these islands are tried in the Royal Court of Guernsey. Appeals lie from Alderney and Sark cases to the Royal Court of Guernsey.

11. Appeals lie from the Royal Court to the Guernsey Court of Appeal, the majority of the judges of which are English Queen’s Counsel. All judges are appointed by the Crown. From the Guernsey Court of Appeal there is an appeal to the Judicial Committee of the Privy Council in London.

12. Judges in the Bailiwick of Guernsey are independent of the governments in the islands. The President of the Royal Court of Guernsey is the Bailiff of Guernsey. He and the Deputy Bailiff are appointed by the Crown. The senior judges in the other islands are the Chairman of the Court of Alderney and the Seneschal of the Court of Sark.

Law Officers of the Crown

13. There are two Law Officers of the Crown in the Bailiwick of Guernsey. They are appointed by the Crown. The senior Law Officer is Her Majesty’s Procureur (“Attorney General”) and the junior Law Officer, Her Majesty’s Comptroller (“Solicitor General”).

14. The Law Officers’ Chambers is, in effect, a non-political “Department of Justice” for the entire Bailiwick. The Chambers’ duties embrace work which in England would be carried out by the Home Secretary, the Attorney General, the Director of Public Prosecutions, and the Director of the Serious Fraud Office.

15. They supervise all prosecutions throughout the Bailiwick. In making decisions on prosecutions, the Law Officers act as independent officers—independent of the islands’ parliamentary assemblies and independent of the Courts before which they prosecute. All prosecutions in the Bailiwick of Guernsey are brought in the name of the Law Officers.

16. The Law Officers are the central authority in the Bailiwick dealing with agencies in the United Kingdom and other countries requesting assistance in investigating and prosecuting crime. Such applications will often be made after preliminary contact has been made at an early stage in an investigation and advice given by law enforcement. Such preliminary contact is encouraged.

17. When formal requests for assistance need to be made to the Law Officers, such requests must be sent to them directly and not through the U.K. Central Authority.

Legislation

18. There are three types of legislation: Laws, Ordinances, and Statutory Instruments. Laws are primary legislation and can apply across the Bailiwick as a whole or specifically to Guernsey, Alderney and/or Sark. They require the approval of the relevant Bailiwick parliaments (the States of Guernsey, the States of Alderney and the Chief Pleas of Sark) and require approval by the Privy Council. Ordinances are secondary legislation made by one or more of the Bailiwick parliaments. Many laws contain provisions that permit the making of Statutory Instruments (regulations) by the relevant political committees in the Bailiwick and sometimes by other bodies in the Bailiwick such as the GFSC and the AGCC.

Economy

19. The currency of the Bailiwick is the pound sterling (£). The States of Guernsey issues Guernsey bank notes and coin. The Guernsey note issue and other notes denominated in pound sterling (for example, those issued by the Bank of England and the Jersey note issue) can be used in the Bailiwick. The bank base rate in Guernsey is that set by the Bank of England.

20. Guernsey’s total gross domestic product for 2008 was £1.9 billion (estimated), an increase of 7.6 percent over 2007. The finance sector accounts for the biggest contribution to GDP, representing 39.9 percent of total GDP.

21. At the end of 2009, there were 32,171 employed and self-employed people in the Guernsey workforce, with 7,048 (21.9 percent) in employment in the finance sector. The total workforce was 0.9 percent (299 people) smaller than at the end of 2008. At the end of 2009, there were 423 people registered as unemployed, which represents 1.3 percent of the total workforce. Of those people, 325 would fit the International Labour Organisation (ILO) definition of being unemployed, giving an unemployment rate of 1.0 percent. There were 2,265 employing organizations in Guernsey, 90 fewer than the previous year. Financial services continue to be Guernsey’s largest employing sector.

22. The annual rate of inflation (RPI) as at the end of 2009 was 2.2 percent, compared to -1.2 percent in September 2009 and 1.2 percent at the end of 2008. The large decreases in the Bank of England interest rate during the last quarter of 2008, which had a significant impact on RPI, no longer falls within the 12-month period over which the annual change in RPI is calculated. This has resulted in a return to positive annual inflation in December 2009, despite the continued downward effect of a further decrease in the base rate in the first quarter of 2009. The RPIX (“core” inflation excluding mortgage interest payments) annual inflation rate stood at 2.9 percent at the end of 2009, compared to 4.6 percent at the end of the previous year. This implies that core inflationary pressures in Guernsey were less during 2009 than in 2008.

23. Alderney has a mixed and balanced economy generated by a growing eCommerce industry as well as its traditional tourism, building and finance industries. eGambling plays a significant role in the economy, eGambling being the term given to regulated remote gambling activity taking place from Alderney, including all forms of gambling and betting. In addition, Alderney has been identified as a suitable site for the development of a renewable tidal energy system and it is expected that this will, in time, play a valuable role in the island’s economy.

24. Sark’s largest export is seafood, followed by lamb, eggs and other agricultural produce. Several residents are involved with internet-based enterprises including employment agencies, business management or accountancy services and educational publishing. Tourism occupies the greatest number of residents. Since 2008, Sark has experienced a building surge with several new builds and renovations taking place—a significant number of residents are engaged in the building trade.

1.2. General Situation of Money Laundering and Financing of Terrorism

25. Guernsey is a politically-stable, low-crime environment. The Bailiwick has a low crime rate in comparison with other areas of a similar size in jurisdictions such as the United Kingdom. The statistics for the period 2006 to 2009 are as follows:

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Guernsey Police Crime Stats 2006 - 2009

Citation: IMF Staff Country Reports 2011, 012; 10.5089/9781455213726.002.A001

26. The majority of crimes committed within the Bailiwick are not of a type that generate proceeds, so can neither lead to money laundering offenses nor enable an individual to maintain a lifestyle funded solely or principally on the proceeds of crime. In 2006, nearly 50 percent of recorded crimes comprised criminal damage and assault, with that percentage rising to over 50 percent in each of the following years. A further 30 percent or so of annual recorded crime in this period consisted of theft and the unauthorized taking of motor vehicles. The remaining 18 percent–22 percent of recorded crime covers a range of different offenses, the most prominent categories being burglary, deception, drug-related and sexual offenses. Four cases of unlawful homicide have been recorded and solved in the past four years in Guernsey.

27. Drug trafficking is the most serious acquisitive crime committed within the Bailiwick. The Guernsey authorities have particularly targeted drug importation and have been successful in reducing this. The statistics for drug-related offenses for the period 2006 to 2009 are as follows:

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Analysis of Drug Offences 2006 - 2009

Citation: IMF Staff Country Reports 2011, 012; 10.5089/9781455213726.002.A001

28. The greatest money laundering threat to the Bailiwick arises from its status as a significant financial center. This gives rise to an inevitable risk that the proceeds of crime will be invested in or pass through the Bailiwick. As the majority of customers of Bailiwick businesses are based elsewhere, any such proceeds are likely to arise from foreign predicate offenses. For these reasons, historically, the Bailiwick’s AML efforts were directed primarily at restraint and confiscation of assets as the most effective way to attack the proceeds of crime. Currently, there is approximately £220 million under restraint, mainly at the request of other jurisdictions. This relates principally to offenses of fraud, drug trafficking, corruption, and tax evasion.

29. The banking and fiduciary sectors are considered to be the areas with the greatest vulnerability to money laundering. Analysis of mutual legal assistance requests made to Guernsey in respect of the proceeds of crime indicates that in 2009, 40 percent of requests for evidence related to private banking business and 23 percent to community banking. Other business areas or institutions that were identified as possible conduits for money laundering were the post office and investment and securities businesses. This is consistent with an analysis of STRs, which identified the private banking and the fiduciary sectors as the main sources of STRs. Any money laundering in the Bailiwick would be most likely to occur at the layering or integration stage of the laundering cycle. There is no evidence of specific criminal groups involved with laundering operations operating within the Bailiwick. Instead, it is likely that the Bailiwick would be used by criminals in a similar way to legitimate investors, in order to maximize their investment performance and to spread their risk.

30. The present money laundering situation is stable, no significant changes to patterns of offending or to the structure of the financial sector having been identified in the last four years. In that time, the Bailiwick has recognized that greater emphasis needs to be placed on the investigation and prosecution of money laundering, and it now takes the same zero tolerance approach to money laundering and terrorist financing offenses as it has long taken to confiscating the proceeds of crime. This has been underpinned by a number of measures. There has been an increased focus on training and resources in this area, and the legislation governing money laundering offenses was reviewed in 2007, leading to amendments to the Proceeds of Crime Law and the Drug Trafficking Law to facilitate prosecution. These initiatives have led to an increase in the number of money laundering investigations. From 2006 to 2009, there were 26 money laundering investigations, with annual numbers rising from four in 2006 to nine in 2009. The upward trend is continuing, with three new investigations having been instigated in the first two months of 2010. This has meant in turn that the Bailiwick has begun to develop its own jurisprudence on money laundering. There have been four money laundering prosecutions to date, two of which led to convictions. These cases involved self launderers. A further prosecution, involving autonomous money laundering, is awaiting trial. In 2009, the Law Officers recruited a dedicated economic crime prosecutor with specific responsibility for money laundering and he advises the law enforcement agencies on investigations and preparation of cases for trial.

31. There have been no identified cases of terrorist activity or terrorist financing in the Bailiwick. Only five requests for assistance relating to suspected terrorist financing have been recorded for the last four years, and a total of 23 STRs with a terrorist financing element were made in the same period. This is consistent with advice received from the counter-terrorism unit at New Scotland Yard to the effect that there are no indications of terrorist financing activity within the Bailiwick, and the Bailiwick is likely to remain categorized as an area with a very low risk of terrorist financing activity for the foreseeable future. At present, the principal threat of terrorist activity in Western Europe is thought to come from Islamic fundamentalist groups. Experience in the United Kingdom has shown that such groups perpetrate terrorist acts that can be organized without the need for significant funds. For example, the bombings on the transport system in London in July 2005 and the attempted attack on Glasgow airport in June 2007 were both achieved using funds of less than £10,000. Such funds as are required are typically raised by low level criminal activities, normally benefit fraud, carried out by the members of the terrorist cell who are planning the terrorist act in question. The cell members are usually young men of Asian origin. In the view of New Scotland Yard’s counter-terrorism unit, it is extremely unlikely that any such cell would choose to operate within the Channel Islands for two reasons. Firstly, the absence of a significant Asian population would make the presence of any cell members highly conspicuous and, secondly, fund raising would be more difficult as the benefits system is less extensive than that in the United Kingdom and so would generate fewer opportunities to make fraudulent claims.

1.3. Overview of the Financial Sector

32. The following table sets forth the types of institutions that fall within the definition of “financial institution” as defined in the FATF Glossary of Definitions. They are all registered with, and subject to the supervision for AML/CFT purposes of, the Guernsey Financial Services Commission.

Types of financial institutions in the Bailiwick as at December 31, 2009:

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Banking Sector

33. Banks are supervised by the GFSC under the Banking Supervision Law. Banking is central to the Bailiwick of Guernsey’s success as an international finance center and is a major source of employment in the Bailiwick.

There are three main elements to the banking sector:

  • community banking (principally U.K. clearing banks), which provide current accounts, overdrafts, saving deposits, mortgages and term lending to Bailiwick residents and local businesses (small and medium enterprises - SMEs);
  • deposit takers or gatherers who raise funding from retail savers and institutional customers with liquid funds and who also gather deposits from expatriate savers around the world. These banks have historically been the subsidiaries of U.K. building societies and demutualized societies; and
  • international private banks which take deposits from high net worth individuals, trust and fiduciary companies and the liquid uninvested balances of fund administration companies.

34. The Bailiwick is principally a private banking and deposit gathering center. It is liability driven and not a big credit center. Nevertheless, it is a major supplier of liquidity to other parts of groups—this is sometimes described as up streaming. Lending is primarily Lombard lending secured against securities portfolios, cash-backed lending or secured-property lending. There is virtually no proprietary trading and position taking. Hence, there are only very small dealing rooms, catering to private client instructions and employment of group liquidity portfolios.

35. Although the GFSC identifies three elements to the sector—clearing banks, deposit takers and international private banks—there is some overlap, particularly by two clearing banks which are also active in taking deposits from fiduciary companies as well as community banking for individuals and the mass affluent. Historically, these banks had multiple subsidiaries and licenses but over the last decade consolidation has progressively reduced the number of legal entities through which they provide banking services.

36. The key feature of the banking industry in relation to the Bailiwick’s overall finance sector is that it is complementary to the other parts. Banking supports the trust and fiduciary sector by taking deposits and providing a range of services to the trust structures established in the Bailiwick. It supports the collective investment fund sector by providing overdraft and liquidity facilities to funds to enable them to finance the timing differences between the purchase and sale of securities and the flows of subscriptions and redemptions by investors. The insurance sector is supported by the provision of standby letters of credit to captive insurance companies.

37. There are no domestically-owned banks in the Bailiwick—all such banks are subsidiaries or branches of banks from other jurisdictions. Indeed, the vast majority of current account and clearing bank transactions for the Bailiwick are provided by the U.K.’s clearing banks.

Retail Banking Sector

38. The Guernsey banking sector is predominantly wholesale and not retail. The vast majority of deposits in Guernsey banks are corporate, inter-bank, wholesale, or fiduciary deposits. Guernsey is not a large retail deposit taker and its businesses are not focused on gathering deposits from individuals. The bulk of deposits in Guernsey banks are deposits with the international private banks, accounting for some 86.2 percent of total deposits, while clearing banks and deposit takers together account for 13.8 percent of total deposits.

39. Within the retail banking sector, deposits from households and individual trusts in Guernsey remain the most important. In total, deposits from the United Kingdom, Guernsey, Jersey, and Isle of Man households and individual trusts represent 8.1 percent of total deposits. Deposits from households and individual trusts in Guernsey account for 3.8 percent of total deposits. These deposits from Guernsey households and individual trusts are proportionately more important in the deposit base of the deposit takers (representing 19 percent) and of the deposit base of the clearing banks (representing 13.2 percent). Deposits from households and individual trusts in Guernsey held with the international private banks form only a small part of their deposit base (representing 2.1 percent), reflecting the international focus of their business.

As at December 2009, the segmental analysis was as follows:

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Insurance Sector

40. Insurance business in the Bailiwick can be divided into three distinct sectors: domestic insurance, international insurance and insurance intermediaries. The GFSC supervises insurance business under the Insurance Business Law and the Insurance Managers and Insurance Intermediaries Law.

Domestic insurance business

41. As at December 31, 2009, there were 21 insurers engaged in domestic business:

  • there were four local insurers writing domestic insurance business in the Bailiwick;
  • there were 17 other domestic insurers who have a physical presence in the Bailiwick (owing to the existence of a branch office or through the presence of insurance agents in the Bailiwick) which are incorporated and authorized to write business within a Member State of the European Union.

International insurance business

42. International insurance in the Bailiwick can be categorized as either captive insurance, commercial insurance or international life and employee benefits. On December 31, 2009, there were 355 licensed international insurers (captives and life companies), including 63 protected cell companies (“PCCs”), five incorporated cell companies (“ICCs”), and six incorporated cells (“ICs”). The majority of these international insurance companies have been established by United Kingdom-based groups but 143 were established by non-United Kingdom-based groups from a wide range of jurisdictions. In addition, within the PCCs there were 323 cells.

43. A PCC is a single legal entity with separate and distinct cells within it. A cell of a PCC cannot contract in its own name; it is the PCC which will be the contracting party, in respect of the relevant cell which must be identified. Assets and liabilities in a PCC cell are, by law, segregated from those of other cells and those assets are not available to creditors of other cells in insolvency. By law, a cell does not have access to the assets of the PCC core unless a recourse agreement has been put in place. An ICC is a legal entity as are each of the ICs associated with it. An ICC and each of its ICs will have directors, secretary and registered office in common. ICCs are seen as versatile structures due to having a lower cost base, compared to a stand-alone company, which is attractive for start-up operations and the ability to “spin off an IC or convert it into a stand-alone company. Legal segregation is achieved by the fact that an ICC and an IC are each distinct corporate entities.

44. The Bailiwick is the leading captive insurance domicile in Europe in terms of numbers of captives and is fourth in the world based on premiums written. The primary purpose of a captive is to insure the exposures of the parent company and its subsidiaries. Such captives are known as pure captives and these account for the majority of the Bailiwick’s captive market. Captives originally set up to insure the risks of their parent group sometimes find themselves with a wealth of specialist insurance and risk management knowledge within their own industries and offer these facilities to third parties. After moving from a pure captive to a broad captive, they occasionally write much more third party business than that of their group and are then true commercial insurers.

45. Specialist insurance management companies manage most of the international insurers. The GFSC requires such insurance managers to be licensed and, on December 31, 2009, 21 were licensed.

46. As at December 31, 2009, of the 355 licensed international insurers, there were 29 life and employee benefits insurers, including eight PCCs and two ICCs licensed in respect of life business, operating in the Bailiwick. These provide insurance for nonresidents, for example, expatriate workers in overseas territories, many of them on short-term assignments which mean that their careers might embrace employment in several overseas countries. The main products offered in the Bailiwick include pensions, group life, and other group employee benefit plans for companies and single premium and other portfolio bonds.

Insurance intermediaries

47. Insurance intermediaries comprise insurance brokers and insurance agents who, in or from within the Bailiwick, advise others on their insurance requirements for direct or indirect reward. Such intermediaries need to be registered with the GFSC. As at December 31, 2009, there were 40 such intermediaries registered.

Investment Sector

48. Investment and securities business is supervised by the GFSC under the Protection of Investors Law. The types of investment business carried out in the Bailiwick include:

  • management, administration, and custody of open and closed-ended collective investment funds. These collective investment schemes are either domiciled in the Bailiwick, in which case they have to be either authorized by, or registered with, the GFSC under the Protection of Investors Law or, if they are open-ended and domiciled outside the jurisdiction, the regulated service provider in the Bailiwick must obtain the GFSC’s formal approval before it can commence to act for the fund;
  • discretionary and non-discretionary asset management. This sector includes subsidiaries of large multinational groups as well as independent and locally-owned firms. The sector services a range of clients, from private individuals to professional and corporate clients, including regulated firms operating in the Bailiwick such as fiduciaries and insurance companies;
  • stock broking. There is a small but growing number of stock broking firms established in the Bailiwick providing what would be considered to be traditional stock broking services for a range of clients, together with wider asset management services for high net worth individuals, and professional and corporate clients located on a global basis;
  • provision of investment advice. Firms in this sector provide advice on a range of investment products and may be advising collective investment schemes, both domiciled in the Bailiwick and elsewhere, or non-fund clients including private individuals on a one-off basis, high net worth individuals, and professional and corporate clients;
  • investment performance monitoring. This sector has been established over the last half a decade and recognizes the needs of regulated firms to monitor the performance of client investment portfolios. Licensees in this sector are mainly monitoring the performance of investments held by regulated firms on behalf of their clients, mainly in the fiduciary sector, together with corporate accounts; and
  • intermediaries. There are a number of firms providing intermediary services, mainly to the local population within the Bailiwick, including the provision of investment advice to individual clients. Firms operating in this sector also provide equivalent services in respect of insurance-based products.

49. The total assets of the collective investment funds under management or administration (including non-Guernsey collective investment schemes administered within the Bailiwick) on December 31, 2009 were £184.2 billion.

50. As of that date, there were 134,509 registered holders of shares/units/partnership interests in Guernsey open- and closed-ended collective investment schemes. These were 276 authorized or registered open-ended collective investment schemes (of which 208 were umbrella or multi-class schemes resulting in a total 1,904 pools of assets) and 608 closed-ended investment schemes (of which 77 were umbrella schemes resulting in a total of 1,223 pools of assets). These collective investment schemes were sponsored by institutions in 51 countries. Within these totals, 98 open-ended and 37 closed-ended investment funds were established as PCC structures and another 9 open-ended and 4 closed-ended investment funds were established as ICCs. The legislation governing PCCs and ICCs provides statutory protection for the business written in particular cells so that each cell does not suffer contagion from, for example, any financial problems affecting any other cell. PCCs are used extensively in collective investment schemes structures with nearly all umbrella or multi-class corporate structures being established as such.

51. Clients of investment businesses include local residents, overseas residents, and local and overseas institutions and professional firms. The geographical spread of clients is diverse. In the collective investment fund sector, the trend over the past decade has been towards establishing funds for high net worth individuals and institutions.

52. On December 31, 2009, there were 661 institutions licensed to carry on investment business. Licensees comprise administrators/managers and custodians/trustees of collective investment funds, stock brokers, discretionary and non-discretionary asset managers, investment advisers, and one stock exchange.

Stock exchange

53. The Channel Islands Stock Exchange (“CISX”), which is based in Guernsey, is the only stock exchange in the Channel Islands. It commenced operations in the autumn of 1998. The CISX offers a listing facility and provides screen-based trading. The CISX concentrates on its core products, which are collective investment funds; structured debt instruments; primary and secondary listings of securities and shares issued by Channel Islands companies; and secondary listings of securities and shares issued by overseas companies. The CISX has been recognized by the United States Securities and Exchange Commission, the United Kingdom Financial Services Authority and the United Kingdom Inland Revenue. As of December 31, 2009 there were 2,434 listed securities on the CISX.

Independent money services sector

54. The independent (i.e., non-bank) money services sector in the Bailiwick is small. There is only one substantial bureau de change and wire transfer provider outside the banking sector. In all, there are only five independent money services providers. Some hotels offer limited exchange services and fall within the exemption for registration. Other than through banks, money transmission services are provided by two agents of Money Gram. Until recently, there was an agent of Western Union in the Bailiwick; Western Union no longer has local representation. The large independent provider offers Money Gram and Cash2Account services. Outbound transmissions dominate, with a major portion of the business being remittances to Latvia, Poland, and Madeira by nationals of those jurisdictions working in the Guernsey hospitality and building sectors.

55. These firms are registered and supervised for AML/CFT purposes only under the Registered FSBs Law.

1.4. Overview of the DNFBP Sector

56. The Guernsey legislative framework provides comprehensive coverage of the designated non-financial businesses and professionals (DNFBP) sectors. All categories outlined in the FATF standard are covered. These sectors play an important part in the Guernsey economy. Guernsey is seen as a primary jurisdiction for the provision of TCSP services with many lawyers and accountants providing support services to these activities. Guernsey has also taken a leadership role in the emerging eCasinos sector. TCSPs represent the biggest DNFBP sector in Guernsey followed by eCasinos.

57. Requirements outlined in the relevant legislation apply to both individuals and companies/firms though the vast majority of obligated entities are companies and firms.

58. The following table outlines the types of DNFBPs in Guernsey as of December 31, 2009. A description of each DNFBP sector can be found in the section below.

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Trust and Company Service Providers

59. Fiduciary services principally relate to trust management and administration, company management and administration and, to a much lesser degree, the provision of executorships services. The firms providing fiduciary services in the Bailiwick are varied and range from the bank and institutionally-owned trust companies to a number of independently-owned trust companies. There were 197 full and personal fiduciaries on December 31, 2009 licensed by the GFSC under the Regulation of Fiduciaries Law, providing a variety of services in the Bailiwick. Full fiduciary licenses are available to companies and partnerships. A personal fiduciary license can be held by an individual and is restricted to acting as a director, trustee (except acting as a sole trustee), protector, or as executor or administrator of estates. The settlors and beneficiaries of trusts and the beneficial owners of companies come from all over the world.

60. The Regulations of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law 2000, outlines which TCSPs are required to be licensed. An extensive list of activities are exempted at Section 3 of the Law and most are in line with the standard. Many of these exemptions outline company management activities that would be undertaken in the regular management of a business or activities relating guardianship of children and the administration of wills. Exempt activities include acting as a director of a company which is quoted on a stock exchange, acting as the executor of a will, or acting as the guardian of a minor. All activities outlined by the standard are covered with one minor exception that is discussed in greater detail in Section 4.

Legal Professionals—Solicitors, Advocates, and Notaries

61. The legal profession in Guernsey comprises solicitors, advocates, and notaries. There are five firms of overseas solicitors operating in Guernsey but they are not able to represent cases in court. Solicitors provide advice on English, Welsh, Scottish, or Northern Irish law. Two firms of solicitors are registered with the GFSC.

62. To qualify as a Guernsey advocate, a person must first qualify as a barrister or solicitor in England and Wales, Northern Ireland, or Scotland or another commonwealth jurisdiction, and then undertake a minimum period of pupilage in Guernsey, attain French legal qualifications and pass the Guernsey bar examinations. Seventeen firms of advocates are registered with the GFSC. Guernsey advocates are able to present cases in court.

63. Notaries in Guernsey play a very different role to that of a notary in civil law jurisdictions. Guernsey notaries do not prepare transaction documents or contracts, assist with contracts for the sale of land or manage conveyance of real or personal property. The Guernsey notary therefore does not ever take in, collect, transfer, or administer any client money, administer transactions or give legal advice or opinions. These are practices which have developed in civil law jurisdictions and in Guernsey these matters are conducted by advocates or solicitors. In essence, the main function of the notary in Guernsey is to physically authenticate documents and certify matters of fact.

64. The Guernsey notary spends the majority of his time authenticating copy documents or signatures for regulated financial services businesses. This is done by presentation of the originals and copies to the notary, or by the person signing a document or swearing an oath in his presence. The notary’s role is purely to authenticate a document by ensuring it is a copy of an original or to confirm the identity and signature of the person executing the document or swearing an affidavit.

65. In all cases where a notary does not already know the person making an oath or signing a document, he must satisfy himself as to the identity of that person. This was a requirement for notaries long before the advent of AML legislation. Identification is carried out by the presentation of that person’s passport when attending the notary’s office and the passport number recorded, often in the document which is being signed or sworn and usually with a statement as to the method of identification in the fee note. A notary will rarely conduct work for private clients; most work is generated by persons or regulated financial services businesses known to the notary.

66. There are no notaries registered with the GFSC as their activities do not fall within the requirements of the PB Regulations (i.e., the duties undertaken by notaries do not fall within the FATF’s definition of DNFBPs).

67. There are no separate firms of notaries; only Guernsey advocates may become Guernsey notaries. Guernsey law firms offer a variety 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. In total, 19 law firms (17 firms of advocates and 2 firms of solicitors) are registered with the GFSC. Some law firms are also licensed fiduciaries and carry out trust and company services.

Accountants

68. Guernsey accountancy firms, even those operating as branches of the U.K. firms, were required to comply with Guernsey AML/CFT legislation from 2008 with the introduction of the PB Regulations. Seven firms of accountants have registered with the GFSC. The changes to the Proceeds of Crime Law in March 2010 extend the AML/CFT framework from the FATF standards to the EU standards and will include any activity carried out by external accountants, tax advisers, auditors, and insolvency practitioners. This will result in the entire sector being subject to AML/CFT regulation by October 2010.

69. Some of the audit and accountancy firms in Guernsey carry out the activities detailed in the FATF standards, but a large majority does not undertake these activities; hence, the comparatively small number of registrations with the GFSC. The majority does not handle client monies or assets and are also not involved in any facilitation or arrangements involving their clients.

Real Estate Agents

70. The main business of estate agents in Guernsey is sale and letting of local market properties. Of the 28 registered firms, only the larger firms are significantly involved in open-market property sales and commercial business.

Guernsey housing market

71. There are two residential housing markets in Guernsey, one for local inhabitants, known as the “Local Market,” and one for newcomers called the “Open Market.” There are about 21,000 dwellings on the island of which approximately 1,750 are available for occupation by newcomers. In each market, the sale price is set by the interaction of supply and demand. Prices are relatively high, principally because the island is an attractive place to live and work.

72. Only local inhabitants and newcomers in possession of housing licenses are able to occupy Local Market houses. The States of Guernsey is responsible for granting housing licenses. When an employer is unable to fill a vacancy from the local workforce and wishes to recruit a newcomer, it will apply to the States for an essential worker license. These licenses allow newcomers to lawfully occupy Local Market property subject to certain conditions. Licenses are granted subject to a rateable value limit (essentially controlling the minimum size and value of dwelling license holders can lawfully occupy). This is a helpful way of providing labor. About 5,000 licenses are currently in existence. The granting of housing licenses has some impact upon the demand for housing and hence the prices in both markets. This coupled with the fixed supply of Open Market housing stock, means that government policy has a very direct impact on the markets.

Buying and selling property in Guernsey

73. In Guernsey, Local and Open Market dwellings can be sold by private treaty, auction, or by share transfer. In each case, conditions of sale are used. These contain standard terms agreed by the Bar Council, the governing body of the Bar, and acceptable to the Royal Court for use when transferring the ownership of property located in Guernsey.

Real Estate in Sark

74. The Real Property (Transfer Tax, Charging and Related Provisions) (Sark) Law, 2007 (“the Real Property Sark Law”) requires that relevant property transactions of an ownership interest in real property and a long leasehold interest (of 20 years or more) in real property be recorded in writing and that the document recording the transaction be registered by the Court. The property register is maintained in the Sark Greffe Office. Property transactions that are not classed as relevant property transactions have no statutory requirement to be placed before the Court or registered in the island records. The way in which sales take place in Sark is not governed by any legislation; sales are normally made by private treaty although there is nothing to prevent sales by auction or by share transfer. Estate agents and advocates do not have to attend the Court.

Dealers in Precious Metals and Precious Stones

75. In the Bailiwick, there are 16 jewelry retailers and 3 bullion dealers. The client base of the jewelry retailers 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 are paid for using debit and credit cards.

76. The Proceeds of Crime Law designates bullion dealers who engage in the buying or selling of bullion and conduct transactions of £10,000 as a financial services business under the supervision of the GFSC. As such, the bullion dealers have the same obligations as other FSBs.

77. The Proceeds of Crime (Restriction on Cash Transactions) Regulations came into force in December 2008 and prohibit the use of cash for the sale or purchase of precious metals, precious stones, or jewelry where the payment exceeds £10,000. Other than reporting suspicions on money laundering or terrorist financing, no other AML/CFT obligations apply to jewelry retailers.

Casinos

78. There are no land-based casinos. Land-based casinos are prevented from being established in Guernsey under the Hotel Casino Concession (Guernsey) Law, where it is illegal to operate a casino unless a concession for a hotel and casino has been granted by the States of Guernsey. The general prohibition against gambling under the Gambling (Alderney) Law and the Gambling (Sark) Law prevents casinos from being established in those islands.

79. The AGCC is responsible for the regulation of eGambling licensees. The Gambling (Alderney) Law defines gambling as including all forms of betting, gaming, wagering, and any lottery. The holder of an eGambling license can offer these products or any combination of them under their license.

80. The eGambling sector in Alderney covers a broad spectrum of activity. EGambling licensees and certificate holders are permitted to carry out different forms of eGambling activity depending on the category of license or certificate held. Category 1 eGambling licensees organize and prepare the customer for gambling. This includes (but is not limited to) entering into an agreement with the customer, registering and verifying the customer’s identity, and managing the customer’s funds. Category 2 eGambling licensees and Foreign Gambling Associate Certificate Holders effect the gambling transaction. This includes striking the bet, housing and recording the outcome of the random element or gambling transaction, and operating the system of hardware and software upon which the gambling transaction is conducted. These Category 2 licensees have no direct relationship/contact with the player. The types of gambling offered by Category 1 licensees include both traditional bookmaking and betting exchanges, as well as traditional casino games, bingo networks, and poker rooms. Alderney licensees have included small start-up ventures, the internet operations of land-based operators and some of the larger and more familiar eGambling brands.

81. At the end of the first quarter of 2010, there were 44 eGambling licensees, 23 licensees holding both Category 1 and Category 2 eGambling licenses, 18 holding a Category 1 eGambling license only and 3 holding a Category 2 eGambling license. There were, therefore, 41 licensees with licenses permitting them to organize and prepare customers to gamble i.e., undertaking the registration and verification of customers. Not all of these licensees have commenced operations under their license. In addition, at the end of the fourth quarter of 2009, there were 13 holders of associate certificates supplying services to eGambling licensees.

82. As of the end of the fourth quarter of 2009, the smaller licensees had fewer than 2,000 active players (defined as a customer who has logged in within the preceding 12 months) whereas the licensee with the greatest number of active players had over a million active players. There has been some fluctuation in the number of active players registered with Alderney licensees over the past 12 months because of the recession. The number now stands at around three million, with in excess of two million being registered with the four largest licensees. These four licensees are the largest in terms of the number of active players, whereas others may have higher net asset values or higher net profits.

83. EGambling license holders in Alderney had over 3 million customers and conducted £2.1 billion worth of transactions in 2009. Net profits in the sector peaked in the first quarter of 2009 at £43.1 million due to a combination of factors including a number of new licensees commencing operation and existing licensees rolling out new products. In light of the financial crisis and recession, there was a reduction in profits to £35.6 million in the fourth quarter of 2009.

Non-Profit Organizations

84. Guernsey’s NPO sector will, generally, mirror that found in the United Kingdom and other similar jurisdictions, in that it consists of a number of charities operating in varying areas, together with other NPOs whose activities range from professional associations to social and sports clubs. Charities fall broadly into three categories:

  • (a) purely locally-based charities (such as Les Bourgs Hospice);
  • (b) those which are branches of large U.K. charities (such as Oxfam, Red Cross, etc); and
  • (c) a number of charities which have been established, and are run by, local individuals or groups but whose area of activity is international, mainly in the developing world.

85. Charities and non-profit organizations are required under the Charities and NPOs Registration Law to register with the Director of Income Tax if their gross annual income is over £5,000 or if their gross assets and funds are £10,000 or more. There are 405 bodies (299 charities and 106 other NPOs) registered. The tables below provide details of the types of charities and NPOs:

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86. These figures include 8 NPOs based in Alderney—3 arts/music/sports, 2 other/general, and one of each of social welfare/community support, heath/medical/care of the elderly and animal welfare.

87. Manumitted organizations, defined as charities that are managed by fiduciaries regulated by the GFSC, are not required to register with the Director of Income Tax. They do, however, have record-keeping obligations.

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

Companies and Limited Partnerships

88. Bailiwick companies are governed by the Companies (Guernsey) Law 2008 (“the Guernsey CL”), which allows for the incorporation of companies in Guernsey, and the Companies (Alderney) Laws 1994 (“the Alderney CL”), which regulates companies incorporated in Alderney. Sark does not provide for the incorporation of companies on the island. The Companies Registrar in Guernsey is responsible for the registry of Guernsey companies. In Alderney, this function is performed by HM Greffier (senior court clerk).

89. The Guernsey and Alderney CL do not differentiate between different types of companies and all ownership and management requirements as outlined below apply equally to all companies. All Bailiwick companies obtain legal personality upon registration with the Guernsey or Alderney companies’ registries. Guernsey companies may only be incorporated by a licensed TCSP whereas Alderney law requires involvement of an advocate.

90. Members of a Bailiwick company may have limited, unlimited, or “mixed” liability. All Bailiwick companies may be incorporated or later be converted into “cell companies,” allowing for a segregation of assets. Bailiwick companies have to have at least one (natural or legal person) founder, one natural or corporate director and a local registered office. In addition, most Guernsey (but not Alderney) companies require a registered agent, who must be either a licensed TCSP or a Guernsey resident director, and all Alderney companies require a registered secretary.

91. The use of “nominee shareholders” and corporate directors is permissible. All Bailiwick companies are subject to stringent accounting and record-keeping requirements and are obliged to maintain shareholder and director registries at the local registered office.

92. In addition to companies established pursuant to the Guernsey and Alderney CL, Guernsey (but not Alderney or Sark) law also allows for the establishment of limited partnerships, either with or without legal personality, pursuant to the Limited Partnership (Guernsey) Law 1995. Limited partnerships require at least one limited and one general (natural or legal person) partner and a registered office in Guernsey. All limited partnerships are under an obligation to register with the partnership registry maintained by the HM Greffier.

93. Guernsey has a wide range of measures in place to obtain and maintain beneficial ownership information as outlined under Recommendation 33 of this report. Most notable, such information is maintained by the relevant registries, by licensed TCSPs in the Bailiwick and at the local registered company or partnership offices. The measures are supported by strong law enforcement and supervisory powers to obtain and gain access to any information sought as outlined under Recommendations 27 and 28 of this report.

94. At the time of the assessment, about 18,000 companies were registered in Guernsey and 530 in Alderney. Of these, about 12,700 are managed by licensed TCSPS. Furthermore, about 1,290 limited partnerships were registered in Guernsey of which around 200 have legal personality. The authorities stated that the majority of Guernsey companies would be asset holding companies and the majority of Alderney companies would be e-Casinos. The authorities stated that those companies not administered by a licensed TCSP would mostly be local trading and service companies.

Trusts and General Partnerships

95. Trusts constitute an important part of and are widely used in the Guernsey financial services industry. Trusts may be established under Guernsey but not Alderney or Sark law and are governed by the Trusts (Guernsey) Law 2007 (“Trusts Law”). In addition, Guernsey allows for the establishment of general partnerships pursuant to the Partnership Law 1995. Neither trusts nor general partnerships are subject to any registration requirement.

96. A trust under Guernsey law is a legal arrangement in which a person (trustee) holds or has vested in him property which does not form or which has ceased to form part of his own estate for the benefit of another person (beneficiary), whether or not yet ascertained or in existence, and/or for any purpose other than a purpose for the benefit only of the trustees. Guernsey 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 or merely conduct.

97. Guernsey 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. Guernsey law allows for both the settlor and the trustee to be a trust beneficiary, including the sole beneficiary. The settlor may also reserve a 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.

98. Protectors, enforcers, as well as flee clauses are allowed under Guernsey law although according to the authorities and private sector participants the assessors met with stated that all of these instruments are used to a very limited extent only. The Convention on the Law Applicable to Trusts and on their Recognition has been extended to Guernsey and Guernsey law recognizes foreign trusts.

99. The authorities do not maintain statistics or information pertaining to the number of trust arrangements but it is estimated that about 30,000 Guernsey trusts would exist. Of the total number of Guernsey trusts, 27,000 were administered by licensed fiduciaries. The amount of assets held by Guernsey trusts could not be ascertained. In addition, the authorities could not provide the assessors with a total number of general partnerships established under Guernsey law and the number of partnerships linked to a licensed TCSP is 496.

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

AML/CFT Strategies and Priorities

100. In early 2004, the President of the States of Guernsey Advisory and Finance Committee (the predecessor to the States of Guernsey Policy Council) wrote to the President of the FATF providing a Ministerial commitment to the FATF’s Recommendations and Special Recommendations.

101. The current AML/CFT strategy and priorities are set out in a document entitled “Bailiwick of Guernsey Financial Crime Strategy” (“Strategy document”)1. It identifies seven strategic imperatives, together with specific objectives and supporting measures to achieve them:

  • to build knowledge and understanding about the cause and effects of financial crime on the economy of Guernsey;
  • to increase the amount of criminal proceeds recovered and increase the proportion of cases in which they are pursued;
  • to make innovative use of the criminal and civil forfeiture legislation;
  • to continue to collaborate with international partners to ensure together the effective prosecution of those responsible for financial crimes and/or recover the proceeds;
  • to build upon the risk assessment culture which identifies the threats and vulnerabilities posed by financial crime;
  • to maintain an appropriate overarching strategy to counter financial crime, involving all partners, to enable sustained confidence and growth in Guernsey’s economic future; and
  • to support inter-agency working and value the contribution of partners concerned with mitigating the impact of financial crime within the Bailiwick.

102. In March 2010, the States of Guernsey endorsed the financial crime strategy and the strategic imperatives that had already been identified by the AML/CFT Advisory Committee as part of an ongoing process that began in October 2008. The financial crime strategy and strategic imperatives for AML/CFT (excerpt) are:

“[T]he Policy Council considers it important to endorse the Committee’s coordinated approach towards achieving its strategic imperatives and outlines the overarching major AML/CFT strategies which are in place and to also ask the States of Guernsey to endorse them. In summary the strategies are to:

  • build knowledge and understanding about the cause and effects of financial crime on the economy of Guernsey;
  • prevent Guernsey businesses from being used for money laundering or the financing of terrorism;
  • have an effective suspicious activity reporting regime, which includes the effective development of intelligence from reports of suspicion;
  • ensure that money laundering, financial crime and financing of terrorism offences are effectively identified and rigorously investigated;
  • provide effective enforcement measures to identify, trace, restrain, seize, and confiscate the proceeds of crime and terrorist assets, including effective application of the civil forfeiture regime in nonconviction-based asset forfeiture;
  • undertake the prosecution of money laundering and financing of terrorism offences swiftly and effectively;
  • promote and provide comprehensive and effective international cooperation and the widest possible assistance to other jurisdictions in the investigation and prosecution of money laundering, financial crime and the financing of terrorism, and in securing the confiscation or other restraint of the proceeds and instruments of such criminal conduct;
  • participate in and contribute to international initiatives to prevent and combat financial crime;
  • have effective measures to detect physical cash movements;
  • provide for effective training and professional development of those engaged in AML/CFT activities;
  • ensure that sufficient resources are directed to meeting the strategies; and
  • maintain an appropriate overarching AML/CFT strategy coordinated by the Advisory Committee to counter financial crime, involving all partners, that enables sustained confidence and growth in the Bailiwick’s economic future […]”

103. In 2008, the States of Alderney Policy and Finance Committee issued a similar statement confirming Alderney’s commitment to the establishment and maintenance of AML/CFT standards.

104. The Strategy document and its implementation are subject to regular review by the Bailiwick AML/CFT Advisory Committee (“Advisory Committee”). The Strategy document was most recently updated in the first quarter of 2010. The Advisory Committee considered as a higher priority the prosecution of money laundering and the development of the civil forfeiture regime.

105. Efforts in both of these areas have been strengthened by the creation of specialist posts within the Attorney General’s Chambers. A highly-experienced specialist economic crime prosecutor has been recently recruited. A dedicated asset recovery lawyer joined the Attorney General’s Chambers.

106. In addition, the FIU has a continuing recruitment program and is soon to move to new premises. A new computer system to facilitate processing of STRs is expected to be in use by June 2010. Further amendments to the AML/CFT legislative framework will soon come into force.

107. The States of Alderney AML/CFT strategies and priorities are allied to and indivisible from those of the Bailiwick of Guernsey as a whole.

Institutional Framework for Combating Money Laundering and Terrorist Financing

108. Since the last evaluation, existing law enforcement responsibilities in respect of AML/CFT were centralized and streamlined. In 2008, the Financial and Economic Crime Branch (FECB) of the customs service was established, its head joined the BFCC. The FECB is made up of 3 distinct divisions. These are the FIS (Financial Intelligence Service), incorporated within the FECB with continuing responsibility for the collection, analysis and dissemination of STRs and also for processing MLA requests; the criminal division responsible for criminal investigations, seizures and confiscations; and the civil division with equivalent responsibilities in civil matters. The FECB was rebranded as the FIU in 2009. In December 2008, the BFCC was renamed the Bailiwick AML/CFT Advisory Committee. Its membership was expanded from that of the BFCC to include representatives from other agencies with AML/CFT responsibilities. These are the Director of Income Tax, the Chief Executive Officer of the AGCC and, more recently, the Registrar of Companies.

Political/Policy level

109. The Policy Council of the States of Guernsey (PCSG) comprises departmental ministers and is chaired by the Chief Minister. It has overall political responsibility for the Bailiwick’s AML/CFT strategy, with the assistance and advice of the Advisory Committee.

110. The Advisory Committee (AC) is responsible at a strategic level for all aspects of policy coordination, development, and cooperation on AML/CFT issues. It liaises with politicians to ensure that AML/CFT policies and strategies have political support. Members of the Advisory Committee participate in regular Crown Dependency AML/CFT meetings with representatives from Jersey and the Isle of Man. The Financial Crime Group (FCG) continues to have responsibility for AML/CFT issues at an operational level, and it reports to the Advisory Committee.

111. The Home Department of the States of Guernsey (HDSG) is politically responsible for the police force and the customs service. It develops criminal justice legislation and policy together with the Attorney General. The Bailiwick will introduce a new independent statutory body, the Law Enforcement Commission, to oversee law enforcement and allocate resources to the LEAs, who’s Chief Officers, will report to the Commission, rather than as now to the Home Department. The Law Enforcement Commission is expected to be in place by the middle of 2011.

112. The Treasury and Resources Department of the States of Guernsey (TRDSG) has political responsibility for the registration framework for charities and NPOs.

113. The Commerce and Employment Department of the States of Guernsey (CEDSG) has political responsibility for the registration framework for companies.

114. The States of Alderney, also represented in the States of Guernsey, has political responsibility for the AGCC (see below). The AGCC reports annually to the States of Alderney and meets regularly with the Policy and Finance Committee of the States of Alderney (PFCSA)—this committee has day-to-day political responsibility for the AGCC and for the eGambling sector.

Criminal justice/operational level

115. The criminal division of the FIU within the customs service is responsible for cross-border investigations. It also has responsibility for criminal restraint and confiscation orders. Civil forfeiture investigations, seizures, restraint and forfeiture orders are dealt with by the civil division of the FIU. The customs service is to change to the Guernsey Border Agency, expected to be in place by the middle of 2011, but this will not affect the functions and responsibilities of the FIU or any of its three divisions. The Fraud Department of the police force is responsible for the investigation and detection of domestic fraud and other possible predicate offenses without a cross-border element.

116. The FIS division of the FIU is the Bailiwick’s designated national body responsible for the collection, analysis, and dissemination of all STRs.

117. The Attorney General and the Solicitor General are the Bailiwick’s Law Officers. They are the designated recipients of letters of request for MLA. There is a dedicated prosecution directorate, a dedicated mutual legal assistance lawyer, and a dedicated asset recovery lawyer.

Financial Sector and DNFBP

118. The Guernsey Financial Services Commission (GFSC), established in 1988, is the prudential regulator of banks; collective investment schemes and their service providers; TCSPs; insurers and insurance intermediaries; investment firms and investment intermediaries; and the stock exchange. It is also responsible for the AML/CFT regulation of the other businesses included in the FATF definition of financial institution and much of the DNFBP sector (TCSPs—note that in Guernsey such service providers are included as financial services businesses—legal professionals, accountants and estate agents).

119. The GFSC issues AML/CFT rules and guidance in two handbooks: the Handbook for Financial Services Businesses on Countering of Financial Crime and Terrorist Financing (“FSB Handbook”) and the Handbook for Legal Professionals, Accountants and Estate Agents on Countering of Financial Crime and Terrorist Financing (“PB Handbook”).

120. The Alderney Gambling Control Commission (AGCC) licenses and regulates those forms of gambling in Alderney that are made lawful by way of an Ordinance. Under the Gambling Law all forms of gambling are unlawful, unless authorized under an Ordinance of the States of Alderney such as the eGambling Ordinance.

121. Most practicing professionals such as lawyers and accountants are also subject to regulation and oversight by self-regulatory organizations in larger jurisdictions, such as the Institute of Chartered Accountants in England and Wales and the Law Society of England and Wales. Lawyers qualified to practice as Guernsey Advocates are also subject to regulation and oversight by the Guernsey Bar. Its Chambre de Discipline has specific jurisdiction in respect of AML/CFT related issues, in addition to the GFSC’s own role as the AML/CFT authority for lawyers.

122. The Director of Income Tax is Registrar of NPOs with responsibility for establishing and maintaining a register of NPOs, which is separate from his functions under the income tax legislation. Legislation to formalize the separation of these responsibilities, by creating a statutory office of Registrar, is currently awaiting royal sanction by the Privy Council.

Approach Concerning Risk

Criminal justice

123. According to the authorities, the law enforcement agencies are required to undertake continuous risk and threat assessments in all areas. More specifically, the Financial Crime Group has an ongoing mandate from the Advisory Committee to monitor current and emerging AML/CFT threats and risks. The Financial Crime Group reports back to the Advisory Committee for strategic direction and priority on these issues.

GFSC

124. The GFSC does not differentiate between prudential regulation and AML/CFT regulation. The GFSC adopts a risk-based approach to AML/CFT regulation but, nevertheless, all businesses subject to its regulatory framework are subject to the on-site inspection regime.

125. All financial institutions are subject to inspection within a timeframe of three years. Those considered high risk receive more frequent inspections, which are driven by the assigned risk profile. To this end the GFSC considers the type of customer base; where there is significant reliance on CDD undertaken by introducers by a business compared with other businesses in the sector; whether the types of products/services offered are particularly vulnerable to being used for ML/FT; the quality of corporate governance or internal controls; and receipt of intelligence suggesting high risk. Ad hoc and follow up inspections are undertaken when necessary.

126. The GFSC considers the private banking and TCSP sectors to pose the highest potential ML and FT risk. High-risk business can flow from both private banking and from the TCSP sector. The wide range of TCSP business, combined with the attractiveness of trust and company structures to criminals and the use of the sector by high-risk customers, means that this sector must be considered as high risk.

127. Shortly after the introduction of the FSB Regulations and the FSB Handbook in December 2007, the GFSC required all banks and the forty TCSPs whose relationships posed the highest risk to provide it with business risk assessments for review. The GFSC found that the quality of the initial assessments varied from cogent and comprehensive to overly generic. The GFSC reviewed the assessments and commented where necessary. Following this initial exercise the quality of risk assessments has improved.

128. There are limited exceptions to the coverage of AML/CFT requirements that are contained either in legislation or in the rules in the GFSC’s handbooks. The exceptions are based on a consideration of their risk such as the effects of the exemption; the size of the affected sector or sub-sector; the size of the affected businesses; their customer bases; and whether there are any mitigating factors to offset any ML/FT risk.

129. The GFSC regularly reviews its administration of the AML/CFT framework for financial services businesses and prescribed businesses as well as the framework itself. Such review have showed that early in 2009, the GFSC fell behind on the on-site inspections’ schedule as resources were diverted to deal with the effects of the financial crisis on the banking sector. The program was back on track by the end of 2009. During the review process, the GFSC came to the conclusion that it should recruit an additional member of staff to conduct on-site inspections of trust and company service providers so as to increase the number of inspections to that sector. Such reviews have also led to the issuance of Instructions to FSBs regarding particular AML/CFT issues.

130. Recently, bullion dealers, bullion brokers, and postage stamp dealers were added as financial services businesses, just like investment advisers and general insurers. They are subject to registration with the GFSC and required to comply with the FSB Regulations and the FSB Handbook.

131. According to the authorities, outside the clearing banks, general insurers and estate agents, few businesses take advantage of the reduced or simplified customer due diligence provisions in the regulations and the handbooks. It is procedurally simpler to apply “standard risk” approaches even to low-risk customers. Businesses are also mindful of the risk of potentially treating higher-risk customers inappropriately.

AGCC

132. The AGCC reviews and must approve every licensee or certificate holder’s internal control system prior to live operation. Gambling activity must take place in a properly controlled environment. All gambling equipment is required to be independently tested to ensure game fairness. Game fairness represents a significant disadvantage to anyone seeking to use the sector for the purposes of money laundering. Licensees use software to monitor their operations in real time. This alerts staff members who can then assess the issue. This software helps mitigate the operational risks in being used for ML/FT as it allows for early identification of transactions for further consideration.

133. The requirement that each licensee must be an Alderney company gives a presence within the Bailiwick that enables the AGCC to compel attendance. This presence also provides an entity against which the AGCC can take regulatory action and which can be the subject of publicity. Alderney companies can also only be formed with the consent of the GFSC; the GFSC’s scrutiny provides an additional check.

134. The AGCC’s two priority areas are player identification and verification, and the circumstances when CDD and enhanced CDD are required. Player identification and verification is considered to be the cornerstone of the fight against ML and FT. The AGCC also ensures that licensees undertake the CDD and enhanced CDD that is required.

135. By their nature, eGambling transactions are not face-to-face transactions. There is no concept of low risk within the eGambling sector and thus no possibility of reduced or simplified CDD. Risks are either standard or high, and the CDD levels are in accordance. eGambling business can be introduced to a licensee by an affiliate or associate; the licensee must undertake CDD or enhanced CDD as appropriate, they cannot rely on any CDD undertaken by the affiliate or associate.

136. The AGCC’s reviews of AML/CFT in 2008 and 2009 highlighted that the greatest potential risks of money laundering and terrorist financing in the eGambling sector are related to the ownership and control of an eGambling licensee by criminals; collusion amongst customers and, specifically, “chip dumping” in the case of poker; and the use of stored value pre-payment cards. These risks have been minimized by: the license application process protects against the risk of ownership or control by criminals; the use of stored value prepayment cards is not permitted; and the systems operated by licensees mitigate the risk of collusion among customers and “chip dumping.”

137. All operative licensees receive an annual on-site inspection. Inspections take place at the main operating location of the licensee wherever that might be in the world. The inspection regime focuses on the financial, technical, and regulatory aspects. The evidence from the on-site inspections is that businesses are aware of their obligations to report suspicions of ML and FT and that the CDD provisions of the eGambling Ordinance and Regulations are observed.

138. The issue of minors accessing eGambling websites features heavily in licensees’ corporate social responsibility strategy. Minors are prohibited from gambling under the Gambling (Alderney) Law and the eGambling Ordinance. Hence, eGambling licensees take the registration and verification process very seriously as well as compliance with the AML/CFT obligations and those relating to corporate social responsibility. The two interlinked objectives have resulted in strong procedures. It is a criminal offense under the eGambling Ordinance to effect a gambling transaction other than as a registered customer of an eGambling licensee. This means that not only can there be no occasional transactions, but also that every player undergoes a registration and verification process.

139. Money can potentially be laundered in an eGambling sector in several ways. Different games pose different risks. Traditional house casino games such as slot machines, roulette, and blackjack pose lower risks as they are games of chance involving only one player playing against the house (through the outcome of a random number generator). Similarly bingo and keno, even though pari-mutual, i.e., pooling and sharing the bets of many players, present a lower risk as their results are still based on the outcome of a random number generator and involve low values and little or no skill.

140. The eGambling sector poses a lower risk of ML/FT than the land-based sector despite the non face-to-face nature of eGambling. The systems that are generally deployed to facilitate game play are developed to provide a complete audit trail for each and every transaction that takes place, both in respect of financial transactions (for example, deposit; transfers; payments; withdrawals) and gambling transactions, irrespective of the type of games. In addition, the use of computers enables the deployment of complex software to identify transactions which might be unusual or suspicious; something that cannot be carried out in the same way in a land-based casino.

141. The biggest driver which limits the usefulness and efficiency of the eGambling sector for money laundering and the funding of terrorism is a basic requirement that repayment of funds to the customer is made by the same method of payment used to fund the deposit, normally on a “first in, first out” basis. By returning funds to the original method of payment the attractiveness of the sector for money laundering/terrorist financing is diminished.

142. Games such as player-to-player (“P2P”) poker involving multiple players (it can also be presented as a “house” game involving only one player), which include an element of skill as well as an element of chance, pose a greater risk of money laundering. The ways money can potentially be laundered include “chip dumping” and “player to player” transfers, through table allocation, player collusion and misuse of the banking system. Chip dumping occurs where one player will deliberately throw in a good hand, losing to another player in order to pass funds over to that player. In such circumstances, winnings will appear to come from the casino, not another losing player, thus achieving a successful laundering of the proceeds. From STRs submitted to the FIS, chip dumping has been identified as posing the greatest potential risk of ML/FT. Licensees are alert to this and invest significant resources into the elimination of this activity. From its on-site inspections, the AGCC has been able to assess the measures put in place by licenses offering this product and has drafted guidance which includes this topic.

143. Licensees, for business reasons, are also alert to the issue of transactions with no economic value (such as players seeking to withdraw funds without wagering).

144. Further issues can arise with regard to the use of stolen or “cloned” credit or debit cards for the purposes of making deposits. Money can also be laundered through the use of anonymous stored value cards. The AGCC does not permit licensees to accept these as a method of deposit.

145. There is a continuous trend in P2P poker towards high liquidity, meaning that players prefer the bigger rooms. These are by definition run by the bigger, more sophisticated operators and, given the computerized nature of P2P poker rooms; there is a significant probability that unusual playing patterns and repeat pairings of players or internet protocol addresses will be identified in real time.

146. The threat of ML and FT in the eGambling sector has historically been low, not least because while those engaging in such activity are prepared to spend often significant sums in laundering or otherwise dealing with their money, the risks of total loss and “house advantage” in the casino sector is a deterrent to its use for such purposes, as are the real time search tools that are available and widely used to identify unusual patterns of play.

147. A number of issues may alter the limited threat of money laundering in the future. These include the use of pre-payment cards which, despite the prohibition on the use of cash in the eGambling industry, could enable cash to enter into the eGambling sector via other regulated entities.

148. In addition, new methods of payments are being devised such as payments through mobile telephony. The AGCC ensures that when a licensee wishes to introduce new methods of payment, they undertake a risk assessment and explain to the AGCC’s satisfaction how that method meets the requirements of the AML/CFT regime.

Progress since the Last IMF/WB Assessment or Mutual Evaluation

149. The Bailiwick believes all recommendations have been met, save that ratification of the Palermo Convention has not yet been extended to the Bailiwick pending a review of its extradition regime and related developments in the United Kingdom. The following measures have been taken since the last assessment:

  • 1) Meet the UNCAC requirements by widening Guernsey’s law concerning corruption: The Prevention of Corruption Law has been enacted and the Bailiwick has ratified the UNCAC.
  • 2) Meet the terms of Article 3 of the Protocol on Trafficking Persons: Sexual offenses legislation is currently under review.
  • 3) Legislation might be required to implement the Convention Article on Extradition and the Protocol on Trafficking in Human Beings: Extradition is currently under review.
  • 4) Amend the Terrorism Law to provide for a receiver for property owned by a defendant to satisfy a confiscation order: See Terrorism Law, Schedule 2, paragraph 1 (1) (c).
  • 5) Consider adopting legislation that would provide for an asset forfeiture fund and for asset sharing with other jurisdictions: Legislation has not been found necessary as the current non-statutory arrangements in this area continue to work effectively.
  • 6) Adopt legislation to make it a crime to fail to report a suspicious transaction, as in the DT Law, rather than as a defense to the crime of money laundering: See sections 1 to 3 of the Disclosure Law and sections 12, 15 and 15A of the Terrorism Law respectively.
  • 7) Provide for STRs should be submitted to the FIS on a form to be prescribed by law, with appropriate penalties: STRs have to be submitted as set out in the Disclosure Regulations and the Terrorism and Crime Regulations.
  • 8) Provide the FIS with the authority to require additional information from reporting parties, without the need to meet the burden of proof required for a production order: The Disclosure Regulations and the Terrorism and Crime Regulations entitle the FIS to request further information within 7 days without the need to satisfy the burden of proof for production orders.
  • 9) Consider amending the relevant laws to provide explicit legal authority for the GFSC to issue guidance notes: See section 15 of the Disclosure Law and sections 49(7) and 49A (7) of the Proceeds of Crime Law.
  • 10) Increase the staff of the FIS by two intelligence officers as soon as is practicable: The FIS has trained further investigators and has also appointed an intelligence analyst.
  • 11) Consideration including controlled delivery in the proposed legislation on investigatory powers: This was considered but was not seen as necessary. Controlled deliveries are not prohibited under the law and are regularly employed in connection with drug trafficking cases.
  • 12) Develop the FIS’s IT resources: Funding has been made available and a new computer system to facilitate processing of STRs is expected to be in use by June 2010.
  • 13) Consideration should be given to enacting a law to regulate MSBs: This has been done under the Registered FSBs Law.
  • 14) Regarding CDD: Explicitly require customer identification procedures to be followed. Paras. 84 and 85A and para. 75 should be amended to clearly communicate the standard that is expected of FSBs. Originator details should remain with the transfer throughout the payment chain, they should be clarified and strengthened. Decisions on establishing relationships with higher risk customers should be taken by senior management. The section 63 exception, which provides that a senior staff member may give appropriate authority to open an account where identity has not been verified, should be redrafted and clarified. The GFSC should strive for greater consistency to direct FSBs towards the customer identification standards required by the Position Paper: All of the recommendations have been implemented. See the FSB Regulations and the PB Regulations, together with the GFSC’s FSB Handbook.
  • 15) Originator information on funds transfers should remain with the transfer throughout the payment chain, FIs should give enhanced scrutiny to wire transfers with incomplete originator information: The Wire Transfers Ordinances deal with this.
  • 16) Refer to customer transactions in the definition of customer documents in the Regulations. Amend the Notes to require that records of the currency involved, and the type and identifying number of any account involved in the transaction be maintained: This has been addressed by the FSB Regulations together with the GFSC’s FSB Handbook.
  • 17) Make it a crime to fail to report a suspicious transaction under the POC Law: The Disclosure Law and amendments to the Terrorism Law have been introduced.
  • 18) Consider providing the FIS with the authority to give instructions to reporting entities or to require FIs to observe instructions of the FIS: This has been considered and not found necessary to date.
  • 19) Amend the wording of section 102 of the Notes to address suspicion that funds have been used to finance terrorism: See the Terrorism Law and the FSB Handbook.
  • 20) Regarding the reporting of suspicious, amend the wording to make it clear that all staff have a duty to report suspicions, not just “key staff” (para. 97): This has been addressed in the Terrorism Law and the GFSC’s Handbooks.
  • 21) Internal controls, compliance, and audit: FIs should appoint a person to receive STRs. FIs should notify the GFSC of any change in this respect. All FIs should have proper screening procedures to ensure high standards when hiring. Require all Guernsey FIs to apply Guernsey laws and regulations to branches and subsidiaries outside of Guernsey. These branches and subsidiaries should be required to apply the higher standard: All requirements have been met (see FSB Regulations and the FSB Handbook).
  • 22) Amend POI Law to allow the GFSC to consider the criminal history of applicants for licenses, directors and senior officers, as part of the definition of ‘fit and proper’: Amendments to the Protection of Investors Law to cover this are now in place.
  • 23) Amend the administrative sanctions laws to provide that all FSBs are subject to the same set of sanctions. Amend the law to provide for additional powers for the GFSC not currently in the law: These requirements have been met by amendments to the Financial Services Commission Law.
  • 24) Amend the POI to provide the legal authority for the GFSC to enter a licensee’s premises for purposes of assessment and information: See the Site Visits Ordinance.
  • 25) Customer identification: This has been met by FSB Regulations and FSB Handbook.
  • 26) Banks need documented procedures to ensure proper understanding the nature of a clients’ business and the likely pattern of activity: See FSB Regulations and the FSB Handbook.
  • 27) Bank procedures should provide detailed guidance on the type of customer transaction information that should be retained: See FSB Regulations and FSB Handbook.
  • 28) Integrity standards: This is covered by the FSB Regulations and FSB Handbook.
  • 29) The POI Law should allow the Commission to enter a licensee’s premises for purposes of information and assessment: This has been met by the Site Visits Ordinance.

150. In general, the AML/CFT framework has been revised along the following lines:

  • The Disclosure Law and amendments to the Terrorism Law introduced a regime of mandatory reporting. This replaced the previous indirect reporting obligation.
  • Enhanced regulations (the FSB Regulations) have been made in respect of FSBs and an enforceable rules-based regime (the FSB Handbook) was introduced to replace a framework largely based on guidance.
  • A public registration framework, fit and proper requirements and administrative sanctions for registered FSBs have been introduced by the Registered FSBs Law.
  • A requirement for specified information to accompany the transfer of funds has been introduced by the Wire Transfer Ordinances.
  • The Alderney eGambling Regulations, 2009 were introduced in respect of Alderney eGambling licensees.
  • Changes to the Proceeds of Crime Law were made so that AML/CFT obligations could be required of legal professionals, accountants, and estate agents.
  • A regime for the seizure and forfeiture of cash representing the proceeds of crime has been introduced by the Civil Forfeiture Law.
  • A declaration system for cross-border movements of cash by travelers has been introduced by the Cash Controls Law.
  • A registration system for charities and NPOs has been introduced by the Charities and NPOs Registration Law.
  • A power to obtain customer information orders and account monitoring orders has been introduced by amendments to the Proceeds of Crime Law and the Drug Trafficking Law.
  • An offense of accepting cash payments in excess of a specified amount by dealers in high value goods has been created by the Proceeds of Crime (Restriction on Cash Transactions) Regulations.
  • The GFSC’s powers to enter premises and obtain information have been extended by the Site Visits Ordinance.

2. LEGAL SYSTEM AND RELATED INSTITUTIONAL MEASURES

Laws and Regulations

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

2.1.1. Description and Analysis
Legal Framework

151. The Bailiwick has criminalized money laundering (ML) through the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 (POCL), the Drug Trafficking (Bailiwick of Guernsey) Law 2000 (DTL), and the Terrorism and Crime (Bailiwick of Guernsey) Law 2002 (TL). All three laws apply to the whole Bailiwick. The offenses defined in the POCL cover money laundering related to all predicate offenses except drug trafficking offenses as defined in the DTL. FT as defined in the TL is a predicate offense to ML both under the TL and the POCL. In comparison, the scopes of the DTL and TL are limited to drug trafficking and terrorism related predicate offenses, respectively.

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

152. As a Crown Dependency, the Bailiwick 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 the Bailiwick’s international affairs and, following a request by the Bailiwick Government, it may arrange for the ratification of any convention to be extended to the Bailiwick.

153. The U.K’s ratification of the Vienna Convention has been extended to the Bailiwick on April 9, 2002. The Bailiwick has not yet requested extension of the Palermo Convention because, in consultation with authorities in the U.K., a question has been raised regarding whether the extradition laws that apply currently in the Bailiwick meet fully all Palermo Convention requirements as discussed in Section 6 of this report.

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

POCL and DTL

155. The money laundering offenses of the POCL extend to all criminal offenses triable on indictment. In addition, the money laundering offenses under the DTL cover a number of offenses defined in the DTL, the Misuse of Drugs (Bailiwick of Guernsey) Law 1974 and the Customs and Excise (General Provisions) (Bailiwick of Guernsey) Law 1972. The authorities indicated that the ML offense under the DTL would be applied only in cases that exclusively involve drug trafficking and that cases involving both drug trafficking and other criminal offenses would be prosecuted under the POCL.

156. Sections 38 POCL and 57 of the DTL provide that a person is guilty of money laundering if he (1) conceals or disguises any property which is, or in whole or in part directly or indirectly represents, his proceeds of criminal conduct/drug trafficking or converts or transfers that property or removes it from the Bailiwick or the person; (2) knows or suspects that any property is, or in whole or in part directly or indirectly represents another person’s proceeds of criminal conduct/drug trafficking and conceals or disguises that property or converts or transfers that property or removes it from the Bailiwick. Until March 24, 2010, the provisions also contained a specific purpose requirement, which was, however, removed after having posed an obstacle to obtaining a conviction for ML in a previous case.

157. Sections 38 (3) POCL and 57 (3) DTL further provides that the reference to concealing or disguising any property includes concealing or disguising its nature, source, location, disposition, movement, or ownership or any rights with respect to it.

158. Sections 40 of the POCL and 59 of the DTL stipulate that “a person is guilty of an offense if, knowing that any property is, or in whole or in part directly or indirectly represents the 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.”

159. Sections 40 (2) POCL and 59 (2) DTL, 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.” In connection with that defense, services or goods which are of assistance to the criminal conduct or which the person providing them knows, suspects or has reasonable grounds to suspect may assist the criminal conduct, are not considered adequate consideration.

160. However, the authorities explained that the defense would not pose an obstacle to the application of Sections 40 POCL and 59 DTL, particularly in cases of third party laundering, in that the person acquiring the property (person B) would not have a defense in cases where the rather low threshold, namely, that he/she had “reasonable grounds to suspect that the services or goods may assist the other person (person A) in criminal conduct”, is met. The authorities further stated that the reference to “criminal conduct” would not require that the commission of a certain predicate offense is established. It would suffice to show that person B should have known that his services or goods may assist person A in laundering his/her proceeds of crime.

161. Thus, even though the exception in Sections 40 (2) POCL and 59 (2) DTL are beyond the international standard as set forth in the Vienna and Palermo Conventions, in the context of the Bailiwick there are sufficient safeguards in place to ensure that they cannot be abused for ML or FT purposes.

162. In addition to the above discussed provisions, Sections 39 of the POCL and 58 of the DTL 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. The authorities stated that the removal of the purpose requirement under Sections 38 POCL and 57 DTL resulted in a significant overlap of these provisions with Sections 39 POCL and 58 DTL, the latter would be more geared towards contractual arrangements with the predicate offender; for example, lawyers and TCSPs. Charges against an employee of an insurance company for ML, which are currently pending before the court, were filed based on Section 39 POCL.

TL

163. As indicated above, the provisions of the POCL are applicable with respect to proceeds from offenses defined under the TL, including terrorism financing and terrorism acts. In addition, the TL itself through Section 11 sets out a ML provision which is applicable with respect to “terrorist property,” which is defined to include proceeds of terrorism and terrorism financing offenses.

164. Pursuant to Section 11 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 through concealment, removal from the jurisdiction, the transfer to nominees, or through any other way.

165. While Section 11 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 (1) the existence of an arrangement; (2) the involvement of 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 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. Similarly, 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. However, such situations would be covered by and could be prosecuted under the POCL provisions as outlined above.

166. In summary, the ML provisions in the DTL and in the POCL in combination with the TL cover all material elements of the money laundering offenses as defined in the Palermo and Vienna Conventions.

The Laundered Property (c. 1.2):

167. The ML offenses under the POCL and the DTL apply to “any property which is, or in whole or in part directly or indirectly represents, … proceeds of crime”.

168. Sections 50 (1) of the POCL and 68 (1) of the DTL define “property” to include “money and all other property, real or personal, immoveable or moveable, including things in action and other intangible or incorporeal property” whether situated in the Bailiwick or elsewhere.

169. Section 4 (1) of the POCL further provides that the term “proceeds” includes “any property obtained by a person at any time […] as a result of or in connection with criminal conduct” and Section 4 (1) DTL extends the term to “any payments or other rewards received by a person at any time […] in connection with drug trafficking”.

170. Equally, Section 7 (2) of the TL defines “terrorist property” as any property, which wholly or partly, and directly or indirectly represents the proceeds of or money and property likely to be used for acts of terrorism, including payments or other rewards in connection with its commission. Section 79 of the TL further stipulates that “property” includes “all property, wherever situated and whether real or personal, hereditable or moveable, and things in action and other intangible or incorporeal property.”

171. None of the provisions expressly refer to legal documents or instruments evidencing title to, or interest in such assets. However, the authorities clarified that the concept of “intangible” or “incorporeal” property would include “interests in property” and the concepts of “tangible” or “moveable” property would include legal instruments evidencing title to assets and property. Both concepts are used not only with respect to the money laundering provisions but are fundamental to many different areas of Bailiwick law. For example, Section 10 of the Trusts Law defines “personal property” to include interest in trust property and Section 2 of the Property Law 1979 stipulates that “property” would include both debts and legal remedies. In a number of cases the court has confirmed the authorities’ view on this issue, for example, by confiscating insurance policies as proceeds of drug trafficking based on the argument that the insurance policy would be a legal instrument evidencing title to and the surrender value of the policy an interest in proceeds of crime (Law Officers of the Crown vs. Naylor 2006).

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

172. The provisions in the POCL, the DTL, and the TL do not require a conviction for a predicate offense to prove that certain property constitutes proceeds of crime. While this aspect of the ML provisions has not yet been confirmed by the Royal Court, as there have not yet been any convictions for standalone money laundering, the authorities stated that clarification on this matter was expected in the near future as one case involving nine charges for standalone money laundering is currently awaiting trial.

173. With respect to the standard of proof applicable to establish that property stems from an illegal source, the authorities clarified that United Kingdom and Bailiwick case law clearly requires the prosecution to establish beyond a reasonable doubt that the property stems from criminal conduct in general rather than from a specific predicate offense. It was further stated that the “beyond a reasonable doubt” standard would not constitute an obstacle in obtaining convictions for standalone ML. However, in the absence of any successful prosecution for autonomous ML, the authorities’ interpretation is not based on any practical experience and can thus merely be considered an assumption. It is expected that the Royal Court will clarify the issue outlined above in the course of proceedings for the pending autonomous ML case.

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

174. As indicated above, the money laundering offences of the POCL extend to all offenses triable on indictment. Under Bailiwick law, all offenses which are not exclusively classified as summary offenses constitute offenses triable on indictment, which are more serious offenses.

175. Most laws listed below have been passed by Parliament with application to the whole Bailiwick. A limited number of statutes, however, were initially applied to certain islands only and were subsequently extended to all other islands forming part of the Bailiwick. Through one of these two avenues, at the time of the assessment all laws below were applicable to all parts of the Bailiwick.

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Threshold Approach for Predicate Offenses (c. 1.4):

176. The general money laundering offenses of the POCL refer to proceeds of criminal conduct, whereby Section 1 POCL defines “criminal conduct” to include all criminal offenses triable on indictment as well as any conduct that would constitute an offense triable on indictment had it occurred in the Bailiwick. The authorities explained that all offenses which are not classified as exclusively summary offenses are triable on indictment, whereby the categorization is not based on the extent of the applicable sanction but based on other consideration, such as the gravity of the criminal conduct. The majority of summary offenses constitute public order offenses and violations of road traffic regulations. Predicate offenses constituting customary rather than statutory offenses qualify as offenses triable on indictment based on Sections 10 (1) and 10 (4) of the Magistrates Court Law.

177. In defining the predicate offenses for money laundering, Bailiwick law thus effectively adopts a threshold approach linked to a category of serious offenses.

Extraterritorially Committed Predicate Offenses (c. 1.5):

178. All three statutes define the money laundering offenses to cover both conduct which constitutes a predicate offense in the Bailiwick and any conduct committed abroad that would have constituted a predicate offense had it occurred in the Bailiwick (Sections 1 of the POCL and DTL and Section 62 TL). Dual criminality is required only for offenses under the DTL. There are also no jurisdictional provisions that would require any other link between the Bailiwick and the perpetrator, such as citizenship or residence as long as the laundering offense has been committed in the Bailiwick.

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

179. Sections 38 of the POCL and 57 of the DTL 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 committed by another or by the person himself. Equally, the acquisition, possession, or use of proceeds of crime pursuant to Sections 40 POCL and 59 DTL is criminalized regardless of whether the property involved stems from another person’s criminal behavior.

180. The TL does not extend the money laundering offense to situations where the terrorist or terrorist financer himself conceals or transfers property to conceal the source of funds or to maintain control over it but covers only persons who do so for or on behalf of somebody else. However, in such cases the self launderer could still be prosecuted pursuant to the provisions of the POCL as outlined above.

Ancillary Offenses (c. 1.7):

181. Section 7 of the Criminal Justice (Attempts, Conspiracy and Jurisdiction) (Bailiwick of Guernsey) Law 2006 criminalizes attempt and conspiracy to commit an offense triable on indictment and Section 1 of the Criminal Justice (Aiding and Abetting etc.) (Bailiwick of Guernsey) Law 2007 provides for the offenses of aiding, abetting, counseling or procuring the commission of any criminal (both triable summarily and on indictment) offense by another person. Both provisions apply to the ML offense set out in the POCL, the DTL and the TL.

182. In addition, Sections 41 (7) of the POCL and 1 (3) of the DTL set out specific ancillary offenses for money laundering, including aiding, abetting, counseling or procuring the commission or attempting, conspiring or inciting to commit such an offense.

183. The Bailiwick law therefore allows for the prosecution of all parties that may be involved in the commission of the money laundering offense. Persons convicted of ancillary offenses under any of the above cited provisions are liable to the same extent as and may be subjected to the same penalties as the primary offender.

Additional Element—If an act overseas which do not constitute an offense overseas, but would be a predicate offense if occurred domestically, lead to an offense of ML (c. 1.8):

184. As indicated above, all three statutes define money laundering to cover both conduct which constitutes a predicate offense in the Bailiwick or would have constituted a predicate offense had it occurred in the Bailiwick (Sections 1 of the POCL and DTL and Section 62 TL). Dual criminality is required only for offences under the DTL.

Liability of Natural Persons (c. 2.1):

185. All money laundering offenses as outlined above (Sections 38, 39 and 40 POCL, Section 57, 58, and 59 DTL, Section 11 TL) are intentional crimes and therefore apply to persons who knowingly engage in the relevant conduct.

186. With respect to the property in question, the required mental element varies depending on the offense involved:

  • 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 suspected that the property in question stems from the commission of a crime. When asked why the mental element was changed from “reasonable grounds to suspect” to “actual knowledge or suspicion” on March 24, 2010, the authorities explained that removal of the purpose requirement under Sections 38 POCL and 57 DTL required introduction of an additional safeguard to ensure that the provisions would not effectively result in a strict liability.
  • For the offense relating to the acquisition, possession, or use of criminal proceeds, the required mental element 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 offenses 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 had no reasonable cause to suspect that the arrangement related to terrorist property.

187. At a minimum, and with respect to all acts constituting money laundering, a person may thus be held criminally liable for money laundering if he or she 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 Bailiwick law, therefore, meets the international standard with respect to the mental element requirement.

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

188. None of the three laws contain a provision clarifying whether or not the mental element may be inferred from objective factual circumstances. A fundamental principle of Bailiwick law, however, which is derived from both customary Bailiwick law and the common law of England and Wales, allows for the mental element of an offense to be inferred from objective factual circumstances. The principle applies to any criminal offense, including money laundering, and has been confirmed by the Royal Court in Law Officers of the Crown vs. Taylor (2007-08 GLR 207).

Liability of Legal Persons (c. 2.3):

189. The money laundering provisions of the POCL, the DTL, and the TL apply to any “person” without differentiating between legal and natural persons. Section 9 of the Interpretation (Guernsey) Law 1948 provides that the term “person” shall include legal persons unless it is stated otherwise. While the Interpretation Law by its terms applies only to Guernsey, its provisions expressly apply to any Bailiwick-wide criminal statute (Sections 51(2) POCL, 69(2) DTL and 79(3) TL).

190. In addition, Section 49E POCL and Section 67O DTL provide that offenses under the two statutes committed by legal persons or partnerships may result in criminal liability of both, the body corporate or partnership and its individual partners, directors, managers, secretary, or other officers.

Liability of Legal Persons should not preclude possible parallel criminal, civil, or administrative proceedings and (c. 2.4):

191. 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 proceedings could be instituted against legal persons at the same time but that in practice this has never been done as no criminal proceedings have ever been instituted against legal persons. If parallel proceedings were to be instituted, there would need to be close cooperation between the regulatory authority and the AG’s office to ensure that the administrative action does not have an adverse impact on criminal proceedings.

Sanctions for ML (c. 2.5):

192. Pursuant to Sections 38 (4), 39 (6) and 40 (10) POCL, Section 62 (1) DTL and Section 17 TL, for ML convictions on indictment, the applicable sanctions for both natural and legal persons are imprisonment for a term not exceeding 14 years and/or an unlimited fine. The sanctions for summary convictions range from imprisonment for a term not exceeding 12 months (in cases of ML based on the TL, the applicable sanction is six months) and/or a fine not exceeding £10,000. In addition, confiscation of the benefit may be ordered as outlined under Recommendation 3 of this report.

193. The sanctions for money laundering seem to be in line with other serious crimes under Bailiwick law. For example, blackmailing and handling of stolen goods may be sanctioned with imprisonment of up to 14 years, and corruption, insider dealing, and market manipulation may be sanctioned with imprisonment of up to 12 months and/or a fine (upon summary conviction) or with imprisonment for a term not exceeding 7 years and/or a fine (upon conviction on indictment). The Bailiwick’s sanctions for money laundering are almost identical to those applied by the United Kingdom, the Isle of Man and Jersey.

194. In addition to the criminal sanctions stipulated in the POCL, the DTL, and the TL, criminal courts may oblige convicted money launderers to pay compensation to the victims of the crime (Section 1 Compensation Law) and the Guernsey Financial Services Commission (GFSC) may impose a range of administrative sanctions, including a fine of up to £200,000, withdrawal or suspension of an existing or refusal to issue a new license or the imposition of conditions to existing licenses. Upon application of the GFSC or the AG, the court may further disqualify a person from holding office in a financial institution or any other business or having any involvement in a financial services business and may issue an injunction to restrain unlawful business.

195. At the time of the assessment mission, the authorities indicated that there were two convictions for ML, both of which were sanctioned with imprisonment but not fines. The authorities stated the courts would usually punish criminal conduct either with a fine or imprisonment, but not both. The first conviction resulted in imprisonment for two years and three months and the second one was sanctioned with imprisonment for 15 months. No sanctions have ever been applied to legal entities.

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Statistics (applying c. 32.2.):

196. Statistics in respect of all investigations, prosecutions, and convictions for money laundering offenses are kept by the FIU, based on data collated by them and on information supplied by the police force and the Attorney General’s Chambers.

197. Since 2006, the Bailiwick has conducted 31 investigations for ML, of which five led to a prosecution. Of the five prosecutions, two resulted in a conviction based on a guilty plea for both the ML and the predicate offense and one case for autonomous ML is still ongoing. Two cases were terminated based on the failure or inability of the witness to testify in the first case and based on the defendant’s preparedness to plead guilty on the more serious predicate offenses in the second case. All prosecutions related to self-laundering. The ML convictions were both obtained based on Section 38 POCL.

198. Of the remaining 26 investigations, 16 were terminated or suspended based on lack of evidence and 10 are still ongoing. The majority of ML investigations related to theft, fraud, embezzlement, human trafficking, and drug trafficking predicate offenses. Since the beginning of 2010, three investigations for ML involving financial sector participants were initiated.

199. The statistics for the last 4 years are as follows:

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Implementation and effectiveness:

200. The Bailiwick’s legal framework for investigating, prosecuting and sanctioning ML offenses is applicable to both legal and natural persons and the ML provisions are fully in line with the international standard. Bailiwick officials are extremely well informed about the various requirements of the ML offenses under the POCL, DTL, and TL and the effective application of the provisions is further facilitated by a mature, stable, and comprehensive institutional framework.

201. The statistics provided by the authorities indicate a good number of investigations for ML when compared to other countries based on GDP and number of population. However, taking into account the size of the Bailiwick’s financial sector in comparison to other economic sectors coupled with its status as international financial center, until the end of 2009, only one out of 26 cases involved third party ML by a financial sector participant. The authorities conceded that more emphasis should be put on identifying financial crime within the domestic financial sector, including in cases where the predicate offense was committed abroad, and that to achieve this goal, an attorney specialized on financial crime was hired by the AG’s office at the end of 2009. Among other things, the attorney’s task would involve assisting the FIU with the screening of incoming MLA requests to identify possible criminal conduct within the domestic financial sector. As a direct result of this measure, five ML investigations have already been commenced since 2010, including three that involve third party ML by financial sector participants. At the time of the on-site mission, one of these cases was already in the prosecution stage.

202. Furthermore, the Bailiwick has a relatively low number of investigations resulting in a prosecution and eventually a ML conviction. The authorities stated that while they considered the initiation of all ML investigations to have been warranted, a disconnect between the number of investigations vis-à-vis the number of prosecutions and convictions for ML would be the result of law enforcement authorities’ practice to initiate an investigation for ML in most cases involving proceeds generating conduct. Law enforcement authorities stated that they had agreed with the AG’s decision to not initiate prosecutions in most cases.

203. The authorities are making efforts to develop Bailiwick jurisprudence on autonomous money laundering, which will give the court the opportunity to clarify (1) whether money laundering can be sanctioned even in the absence of a conviction for the predicate offense and (2) in cases involving autonomous ML, how specific evidence needs to be with respect to the predicate offense.

2.1.2. Recommendations and Comments
  • The authorities should continue to focus their attention on identifying ML crimes within the domestic financial sector. Furthermore, the authorities should further examine the underlying reasons for the disconnect between the number of ML investigations vis-à-vis the number of ML prosecutions and convictions and take measures to overcome any identified obstacles.
2.1.3. Compliance with Recommendations 1 and 2
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2.2. Criminalization of Terrorist Financing (SR.II)

2.2.1. Description and Analysis
Legal Framework

204. Bailiwick law criminalizes the financing of terrorism through Sections 8–10 of the TL and Sections 4 and 5 of the Terrorism (UN Measures) (Channel Islands) Order 2001. As indicated under Recommendation 1, the Bailiwick is a Crown Dependency and cannot sign or ratify international conventions in its own right. Rather, the United Kingdom is responsible for the Bailiwick’s international affairs and may arrange for the ratification of any convention to be extended to the Bailiwick.

205. The U.K.’s ratification of the International Convention for the Suppression of the Financing of Terrorism (“FT Convention”) has been extended to the Bailiwick on September 25, 2008. Of the remaining 15 international counter-terrorism related legal instruments, only the Unlawful Seizure Convention, the Civil Aviation Convention, the Diplomatic Agents Convention, and the Nuclear Material Convention have been extended to the Bailiwick. Extension of the Airport Protocol has been requested but not yet been granted.

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

206. Section 8 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 money or property where the person either intends that the property should be used or knows or has reasonable grounds to suspect that the property may be used for the purpose of terrorism.

207. Section 9 of the TL criminalizes the use of money or other property for purposes of terrorism as well as the possession of money or property with the intention to use it for terrorism or having reasonable cause to suspect that it may be used for terrorism.

208. Section 10 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.

209. Pursuant to Section 7 of the TL, the term “terrorist property” extends to money or other property likely to be used for the purpose of terrorism, including resources of a proscribed organization, as well as the proceeds of the commission of terrorist acts and acts carried out for the purpose of terrorism. Section 79 further specifies that “property” includes property situated in the Bailiwick or elsewhere, including real or personal, hereditable or moveable, and things in action and other tangible or incorporeal property.

210. In addition to the TL, Section 4 of the Terrorism (UN Measures) (Channel Islands) Order 2001 provides that it is a criminal offense to invite another to provide funds or to receive or provide funds with the intention that they be used, or knowing or having reasonable cause to suspect that they may be used, for the purposes of terrorism and Section 5 criminalizes the provision of funds, financial assets, economic benefits or financial services to or for the benefit of a person who commits, attempts to commit, facilitates or participates in the commission of terrorism or who is controlled, owned, directly or indirectly, or is acting on behalf of or on the direction of such a person.

211. The Terrorism (UN Measures) (Channel Islands) Order defines the term “funds” widely to extend beyond cash and balances in bank accounts to include instruments such as securities dividends and letters of credit. The term “economic resources” is also given a relatively wide definition and includes assets of every kind, whether tangible or intangible, movable or immovable, which are not funds but can be used to obtain funds, goods or services.

212. 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

213. Section 1 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, is designed to interfere with or seriously disrupt an electronic system, or involves the commission of an offense or is an act of the type described in Schedule 1 of the law and (2) the use or threat is designed to influence a government or international organization or to intimidate the public or a section thereof and is made for the purpose of advancing a political, religious, or ideological cause.

214. If 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.

215. 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.

216. With respect to the generic terrorism offense, the scope of Section 1 of the TL covers most aspects of the FATF definition. However, the generic offense under Bailiwick 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 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 the Bailiwick’s ability to prosecute in factual settings contemplated by the Convention would not be negatively impacted.

217. With respect to Convention offenses, Section 1 of the TL contains an express reference to the offenses defined in the nine Conventions and Protocols listed in the Annex to the FT Convention. Bailiwick law is thus fully in compliance with the FATF standard on this point.

Terrorist Organizations

218. Section 1 (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. Sections 8, 9, and 10 of the TL, therefore, apply to the provision or collection of funds for the benefit of proscribed terrorist organizations. In addition, Section 5 of the TL criminalizes the provision of support other than through money or property to proscribed organizations. An organization is proscribed if it is listed in Schedule 1 to the TL, whereby the authorities explained that the list in Schedule 1 would be taken over from the U.K. legislation.

219. Section 8 of the TL may also apply to situations where a person collects or provides funds that he/she has reasonable cause to suspect may be used by terrorist organizations. For example, if a person funds a terrorist organization that has not been “proscribed” by the State, it may be 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 pursuant to Section 9 TL. In addition, Section 5 of the Terrorism (UN Measures) (Channel Islands) Order 2001, which is directly applicable in Guernsey, makes it a criminal offense to make any funds or financial services available to or for the benefit of a legal or natural person who commits, attempts to commit, facilitates or participates in the commission of terrorism, or who is controlled or owned directly or indirectly by such a person, or who acts on behalf of or on the direction of such a person.

220. Under the TL, the standard of “reasonable cause to suspect” that the funds “may” be used for terrorism is a relatively low one. In the absence of jurisprudence on this point, however, the court has not yet confirmed that the provision of living and private expenses to a terrorist organization would be covered by the Sections 5–10 of the TL. Even if the court were to confirm this, evidence can be adduced to rebut the assumption. Nevertheless, based on Section 5 of the Terrorism (UN Measures) (Channel Islands) Order 2001, the provisions albeit not the collection of funds for the benefit of terrorist organizations not “proscribed” by the State would also be criminalized.

Individual Terrorists

221. The TL does not expressly criminalize the financing of individual terrorists, nor does it contain a definition of the term “terrorist.” However, Sections 5–10 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 stated that a person who provides funds to an individual terrorist 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 under the TL. As indicated in relation to the financing of terrorist organizations the standard of “reasonable cause to suspect” that the funds “may” be used for terrorism is a relatively low one but the court has not yet determine that the provision of living and private expenses to an individual terrorist would be covered by Sections 5–10 of the TL.

222. However, as in the case of non-proscribed terrorist organizations, the provision of funds to such individuals is a criminal offense under the Terrorism (UN Measures) (Channel Islands) Order 2001.

Definition of Money and Property

223. The terrorism financing offenses under Section 8, 9, and 10 refer to the provision of “money or other property” which pursuant to Section 79 TL includes property wherever situated and whether real or personal, hereditable or moveable, and things in action and other intangible or incorporeal property. While the provision does not expressly refer legal documents or instruments evidencing title to, or interest in such assets, based on the definition of “intangible” 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 legal documents or instruments evidencing title to, or interest in the above referenced types of assets.

224. The language of Section 79 TL is not limited to property that stems from illegitimate sources and the authorities confirmed that terrorism property as defined in Section 3 in connection with Section 1 of the TL would extend to property from illegal as well as legitimate sources. 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.

225. The Terrorism (UN Measures) (Channel Islands) Order defines the term “funds” widely to extend beyond cash and balances in bank accounts to include instruments such as securities dividends and letters of credit. The term “economic resources” is also given a relatively wide definition and includes assets of every kind, whether tangible or intangible, movable or immovable, which are not funds but can be used to obtain funds, goods or services.

Ancillary Offenses

226. Section 7 of the Criminal Justice (Attempts, Conspiracy and Jurisdiction) (Bailiwick of Guernsey) Law 2006 criminalizes attempt and conspiracy to commit an offense triable on indictment and Section 1 of the Criminal Justice (Aiding and Abetting etc.) (Bailiwick of Guernsey) Law 2007 provides for the offenses of aiding, abetting, counseling or procuring the commission of any criminal offense (both triable on indictment or summarily) by another person. Both provisions apply to the FT offense set out in the TL and the Terrorism (UN Measures) (Channel Islands) Order 2001. In addition, Section 79 of the TL provides for the ancillary offenses of aiding, abetting, counseling, or procuring the commission of terrorist financing. Guernsey 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):

227. Terrorism financing as contained in Sections 8 – 10 of the TL and Section 5 of the Terrorism (UN Measures) (Channel Islands) Order 2001 are offenses triable on indictment and thus constitutes predicate offense for the ML provisions under the POCL. In addition, the ML offense contained in Section 11 of the TL is applicable with respect to FT predicate offenses.

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

228. Section 62 TL provides that a person may be held criminally liable for any acts committed outside Guernsey that would have constituted a terrorism financing offense pursuant to Sections 8–11 of the TL had they been committed in the Bailiwick. Furthermore, the term “action” includes any action outside the Bailiwick; “person or property” includes any person or property, wherever situated; and “the public” extends to the public of any country or territory other than the Bailiwick.

229. 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 the Bailiwick and the perpetrator, such as British citizenship or residency in the Bailiwick.

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

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

231. As in the case of the POCL and the DTL, 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, a fundamental principle of Bailiwick law, derived from both customary Bailiwick law and the common law of England and Wales, allows for the mental element of an offense to be inferred from objective factual circumstances. The principle applies to any criminal offense, including money laundering, and has been confirmed by the Royal Court in Law Officers of the Crown vs. Taylor (2007- 08 GLR 207).

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

232. The terrorism financing offenses of the TL apply to any “person” without differentiating between legal and natural persons and Section 1 (4) TL provides that the reference extends to any person, wherever situated. Section 9 of the Interpretation (Guernsey) Law 1948 applies the term “person” to both natural and legal persons. While the Interpretation Law itself is a Guernsey only law, its provisions expressly apply to any Bailiwick-wide criminal statute (Sections 51(2) POCL, 69(2) DTL, and 79(3) TL).

233. 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 take priority. At the time of the assessment, no proceedings for FT have been initiated with respect to legal entity.

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

234. Section 17 TL provides that terrorism financing offenses pursuant to Sections 8, 9, and 10 may be sanctioned with imprisonment for a term not exceeding 14 years, to an unlimited fine or to both (upon conviction on indictment) or with imprisonment for a term not exceeding six months, to a fine not exceeding £10,000 or both (upon summary conviction). The Bailiwick’s criminal sanctions for terrorist financing are almost identical to those applied by the United Kingdom, the Isle of Man, and Jersey.

235. In addition to the sanctions stipulated in the TL, criminal courts may require convicted terrorist financers to pay compensation to the victims of the crime (Section 1 Compensation Law), and the GFSC may impose a range of administrative sanctions, including a fine of up to £200,000, withdrawal or suspension of an existing or refusal to issue a new license, against current or former license holders or its officers. Upon application of the GFSC or the AG, the court may further disqualify a person from holding office or having any involvement in a financial services business and may issue an injunction to restrain unlawful business.

236. As there has never been a conviction for terrorist financing in the Bailiwick, no sanctions have ever been imposed. In 2006, one investigation for FT has been instigated in the Bailiwick but was later referred to the United Kingdom, where the case is still pending.

Statistics (applying c. 32.2.):
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Implementation and effectiveness:

237. The authorities seem to be familiar with the FT provisions. However, at the time of the assessment, there has only been one FT investigation, which was triggered by an MLA request, and no prosecution relating to terrorism financing cases. As the terrorism financing offenses thus have never been tested before the courts in the Bailiwick, it is difficult to assess their effectiveness.

2.2.2. Recommendations and Comments
  • Consider the impact of including in the FT offense “intention of advancing a political, religious, or ideological cause” on the Bailiwick’ 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

238. The framework for provisional measures and confiscation of proceeds of crime in the Bailiwick is found on the following laws all of which apply Bailiwick-wide:

  • The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999, as amended (“POCL”);
  • The Drug Trafficking (Bailiwick of Guernsey) Law, 2000, as amended (“DTL”);
  • The Terrorism and Crime (Bailiwick of Guernsey) Law, 2002 (“TL” or “Terrorism Law”);
  • The Forfeiture of Money, etc. (Bailiwick of Guernsey) in Civil Proceedings Law, 2007 (“Civil Forfeiture Law”); and
  • The International Cooperation Law.

239. Provisions of the POCL may be applied in the case of all criminal offenses under the laws of Guernsey, including the terrorism and terrorist financing offenses, with the exception of drug trafficking. The DTL sets forth similar provisions that apply in the case of drug trafficking offenses. The TL contains a second set of provisions that can be used to forfeit property if there is a conviction for: terrorism financing; use or possession of property for the purposes of terrorism; funding arrangements in support of terrorism; or laundering terrorist property. The Civil Forfeiture Law provides for forfeiture of cash in civil proceedings. Forfeiture in such a circumstance can occur using a lower burden of proof.

Confiscation of Property related to ML, FT or other predicate offenses including property of corresponding value (c. 3.1):
Proceeds
Crimes other than Drug Trafficking

240. Part I of the POCL provides for confiscation, restraint, and charging orders in the case of all crimes other than drug trafficking. The POCL may be used in the case of FT offenses, and as noted below, there are additional provisions available under the TL. Section 2 of the POCL provides that the Royal Court may issue a confiscation order, if requested by the Attorney General, at sentencing where a person has been found guilty of a criminal offense. The Court must be satisfied that the offender has benefited from criminal conduct; that is, that he has obtained property or a pecuniary benefit as a result of or in connection with such conduct.

241. If the offender has benefited, the court must determine the amount to be recovered and order the defendant to pay the amount of the benefit or, if the full amount is not available, the realizable amount at the time the order is made. Alternatively, the court may order the amount it thinks fit if victims have instituted or are contemplating civil proceedings. The POCL also contains provisions to recover additional amounts of benefit above the realizable amount, at a later point, should the authorities find that a defendant has or later acquires additional assets. Section 16, POCL and DTL.

242. The amount to be recovered is the value of the defendant’s proceeds of criminal conduct. In determining whether the defendant benefited and the amount, the court must make certain assumptions unless the assumption is shown to be incorrect as to the defendant, or the court is satisfied there would be a serious risk of injustice if the assumption were made. See, e.g., Section 4(3)(4), POCL.

243. The required assumptions are that any property held by the defendant at any time since his conviction, or transferred to him during the six years before the proceedings were instituted, was received by him in connection with his criminal conduct, and that expenditures in the period were from property received in connection with criminal conduct. The effect of the provisions on assumptions is that, once convicted, all unexplained wealth is reachable including proceeds of other criminal conduct (conduct other than that which led to the conviction).

244. “To benefit from criminal conduct” is defined as to obtain property as a result of, or in connection with the offender’s or any other person’s criminal conduct, and any pecuniary advantage is treated as a sum of money corresponding to the value of the advantage. If the court has determined there is a benefit, it must make a confiscation order.

245. The standard of proof in determining whether a person benefited and the amount to be recovered is a balance of probabilities. If the defendant fails to pay the amount ordered, the court may order a defendant imprisoned with a sliding scale of maximum terms keyed to default amounts set forth in the statute (Section 9, POCL). Such imprisonment does not extinguish the obligation to pay which remains outstanding until fully satisfied. There are also provisions to appoint the Sheriff as receiver to realize property in cases where a confiscation order has not been satisfied. (Section 29, POCL).

Drug Trafficking

246. The confiscation provisions for drug trafficking offenses in the DTL are similar to those described above for all other offenses in the POCL. In the case of drug trafficking offenses, however, the Royal Court may proceed under the provisions for confiscation even if the Attorney General has not asked the court to do so. In addition, special provisions when a victim seeks to be compensated are absent.

247. The law also refers to “payments or other rewards” received in connection with the criminal conduct rather than “property” received (Section 4). The manner in which the court is to assess the benefit, and the procedures to realize confiscated amounts that remain unpaid, parallel similar provisions in the POCL.

Terrorism

248. Section 18 of the TL provides, for criminal forfeiture when a defendant is convicted of any of four offenses under the TL. The offenses are: 1) fundraising for purposes of terrorism (including receiving and providing property for purposes of terrorism); 2) use or possession with intent to use property for purposes of terrorism; 3) involvement in funding arrangements for the purposes of terrorism; and 4) laundering terrorist property.

249. The use of “forfeiture” for these specific terrorism offenses, rather than “confiscation,” stems from the fact that the order, rather than relating to a sum equivalent to an illegal benefit, relates—in the case of fundraising 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 it be used for terrorism purposes (including the financing of terrorism) or where the defendant had reasonable cause to suspect that it might be used for that purpose. The court may also order forfeiture of any payment or other reward received in connection with the commission of the terrorism offense. The forfeiture orders provided for by the TL are issued at the discretion of the court. An application by the prosecutor is not necessary.

250. Schedule 2 to the TL provides additional details regarding the implementation of forfeiture order provision. It provides, among other things: that the Court may require the money or other property be provided to the Sheriff; that it may direct property other than land be sold; that it may appoint a receiver to take possession of land; and that it may direct the Sheriff to pay part of the recovery to persons other than the defendant who claim interests. It also provides for restraint orders to prohibit persons from dealing in any property that is liable to forfeiture.

Laundered Property

251. Laundered property is subject to confiscation in all instances including stand-alone money laundering prosecutions because of the breadth of the property that is recoverable upon conviction, namely, all benefits of the criminal conduct. “Benefits” of criminal conduct includes all property that is obtained as a result of, or in connection with, the offender’s or any other person’s criminal conduct. Section 2, POCL.

252. Under U.K. case law (R vs. Allpress and Ors) that would be relied on in the Bailiwick based upon the same statutory language as POCL where a stand-alone money launderer does not retain ownership of tainted property, that is, where funds have only passed through his bank account, the property is treated as a benefit as long as the defendant had operational control at any stage. Thus, the launderer will be liable for the totality of the funds that have been transferred through his hands or accounts, even when the financial reward he is receiving is much less than the amount transferred.

253. With a limited number of criminal prosecutions in the Bailiwick for money laundering, the issue of recovery of laundered funds in a stand-alone money laundering prosecution has not yet been faced. The authorities are of the view that this issue would be decided in line with U.K. case law which is favorable on this point.

Property in Third Party Hands

254. The standard requires that there be an avenue to recover proceeds, instrumentalities, laundered property, or corresponding value in third party hands where the defendant has alienated such. With the value-based rather than proceeds-based approach in Guernsey, the legal provisions call for the full amount of the proceeds/benefit to be recovered from any property of the defendant.

255. The property of the defendant includes any property that he/she has gifted away in the six years before proceedings have been instituted, and any property the defendant received in connection with his or another’s criminal conduct and gave away (Section 8, POCL). In this circumstance, a receiver appointed by the court can seek to recover property in third-party hands that the defendant gifted away, with the caveat that a bona-fide purchaser who establishes his bona-fide status with respect to the property can defeat this. This is consistent with the protection for bona-fide third parties reflected in Criterion 3.5 of the Methodology for Recommendation 3.

256. Stated another way, it does not matter whether the defendant or a third party is in possession of the proceeds or property of equivalent value. If the defendant does not voluntarily pay the amount of the benefit, under Section 29 of the POCL, the court may appoint the Sheriff as receiver to enforce charges imposed upon realizable property in order to satisfy the confiscation order. “Realizable property” is defined in Section 6 of both the POCL and DTL 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 Law.”

257. The authorities have successfully restrained property in third-party hands.

Instrumentalities

258. The authorities may recover instrumentalities of crime under a number of different provisions.

General Provision (Instrumentalities)

259. A general criminal law-related provision to recover instrumentalities of crime applies in the case of any offense. It applies to instrumentalities that were seized in the course of a criminal investigation or proceeding or that were in the possession or control of a defendant when he was apprehended. Under Section 3 of the Police Property and Forfeiture Law, the court may forfeit the instrumentalities upon conviction. The effect of the court’s order is to deprive the offender of any rights he had in the property. This provision applies to all offenses.

Drug Trafficking and Terrorism (Instrumentalities)

260. Additionally, Bailiwick law contains specific provisions for the forfeiture of instrumentalities in the case of drug trafficking and terrorism offenses. Instrumentalities used in or intended to be used for drug trafficking offenses, whether they arise under the Misuse of Drugs Law or the DTL, are subject to forfeiture under Section 26 of the Misuse of Drugs Law 1974. That section provides that the court may order anything shown to its satisfaction to relate to the offense to be forfeited and either destroyed or dealt with in such other manner as it orders. The Customs Law (Section 57(1)) also provides for the forfeiture of property used to transmit or conceal (e.g., vehicles, aircraft, etc.) items as drugs that are subject to forfeiture.

261. As noted above, for criminal conduct covered by the TL, Section 18 of that law provides for the forfeiture of property a defendant possessed or controlled which he intended, knew or had, at the time of the offense, reasonable cause to suspect would be used for the purposes of terrorism.

Property of Corresponding Value

262. The structure of Guernsey’s confiscation regime, as set forth in the POCL and DTL, incorporates the concept of equivalent value. This is because in both instances, the legislation provides for the convicted defendant to pay a sum that reflects the value of the proceeds (“benefits”) of his criminal conduct. A confiscation order is executed on the assets (“realizable property”) of the offender, regardless of whether those assets have any relation with the offense. Since the POCL may apply to financing of terrorism offenses, it is also possible to recover equivalent value in the case of such offenses.

263. The provisions to restrain property in anticipation of confiscation in the POCL and DTL permit the restraint of property of equivalent value as the system is value rather than proceeds-based and the restraint of realizable property is envisioned. See “Provisional Measures to Prevent Dealing in Property subject to Confiscation (c. 3.2)” below regarding provisional measures. The provisions also make such restraints available at the investigatory stage. Section 25, POCL.

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

264. At the time of the on-site mission, there was nothing specific in the Bailiwick law to cover confiscation of income, profits, or other benefits that derive from proceeds and in a value-based system that can be included in the Court’s assessment of the proceeds of criminal conduct and their value. In assessing the proceeds of criminal conduct under Section 4(1), a person’s proceeds are “property obtained by a person at any time (whether before or after commencement of this Law) as a result of or in connection with criminal conduct carried on by him or another person.” A person benefits if one obtains “property as a result of or in connection with his or any other person’s criminal conduct; and if he has derived a pecuniary advantage as a result of or in connection with criminal conduct, he is to be treated as if he had obtained instead a sum of money equal to the value of the pecuniary advantage.” Section 2(3) POCL.

265. It could be argued that these provisions contemplate, for “proceeds of crime” and “benefit” only the property that was obtained at the point in time (when the offense occurred), and that it does not include a later separate outcome from holding that property (interest, income) although it would cover specific items as real estate or artwork that increases or decreases in value.

266. However, according to Guernsey authorities, the relevant legal provisions have not been applied in this way, and, of course, this is also an argument that under statutory language, interest, income and profits are covered. In the Bailiwick, as a matter of practice, interest, income and profits have been assessed by the court to be part of the benefit. However, there is no specific jurisprudence establishing this. To address this issue and leave it without doubt, on July 28, 2010, amendments to the POCL and DTL were adopted which make explicit the coverage for interest, dividends, or other forms of income or value. Sections 2(3) POCL and DTL

267. In the case of drug trafficking offenses, the court is to determine whether the defendant benefited from drug trafficking. Under the DTL, a person has benefited if he has received any payment or other reward in connection with drug trafficking (either his or another’s). If he derived a pecuniary advantage, he is to be treated as if he received a sum of money equivalent to the value of the pecuniary advantage. Section 2(2)-(3). The provision in the DTL raises the same issue.

268. The question would also necessarily arise in determining how much of property held or owned by a third party could be sought.

269. As noted above, if the offense is FT, confiscation is possible using either the provisions of the POCL or, in many circumstances, forfeiture under the provisions of the TL. Under the TL, proceeds from committing an FT offense are one kind of terrorist property. Terrorist property in turn is subject to forfeiture. Under Section 7(2) of the TL, proceeds include property “which wholly or partly, and directly or indirectly, represents the proceeds” of the terrorism-related act and includes payments or other rewards in connection with its commission. Consequently, it appears when the TL forfeiture provisions are used, all derived benefits are covered. In addition, at the time of the amendments to the POCL and DTL, the TL was also amended to explicitly cover interest, dividends and other forms of income and value. Section 7(1)(a) TL.

Provisional Measures to Prevent Dealing in Property subject to Confiscation (c. 3.2):
Proceeds of Crime Law (Provisional Measures)

270. Measures to preserve assets, both proceeds and property of corresponding value, subject to eventual confiscation are found in POCL, Articles 25–28. Preservation of assets is accomplished through restraint orders (Section 26), realty charging orders (Section 27), and personality charging orders (Section 28). Each such order is available both where criminal proceedings have been or are about to be instituted, and where a criminal investigation has commenced in Guernsey against the defendant for an offense to which POCL applies. (Section 25). The Court must be satisfied that the defendant, or in the case of an investigation, the alleged offender, has benefited from his criminal conduct.

271. Under the POCL, a restraint order is a court order that prohibits persons from dealing with any realizable property, subject to any conditions and exceptions as are specified in the order. Section 26(1). It may apply to all realizable property a specified person holds and to realizable property that has been transferred to a specified person after such an order has been made. Section 26(2). While the provision permits the Attorney General to seek, and the Court to grant, restraint orders that extend to all property a person holds, the authorities indicated they apply the provisions in a manner appropriate to the extent of the possible benefits.

272. Such orders may always be varied or discharged, and affected persons may seek such variation or discharge at any time. Section 25(6)(7). Once property is restrained, the court may appoint HM Sheriff as receiver to take possession of it and manage it, and also may direct any person holding such property to deliver it to HM Sheriff, and specific authority for the authorities to seize it to prevent removal from the Bailiwick. Section 26(4) and 26(6).

273. Real property located in the Bailiwick may be addressed through realty charging orders which secure payment of the amount of a confiscation order, if there is one, or the full value of the real property if such an order has not yet issued. Section 27. Similarly, personality charging orders may be issued that secure payment against such things as securities of companies that are registered in the Bailiwick, securities of the States of Guernsey, Alderney or Sark, and vessels registered in the Bailiwick. Section 28. The authorities have used realty charging orders in the post-conviction context. They have also a simple and effective method to restrain real property prior to confiscation with copies of the restraint order lodged with the title so as to give notice to any potential purchasers.

274. If necessary and either an order to produce the material is not complied with or other conditions make it necessary to seize rather than restrain property, the police may apply to the Bailiff for a search warrant and the Bailiff may grant such order. Section 46, POCL.

275. The DTL has provisions to restrain assets in anticipation of a confiscation or for the imposition of charging orders that parallel those in the POCL. They apply in the case of drug trafficking offenses. Sections 25–28, DTL. As with the POCL, restraints and charging orders are available if proceedings have been or are about to be instituted, or if an investigation has commenced, and under Section 64, there is a possibility to seize benefits where a restraint is unlikely to be effective.

Terrorism financing (Provisional Measures)

276. In addition to the provisional measures available through the POCL which can also be used in the case of the offense of terrorism financing, the TL has provisions to restrain property in support of any eventual forfeiture provided for under that law. Property liable to forfeiture includes property in respect of which a forfeiture order has been made, or property in the possession or under the control of a person against whom proceedings for an FT offense has been instituted or who is under investigation for an FT offense covered by the TL. Schedule 2, paragraph 3 and Section 18. The TL at Schedule 5 also provides for the issuance of warrants to search and seize property.

General Seizure Provision

277. Under Section, 14, Police Powers and Criminal Evidence Law 2003, at the investigative stage, in the course of a search, the police have a general power in the course of an authorized search to seize an item if there are reasonable grounds to believe an item has been obtained in consequence of the commission of an offense, or if it has evidentiary value. There must also be reasonable grounds to believe it is necessary to seize the property in order to prevent it being concealed, lost, damaged, altered, or destroyed. Criminal proceeds could fall under these categories. This would apply, however, only to proceeds and not to assets unrelated to the offense that represent equivalent value. The latter would be addressed only through the provisions of the POCL and DTL.

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

278. Regardless of the nature of the crime, whether drug trafficking, terrorist financing or other serious offense, the application to restrain and seize property in support of a confiscation order may be made on an ex parte basis. Section 25(5), POCL and DTL. Applications are made by the Attorney General to the Bailiff in chambers. Although issued on an ex parte basis, once an order is made and in effect, notice of the order must be provided to persons affected by the order.

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

279. The POCL and DTL have similar, parallel provisions for investigations of criminal conduct which provide a number of avenues to secure information and evidence on the extent and location of proceeds and other property subject to confiscation. These provisions assist the police in identifying and tracing property subject to confiscation.

280. The police, with the consent of the Attorney General, may apply to the Bailiff for an order to make specified material available for purposes of investigations into “whether any person has engaged in or benefited from criminal conduct or into the extent or whereabouts of the proceeds of criminal conduct.” The Bailiff is to grant the order if: i) there are reasonable grounds for suspecting a specified person has engaged in or benefited from criminal conduct; ii) there are reasonable grounds for suspecting that the material is likely to be of substantial value to the investigation; and iii) there are reasonable grounds for believing it is in the public interest to grant the order. Section 45, POCL, Section 63, DTL. According to the authorities, police have ready access to prosecutors in seeking authority to ask the Court for such orders. In Guernsey practice, these orders are sought and granted regularly with an average of about 8–9 per year. The TL at Schedule 5 para. 4–7 also provides for such orders in the case of criminal investigations for the terrorism offenses specified in that law.

281. If necessary, and either an order to produce the material is not complied with or other conditions make it necessary to seize rather seek the production of documents or other materials, the police may apply to the Bailiff for a search warrant and the Bailiff may grant such order. Section 46, POCL, Section 64, DTL. The TL at Schedule 5 also provides for the issuance of search warrants and orders for the production of materials relevant to investigations for offenses under that law.

282. The laws also provide for applications by the Attorney General or by a police officer to the Bailiff for customer information orders and account monitoring orders. Customer information orders may require either all or specified financial service businesses as noted in the order to provide customer information on the person specified in the application including the existence, number and balance of accounts of the person specified. Sections 48A–48B, POCL; Section 67A, DTL; Section 37 and Schedule 6, Terrorism Law. The substantial value to the investigation and public interest standards must be met for issuance of a customer information order. See, e.g., Section 48C, POCL.

283. An account monitoring order requires the financial services business to provide for the period specified in the order, which may not exceed 90 days, ongoing account information to a police officer. Section 48H, POCL; Section 67H, DTL; Section 39 and Schedule 7, TL. The standards for issuance of the order are similar to those required for customer information orders. See, for instance, Section 48I, POCL. In Guernsey practice, account monitoring orders have been used successfully.

284. In the case of investigations into serious fraud (which includes money laundering), insider dealing, or market abuse, there are special investigatory powers available without a court order to the Attorney General. The Attorney General may require the person under investigation, or any other person where there is reason to believe the person has relevant information, to answer questions or produce specified documents. The Attorney General may also ask the court for a search and seizure warrant. Section 1, Criminal Justice (Fraud Investigation) Law 1991; Section 10–13, Insider Dealing Law; Section 41L, Protections of Investors Law.

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

285. The POCL and DTL have largely parallel provisions that address bona-fide third parties. In assessing the value of realizable property under the POCL and DTL, the rights of creditors and of bona-fide third parties are protected through several provisions. This is accomplished by defining the “amount that might be realized” as the total value of property less the value of any obligations that have priority. Section 6, POCL. The value of that property is defined as its market value less, if another person holds an interest in the property, the amount required to discharge any encumbrance on the interest. Section 7, POCL. Thus, the value of any third-party interest in any realizable property is not considered realizable property.

286. However, a gift made to a third party, if it falls within the meaning of a “gift caught by this Law” is realizable property, and is not recognized as a valid third-party interest.

287. Both the POCL and DTL at Section 29(8) provide that there be a reasonable opportunity for persons holding an interest in property to make representations to the court before the court takes steps to realize the property. Additionally, the Court and Sheriff, in using their powers to realize property, must exercise those powers with a view to allowing bona-fide third parties to retain or recover the value of any property they have held. Section 31(4), POCL and DTL.

288. Where property has been restrained, any person affected by the order may apply for a discharge or variation of the order. Section 25(7) POCL and DTL. In addition, all affected persons must be provided notice of restraint and charging orders. Section 25(5) (c), POCL and DTL.

Terrorism Law (Protection of Third Parties)

289. In the case of forfeiture of terrorist property (including proceeds and instrumentalities) in connection with convictions for terrorism offenses specified in the TL including FT, Section 18(7) makes specific provision for third parties. If a third party claims he is the owner or otherwise interested in property to be forfeited, the court must afford the third party an opportunity to be heard before making the order.

290. Where property is restrained pursuant to provisions in the TL, there must be notice to any persons affected, and such persons may apply for the restraint to be discharged. Schedule 2, Sections 4(1) (c) and (4).

General Right

291. In addition, there is a general right for any person who is adversely and wrongly affected by a confiscation or forfeiture measure to apply to the court for judicial review.

Instrumentalities (Protection of Third Parties)

292. Under Section 1(1) of the Police Property and Forfeiture Law 2006, any third party who believes he is entitled to an instrumentality or any other property in the possession of the police may apply to the court for return of the property.

Power to Void Actions (c. 3.6):

293. A common and customary law principle that applies in the Bailiwick is that any contract that is illegal or contrary to public policy can be set aside. Gaudion v Weardale (1998) 25 GLJ61.

294. In addition, Guernsey’s confiscation provisions are structured to deal with property in situations where a person could be taking action that would thwart the ability of the authorities to recover property otherwise subject to confiscation. As noted above, any gifts made in the six years before proceedings commence are considered realizable property. Interests include beneficial interests. The court may order a person holding an interest in realizable property to pay a sum to the Sheriff equivalent to the gift recipient’s interest or the defendant’s beneficial interest. The court may grant, transfer, or extinguish interests in property.

295. In addition, since actions aimed at hindering recovery are likely also to constitute money laundering or financing of terrorism or ancillary offenses to these offenses, the recovery of property could take place in the course of such a proceeding.

Statistics (R. 32):

296. POCL and DTA provisions to restrain and confiscate proceeds of crime are used in domestic cases, and also in many situations for international requests.

297. The FIU maintains statistics on confiscation and provisional measures undertaken in the Bailiwick. The following statistics, which cover the years 2006 through 2009, are based upon material provided by the FIU.

Confiscation

Proceeds/benefits confiscated and proceeds/benefits repatriated without confiscation

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Totals of Amounts Recovered Jan. 2006 - May 2010

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298. As the figures above indicate, authorities have successfully recovered £6,911,851 in the last four and a half years. No confiscations or repatriations were based upon ML or FT charges. Rather, they were in connection with a predicate offense, almost uniformly drug trafficking in the case of confiscation, and for repatriations one major fraud case (Ponzi scheme) and one revenue matter.

299. On amounts frozen, authorities indicate that in the years 2006–09, amounts frozen including both domestic cases and those pursuant to MLA requests totaled £109,795,203 as follows:

Amounts restrained (Domestic Cases and at International Request)
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300. As of May 31, 2010, approximately £219,365,274 was under restraint. This amount exceeds the total amounts restrained from 2006–2009 as it also includes property restrained at international request in 2004 and 2005.

Amounts under Restraint as of May 31, 2010

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301. In the entire period, there have been only two restraints in ML cases, and none relating to FT. One ML case is awaiting trial. In the other, the restraint was lifted when the ML prosecution was discontinued because with the age of the principal witness, the prosecution was not viable. In the two cases in which ML convictions were obtained, both involving bank officials who received custodial sentences for self-laundering, neither provisional measures nor confiscation were used. In one case, approximately £8,475 of stolen funds was repaid. In the second, none of the £277,335 taken could be located. In this latter case, at the time of sentencing, with a defendant who had no assets to pay a benefit, the court made an order of a nominal amount as the realizable amount so as to permit a recovery at a later point should there be realizable assets in the future.

Additional Elements (Rec 3)—Provision for a) Confiscation of assets from organizations principally criminal in nature; b) Civil forfeiture; and, c) Confiscation of Property which Reverses Burden of Proof (c. 3.7):
Property of Organizations Principally Criminal in Nature

302. In Guernsey, the property of organizations criminal in nature is subject to confiscation on the same basis as is available for criminal confiscation generally either through actions against such organizations that are legal persons or through actions against its members. Criminal organizations that are legal persons are subject to criminal liability in Guernsey and if convicted on criminal charges, are liable to confiscation to the full extent of its criminal benefits. To the extent that the value of the criminal organization’s property is equivalent to the criminal benefit, all such property would be reachable. Because of the assumptions that come into play in the course of a criminal prosecution, the unexplained criminal wealth of the organization would be recovered, and the recovery would not be limited to the proceeds or benefits of the criminal conduct for the offenses of conviction. For organizations that are not legal persons, the property would be accessed through civil or criminal proceedings against persons that are part of the organization. Civil forfeiture is also available for such property to the extent that it is funds and represents the proceeds of unlawful conduct.

Civil Forfeiture

303. Guernsey enacted a Civil Forfeiture Law in 2007 that applies to cash and bank accounts with a balance in excess of £1,000. The law permits the civil forfeiture of such cash that is the proceeds of unlawful conduct or is intended for use in unlawful conduct. The law also provides for the restraint of property and investigatory powers in support of civil forfeiture actions. Funds in a bank account may be frozen by the court upon showing of reasonable grounds to suspect that the funds are proceeds of unlawful conduct. Section 10.

304. Procedural rules that will apply to cases under the Civil Forfeiture Law are currently under review and authorities expect they will be adopted shortly. Unlike other cases heard in the Guernsey system, civil forfeiture cases will be by the Bailiff sitting alone: no jurats (jurors) will be involved. As of the time of the assessment, there were no cases of civil forfeiture before the court nor had the court enforced a foreign forfeiture order using the new act. Authorities expect the provisions of the new law will be particularly useful in their efforts to assist authorities of other jurisdictions in mutual assistance requests, but there as with domestic requests, the provisions will apply only in the case of cash and bank account deposits.

305. Police officers may seize cash based upon the same grounds for a 48-hour period which then may be extended by judicial authorities. The provisions of the law apply to all offenses including those under the POCL, DTL, and TL.

Offender Demonstrating Lawful Origin

306. Guernsey has provisions that have the effect of requiring a defendant to demonstrate the lawful origin of property. There is a mandatory assumption that defendant’s assets in the six years preceding the institution of charges were proceeds of crime. This assumption must be made unless the assumption is shown to be incorrect in the specific case, or the court is satisfied that there would be a serious risk of injustice if the assumption were made. Section 4, POCL.

Analysis

307. The Bailiwick has a comprehensive legal framework that permits the confiscation of proceeds of crime, including proceeds from money laundering and terrorist financing offenses. It includes provisions for provisional measures. These allow restraint and charging orders both before and after proceedings have commenced.

308. The value-based system the Bailiwick has makes it easier to address benefits of criminal activity since the authorities need not find the actual proceeds or trace such proceeds into their substitutes, but can rely on any assets of the defendant, including those he has alienated, to recover the benefits of criminal activity. The POCL and TL together provide avenues to recover not only the proceeds of terrorist activity but terrorist property of all kinds including funds to be used for terrorist purposes and instrumentalities.

309. Law enforcement and prosecution officials indicate that the provisions in the POCL and other laws that provide for the investigation, restraint and confiscation of proceeds and benefits have worked well in practice. Officials are able to secure production, account monitoring and restraint orders in appropriate cases and ultimately to secure a confiscation order.

310. At the time of the on-site mission, there was nothing specific in the Bailiwick’s provisions that indicated definitively that income, profits or other benefits that derive from proceeds are covered as proceeds or benefits of crime. Although in practice, authorities had thus far have recovered such property without challenge, the statutory framework was not clear on this point. Subsequent to the on-site mission, the Bailiwick adopted a provision that clarifies that such income and profits are covered.

Implementation and effectiveness

311. As noted above, Guernsey has an excellent statutory framework in place, including civil forfeiture provisions applicable to cash, to address proceeds, benefits and instrumentalities. When the provisions are used, they appear to work well, although there are a limited number of cases to draw larger conclusions. The statistics as set forth above, however, indicate that since 2006 the effective use of the provisions, in terms of actual confiscation of assets, has thus far largely been limited to recovering benefits in drug trafficking matters: aside from the voluntary repatriation of a large amount at foreign request in one Ponzi matter. However, the Bailiwick now has substantial funds under restraint, mostly at foreign request, and the authorities have indicated that they will be working towards recoveries both in these matters and in new cases as it further implements its strategy to focus on financial sector criminal activity, on developing ML cases and on recovering proceeds and benefits in a wider range of matters.

2.3.2. Recommendations and Comments
  • It is clear that the authorities are committed to using the confiscation provisions of the POCL and DTL to recover assets in every proceeds-generating financial—and other—crime prosecuted in the Bailiwick, as well as in connection with international matters. In cases successfully prosecuted in recent years, which as the chart above indicates are primarily drug trafficking cases, the confiscation provisions have been used. The authorities should increase efforts to use their robust framework in a more effective way to address financial sector criminal activity in addition to drug trafficking and use the confiscation provisions in such matters. The authorities have indicated they are committed to reviewing more carefully activities in the financial sector, and to developing investigations and cases that are consistent with the Bailiwick’s profile as a financial center. With this, it can be expected that there will be additional strides in the effective use of their very robust provisions.
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
Legal Framework

312. Guernsey implements the obligations to freeze funds of persons and entities subject to sanctions under UNSCR 1267 and successor resolutions and UNSCR 1373 and related resolutions through two orders, the Terrorism (United Nations Measures) (Channel Islands) Order 2001 (“Terrorism Order 2001”) and the Al-Qa’ida and Taliban (United Nations Measures) (Channel Islands) Order 2002 (“Al-Qa’ida Order 2002”). These two Orders-in-Council were made in the United Kingdom under the U.K’s United Nations Act 1946 and extended to the Channel Islands. Their validity was confirmed on a temporary basis (until December 31, 2010) by the U.K.’s 2010 Terrorist Asset Freezing (Temporary Provisions) Act 2010. They are law in Guernsey (Section 1(4), United Nations Act 1946).

313. Authorities in Guernsey recognize that their reliance on the 2001 and 2002 Orders-in-Council will have to be re-evaluated in light of the decision of the U.K. Supreme Court in HM Treasury vs. Ahmed and others [2010] UKSC 2 (United Kingdom Supreme Court 2). That Court found similar Orders-in-Council applicable in the United Kingdom to be ultra vires.

314. The U.K. Court expressed a number of concerns. A primary one, that the orders had been issued under the United Nations Act 1946 by the executive without any kind of Parliamentary scrutiny, has been remedied for the time being by the U.K. Parliament’s enactment of the 2010 Terrorist Asset Freezing (Temporary Provisions) Act 2010. It provides that certain Orders-in-Council, including the ones that apply in the Channel Islands, are deemed to be validly made under, and within the power conferred by, the United Nations Act 1964, and that the prohibitions and obligations under them have legal force. This act remains in effect until December 31, 2010. The Supreme Court decision expressed concern about the breadth of the reasonable suspicion test under a similar Terrorism Order, and the absence of any effective judicial remedy regarding designation under a similar Al Qa’ida Order. According to the authorities, the United Kingdom and Guernsey will be formulating new legislation before the end of 2010.

315. Additionally, other legal measures, those that apply generally for criminal investigations and prosecutions under Guernsey law, are available to address terrorism-related assets, including those used or intended for use in the financing of terrorism. These measures may be used, in some circumstances, to effect a freeze that is required to comply with the UNSCRs. They permit the restraint, seizure, and confiscation/forfeiture of assets in specified circumstances. The provisions are addressed in the section on Provisional Measures in Section 2.3.1 (Recommendation 3) of this Report.

316. Finally, but only in the case of threats to the economy of Guernsey or to the life or property of nationals of the United Kingdom or residents of Guernsey, there is an administrative procedure for the issuance of a freezing order under Section 20 of the Terrorism Law. Such an order, which does not require the intervention of a court, prohibits persons from making funds available to or for the benefit of the person specified in the order. The Bailiwick’s Policy Council is empowered to issue the order. This TL provision could be used, in the narrow circumstances where it can be applied, to assist the authorities in effecting compliance with the UNSCR obligations.

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

317. The Al-Qa’ida and Taliban (United Nations Measures) (Channel Islands) Order 2002 provides Guernsey authorities with a legal basis to freeze, as a sanction, the funds of the persons and entities listed under UNSCR 1267 and successor resolutions. This Order provides for the freezing of funds through a notice issued by the Attorney General where the Attorney General has reasonable grounds to suspect that funds are or may be held by, or are or may be under the control of, a listed person (Section 8).

318. The Order also makes it an offense to make any funds available to or for the benefit of a listed person, or a person acting on behalf of a listed person (Section 7), or to contravene a direction not to make funds available that was made by notice under Section 8 (Section 8(9)). Notices may take immediate effect or effect on a specified date. The authorities indicated that they recognized the obligation to freeze immediately under the UNSCRs, and the provision to permit a notice to take effect on a specified date was in order to leave discretion to avoid injustice, for instance to a third party, and would be used only in extraordinary circumstances.

319. A listed person is defined as Osama Bin Laden or any person designated by the Sanctions Committee in the list maintained by that Committee in accordance with UNSCR 1390 (January 16, 2002) as a member of the Al-Qa’ida organization, or Taliban or an individual, group, undertaking, or entity associated with such persons.

320. The Order provides that the Attorney General as the licensing authority may issue a notice directing that funds are not to be made available to any person except under the authority of a license he grants if he has reasonable grounds to suspect that “the person by, for or on behalf of whom any funds are held is or may be listed.” (Section 8). There is no requirement of prior notice to the designated person, but persons holding funds, once they receive such a notice and thus begin to implement their obligation to withhold funds, must provide the owner of the funds with a copy of the notice. Section 8(5). The law does not set forth a prohibition on prior notice. Rather, there is no obligation to provide prior notice. The authorities are of the view that the prohibition is implicit.

321. Section 7 provides the exception to the prohibition against making funds available. Funds may be made available pursuant to a license granted by the Attorney General.

322. The Order also provides that it is a criminal offense for a financial services business to fail to disclose any knowledge or suspicion that a customer, previous customer, or other person with whom it has dealt, is a listed person or acting for such person. (Section 10). The offense provision does not cover non-financial businesses and persons such as lawyers, accountants, or non-profits. Such persons, however, are required under other laws to report suspicions of the financing of terrorism and criminal penalties apply to a failure to do so.

323. To meet the freeze without delay, requirements of UNSCRs 1267/1390 and UNSCR 1373, Guernsey has adopted a framework where the obligation to freeze depends upon funds having been located and the Attorney General issuing a freeze notice. Even in the absence of such notice, however, it is a criminal offense to make funds available to a person or organization on the 1267/1390 list, or to a person who is a terrorist under UNSCR 1373.

324. Representatives of the Law Officers Chambers have indicated that as part of the overall review of legislation applicable in Guernsey to implement the UN resolutions, which is necessary because of the Ahmed decision but was underway even before the decision was issued, consideration will be given to adopting an approach that is no longer dependent upon specific funds having been identified and an administrative order specific to those funds being issued. The Bailiwick authorities are currently drafting an Ordinance under the EU implementation law which will adopt the approach that European countries, including the United Kingdom, use of directly applicable regulations as to the persons on the UN 1267 list, and persons identified on the EC external list and directly applicable requirements regarding an internal list. This more robust approach to compliance with the UN sanctions regime would strengthen Guernsey’s framework to freeze without delay in appropriate circumstances.

Freezing Assets under UNSCR 1373 (c. III.2):

325. The Terrorism (United Nations Measures) (Channel Islands) Order 2001, an Order-in-Council also made in the United Kingdom under the U.K.’s United Nations Act 1946, gives effect to UNSCR 1373. Under Section 1(4), the Order is law in Guernsey. The Order provides for a freezing regime, similar to the one used in the case of UNSCRs 1267 and 1390. Under Section 6, the Attorney General, who is designated as the licensing authority, may issue a notice to freeze any funds held by, for, or on behalf of a person who commits or attempts to commit or participates or facilitates the commission of terrorism, or a person controlled by such a person.

326. With regard to who falls within the ambit of the definition of terrorist under UNSCR 1373, the decision would be made by the Attorney General in the course of the consideration of whether to issue a freezing notice. There is no pre-existing list of persons designated under UNSCR 1373 as in the United Kingdom for U.K. residents or under the European Community list for persons external to the European Community. Because thus far no funds have been located within the Bailiwick that would be subject to a freeze, there has been no determination that a person falls under UNSCR 1373 and that his funds should be frozen. The standard for issuing such a notice is “reasonable ground for suspecting” that a person “is or may be” a person in the proscribed category.

327. Although the statutory standard under the current Order includes the possibility of issuing a notice if a person “may be” a person in the proscribed category, the Law Offices Chamber indicated that, in light of the 2010 decision of the highest court in the United Kingdom in the Ahmed case, such a notice would be issued only under the stricter standard of suspecting a person is a person within the proscribed category.

328. Under Section 5 of the Order, it is an offense to make funds or financial services available to such persons.

329. As in the case of notices under the Al-Qa’ida and Taliban (United Nations Measures) (Channel Islands) Order 2002, no requirement exists that the designated person be given prior notice, but persons holding funds, once they receive a notice and thus begin to implement their obligation to withhold funds, must provide the owner of the funds with a copy of the notice. Section 6(5). The Order does not set forth a prohibition on prior notice.

330. Under Section 5, it is an offense for any person to make funds available to or for the benefit of a person who commits or attempts to commit or participates or facilitates the commission of terrorism or a person controlled by such a person. There is, however, no clear indication to financial institutions, non-profits, or others regarding who would fall in this category as the Bailiwick has no list based upon binding law or regulation as there is the United Kingdom or in EU countries. Nor is there any specific guidance—only a general suggestion regarding looking at lists appearing on the U.K.’s official website that contains an updated version of the UN list under UNSCR 1267, and the internal and external U.K. lists for UNSCR 1373—as to who might be a terrorist under UNSCR 1373. Accordingly, convictions under this provision may be difficult in many circumstances.

331. There is an exception to the prohibition on making funds available if the Attorney General has granted a license that permits the provision of payments, support, etc.

332. The Order also provides that it is criminal offense for an institution to fail to disclose any knowledge or suspicion that a customer, previous customer or other person with whom it has dealt is a person who commits, attempts to commit, participates in, or facilitates terrorism. (Section 9). This criminal provision suffers from the same issue as noted above with Section 5.

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

333. According to the authorities, Guernsey is prepared to consider and give effect to freezing actions of other states at their request. However, it has not received such a request. Such a request is most likely to be received through official U.K. channels, since the United Kingdom acts for Guernsey in international matters, or through a foreign law enforcement request.

334. Authorities indicate they would use the freezing powers provided under the two relevant Orders (the Al-Qa’ida and Terrorism Orders) to effect freezes that have been requested by another country. The Law Offices Chambers, in consultation with other authorities as needed, would evaluate the request immediately, and consult with U.K. authorities who handle similar requests. The Attorney General would make the decision based upon the information provided whether to issue a Notice of a Freeze. The statutory standard would apply reasonable grounds to suspect that funds are or may be held by, or are under the control of, a listed person (Al-Qa’ida Order, Section 8) or a person involved in terrorism (Terrorism Order, Section 6).

335. Thus, according to the authorities, were they to receive credible information from another jurisdiction that assets of a person on the UN list issued pursuant to Resolutions 1267/1390 or of a person that another country believes falls under the ambit of Resolution 1373 were located in Guernsey, it would issue a notice to the holder of the assets in Guernsey, in the latter case assuming the authorities agreed with the requesting country that the individual/organization was covered by UNSCR 1373.

336. Even in the absence of the Attorney General’s issuance of a notice, there is an indirect obligation on anyone holding funds or assets of a person listed pursuant to UN Resolutions 1267/1390 to freeze those assets. This is because it is an offense to make funds available to a listed person (Section 7, Al-Qa’ida Order). However, until the Attorney General issues such a notice, there is no affirmative obligation to freeze funds, only the possibility of criminal liability in the absence of a freeze.

337. In the case of a person whose assets should be frozen as a sanction under UNSCR 1373 based upon another state’s conclusion that the person is one who commits or attempts to commit terrorist acts, upon receiving a request from such jurisdiction, the Attorney General is called upon to decide whether he agrees with the requesting state’s determination that the person whose assets are to be frozen is a terrorist within the meaning of UNSCR 1373.

338. More generally, Guernsey has not incorporated into its system the external terrorist list that applies in the European Union through EU Regulation or the U.K. internal list. Such lists are consulted, but they have no binding effect.

339. In addition, actions by other states designating persons subject to targeted sanctions under UNSCR 1373, that is names on foreign lists, such as the U.S. Office of Foreign Assets Control (OFAC) list, are generally taken into account on a voluntary basis by many financial sector participants. They are used in evaluating transactions that may be suspicious and should be reported to the FIU, and in conducting risk-based assessments of customers and persons seeking to become customers. It is not clear that this is the case with respect to non-financial businesses and professions or NPOs.

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

340. Both the Al-Qa’ida and Terrorism Orders at Section 2 provide a broad definition of funds. The term means “financial assets, economic benefits and economic resources of any kind and economic benefits of any kind.” Examples are also provided including “interest, dividends or other income on or value accruing from or generated by assets”.

341. Although comprehensive as to the kind of asset that is included in the concept of “funds,” there is nothing explicit in definition of “funds” that indicates that assets that are jointly owned, indirectly owned, or controlled by the person are covered.

342. Some aspects of this, however, are addressed in the sections of the Orders that identify the funds that are to be frozen. Section 8(1) of the Al-Qa’ida Order and Section 6(1) of the Terrorism Order specify that the funds to be frozen extend to funds held for or on behalf of a person. Thus, funds that are controlled or indirectly owned are covered under the provisions. Although in the legal instruments, there is nothing explicit regarding property that is jointly owned, the authorities are of the view that this is implicit in the sanctions regime, and that the jurisprudence developed under relevant similar sections makes it very clear that it would not matter whether the property was owned in full or jointly owned. See, e.g., Law Officers of the Crown vs. Baum (2007). The assessors accept this position.

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

343. The system in Guernsey calls for the issuance of notices to persons/institutions holding funds which direct them not to make funds available. Since there are not general notices to all institutions/persons to freeze any funds they might have of persons on the UNSCR 1267/1390 list or that are covered by UNSCR 1373, but rather only specific notices to institutions/persons known or believed to be holding such funds, on one level the communication issue is one of ensuring that the Attorney General provides the holding institution/person the notice immediately upon its issuance.

344. The person to whom the order applies will be notified immediately by service of the order on him, or with service to his last known address if necessary. See, e.g., Section 8(6), Al- Qa’ida Order. In addition, procedures are in place for the Attorney General to notify specified persons at the Guernsey Financial Services Commission and for the Commission to publicize the notice making financial service sector participants aware of it.

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

345. Under the kind of freezing mechanism that Guernsey uses, there is a direct obligation to freeze funds only if the Attorney General has issued a Freezing of Funds Notice to a specific entity or person. The obligation is limited to the person specified in the Notice.

346. In this circumstance, guidance, on one level, is that provided in connection with specific Freezing of Funds Notices, particularly notices to the specific entities/persons regarding what actions to take pursuant to the Notice. This is provided by guidance notes that accompany a Freezing of Funds Notice. These notes cover not only the freezing itself, but also on how to seek a revocation of the Notice and how to apply for a license to disburse funds.

347. On another level is the guidance provided generally to financial institutions and others. The GFSC website sets forth information under a section on sanctions. It references the two Orders and provides a page with additional information from Guernsey’s Law Offices of the Crown. The web page also contains a general reference to UN sanctions. This covers all kinds of sanctions, not only those relating to financing of terrorism. After indicating that many of the sanctions prohibit the provision of services or assistance to named individuals, it notes that the full list of individuals may be found in the financial sanctions section of the U.K. HM Treasury website and provides a link to that website. Finally, there is a note that breach of sanctions may result in criminal prosecution, and should readers have any doubt as to their position in relation to sanctions, they should seek professional legal advice.

De-Listing Requests and Unfreezing Funds of De-Listed Persons (c. III.7):

348. Authorities have indicated that, as the U.K. government acts for the Bailiwick in international affairs, in the case of a request for a de-listing, the Attorney General would consult with U.K. authorities and would rely on the U.K.’s procedures for de-listing. These procedures were reviewed in the course of the most recent mutual evaluation of the United Kingdom, and considered sufficient. There have been no requests to Bailiwick authorities for de-listings. Were there such a request, the authorities have indicated that person seeking the de-listing would not be required to provide information in any particular form, and would be free to provide anything he or she considers relevant.

349. Once de-listed, the procedure for unfreezing of funds would be through revocation of the Freezing of Funds Notice. Under Section 6(3) of the Terrorism Order 2001 and Section 8(3) of the Al-Qa’ida Order 2002, the Attorney General may by notice revoke a Freezing of Funds Notice. Judicial intervention is not required.

350. The procedures for a revocation based upon a de-listing or a de-listing request are referenced in the Attorney General’s Guidance Note that accompany a Freezing of Funds Notice and further specified in “A Guide to Revocation Notices under the Terrorism (United Nations Measures) (Channel Islands) Order 2001 and the Al-Qa’ida and Taliban (United Nations Measures) (Channel Islands) Order 2002”. The former is provided to each person whose funds are frozen and is available to anyone requesting it, and the second guide is provided upon request to that person and to anyone else requesting it. All guides note that persons should contact the Attorney General for additional information.

351. The section on sanctions on the GFSC website indicates in general the procedures for unfreezing of funds and directs persons to contact the Attorney General’s office.

Unfreezing Procedures of Funds of Persons Inadvertently Affected by Freezing Mechanism (c. III.8):

352. In Guernsey, the Attorney General is always empowered to revoke a notice that freezes funds or assets if it appears to him or her that such a revocation is appropriate. Section 8(3), Al-Qa’ida Order; Section 6(3), Terrorism Order. Accordingly, if there is an error, or a person is inappropriately or inadvertently affected, the Attorney General can revoke the direction that was imposed through a Notice. This can occur immediately and without any specific request.

353. The procedures for unfreezing are, as set forth in the section on III.7 above, publicized in summary form on the GFSC website with additional information and Guides available through contact with the Attorney General’s office.

354. Sections 6A and 6B of the Terrorism Order, and Sections 8(7) and (8) of the Al-Qa’ida Order also provide that persons affected by a Freezing of Funds Notice may apply to the Royal Court to have the relevant direction set aside. This is publicized on the GFSC website. Applying to the court is an additional avenue for the affected person, who, as noted, may also ask the Attorney General to revoke the direction.

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

355. Under Sections 7 (Al Qaeda) and 5 (Terrorism) of the Orders, the Attorney General is authorized to issue licenses that permit access to funds. This power may be exercised to comply with the requirements of S/RES/1452 (2002) that a freeze should not apply to funds determined by the relevant state to be necessary for payment of basic expenses after a notification process with the relevant UN Committee.

356. A guidance document issued by the Attorney General (“A Guide to Licenses under the Terrorism (United Nations Measures) (Channel Islands) Order 2001 and the Al-Qa’ida and Taliban (United Nations Measures) (Channel Islands) Order”) is available to those who request information. They might want additional information after reviewing an overview on licenses provided in the Guide that accompanies the Freezing of Funds Notice. The guide on licenses informs persons that licenses are issued by the Attorney General, are within his discretion and are normally issued only for basic expenses, but in exceptional circumstances can cover extraordinary expenses. The Guide follows the provisions of UNSCR 1452. Authorities indicated to the extent that referrals or review is necessary by UN committees/offices before funds can be made available, this would be forwarded through the United Kingdom who would act for Guernsey in such a matter.

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

357. Guernsey has procedures in place permitting a person or entity whose funds have been frozen as a sanction pursuant to the UNSCRs to challenge the measure. First, as the Guidance Notes and GFSC website note, the Al-Qa’ida Order (Sections 8 (7)-(8)) and the Terrorism Order (Sections 6A–6B) each provide that affected persons may apply to the Royal Court to have any direction made through a Freezing of Funds Notice set aside, and the court may set aside the direction. The person petitioning the court must provide a copy of the application and any witness statements to the Attorney General at least seven days before the date set for a hearing.

358. Secondly, as noted previously, the Attorney General has discretion to revoke a Freezing of Funds Notice without any intervention by a court. Affected persons may also contact the Attorney General and provide grounds for an administrative revocation.

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

359. Provisions to freeze, seize, and confiscate terrorist-related funds in a general criminal law context, rather than as a sanction under UN resolutions, also exist in the Bailiwick. Terrorist-related funds and assets are subject to provisional measures and confiscation to the extent that they are the proceeds or benefits of criminal conduct, or are instrumentalities. This applies where the criminal activity is the terrorist act itself, and where it is the financing of terrorism. Funds and other assets are also subject to forfeiture, if they constitute terrorist property, under the Terrorism Law. In sum, provisions that apply generally to criminal offenses in the Bailiwick, including those for conservatory and confiscation measures, apply equally to terrorism-related criminal offenses.

360. The criminal offenses that have been established in the Bailiwick to comply with the Convention for the Suppression of the Financing of Terrorism (see the Section relating to SR II above) as well as substantive terrorism offenses of various kinds each form a basis for provisional measures to secure funds and assets, and at conviction for confiscation. This applies to the offenses set forth in the Terrorism Law and to the criminal offenses in the two Orders. In addition, terrorist activity and financing of terrorism may constitute unlawful conduct that forms a basis for civil forfeiture, if the asset involved is cash over the statutory minimum, under Guernsey’s Civil Forfeiture Law.

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

361. Third parties, as well as any person who is the subject of a Freezing of Funds Notice that the Attorney General issues to comply with UN resolutions, may at any time apply to the Attorney General for a revocation of a notice, and may apply to the Royal Court to have a freezing decision set aside. Thus, third parties have access to review if they believe their rights have been infringed.

362. Where a freeze is not UN-resolution related, but rather the restraint is ordered under the Terrorism Law in the course of an investigation of terrorism or terrorism-related offense, persons that are affected by the order may seek its discharge (see Schedule 2, para. 4(4), Terrorism Law). If there is an acquittal, pardon, or quashing of a conviction, compensation may be available (see Schedule 2, para. 7). The freezing order itself may also include in some circumstances provisions for compensation to those affected. (See Schedule 4, paragraph 9).

Enforcing the obligations under SR III (c. III.13):
Monitoring Compliance

363. Measures in Guernsey to monitor compliance with the legislation, rules, and regulations relevant to the UN sanctions regime could be improved. Although GFSC materials for financial services participants and prescribed businesses do address financing of terrorism generally, on UNSCR sanctions in particular, they address only the steps necessary once the Attorney General issues a freezing of funds notice. Neither the Handbooks nor the GFSC website provide much clarity regarding steps such participants should be taking to locate and screen for funds of persons on the 1267 list, or the determination of who might be covered by UNSCR 1373 and thus should be part of their screening and CDD processes.

364. In supervisory oversight, the GFSC has monitored whether participants use screening mechanisms to check against UN lists, the EU or U.K. lists as they conduct CDD or engage in other activities. GFSC has ascertained that many FSBs have software through which their data bases are checked daily for matches with the consolidated list of targets provided by HM Treasury. That list contains the UN Sanctions Committee list. In the case of the banking, insurance, and investment industries, the supervisory questionnaires/checklists used by the GFSC addressed use of lists in very generic terms by inquiring as to how the information regarding UN sanctions is disseminated to the Board and staff. Lists under the resolutions are available to the private sector, although through a number of steps, on the GFSC website. Their status vis-à-vis the Guernsey legal framework is not made clear. Since the on-site visit, the FSB and PB Handbooks each have been amended to include a new chapter on “UN, EU and other Sanctions” and reference to copies of the Orders and guidance issued under the two Orders. On June 25, 2010, the GFSC advised all financial services businesses and prescribed businesses of the revision. In addition, the on-site checklists were amended and enhanced to facilitate a more thorough review of compliance with obligations in this area. Company registry officials in Guernsey do check directors and shareholders using the services of [using the database provided by] World Check, and there is an ongoing effort in this regard for the directors and shareholders specific to the Alderney registry. The registrar of NPOs provides the FIS with details of what it considers to be high and medium-risk NPOs, and the FIS checks databases, including World-Check in connection with the individuals and entities linked to these NPOs. Separately, the registrar has advised NPOs to be mindful of UNSCRs 1267 and 1373.

Sanctions

365. The failure to comply with a Freezing of Funds Notice issued by the Attorney General under either the Al-Qa’ida or Terrorism Order is an offense under Sections 8(9) and 6(7), respectively, of the Orders. This is punishable if the conviction is upon indictment with a term not exceeding seven years or a fine or both. If there is a summary conviction, it is punishable with a term not exceeding six months or a fine or both. Section 20(1), Al-Qa’ida Order; Section 12(1), Terrorism Order.

366. These same penalties also apply in the case of the other major criminal offenses, that of making funds available to a listed person (Section 7, Al Qaeda) or to a person who commits, attempts to commit, or participates in the commission of terrorism, or is controlled by such person or acting on behalf of such person (Section 5, Terrorism).

367. Failure to comply with freezing orders under Section 20 of the TL is also a criminal offense, punishable with a maximum of two years imprisonment and an unlimited fine (Schedule 4, par. 7(2)).

368. In addition, the regulatory powers of the GFSC and the AGCC detailed above under Special Recommendation II may be used to impose sanctions. These include the refusal to grant a license, the revocation or suspension of a license, and the imposition of financial penalties.

Statistics (R.32):

369. Guernsey authorities note that the New Scotland Yard’s Counter-Terrorism Unit is of the view, with which Guernsey authorities agree, that there is a low level of FT risk in Guernsey. Consistent with this threat level, to date, there has been no Freezing of Funds Notices issued or any requests from other jurisdictions to give effect to actions initiated under their freezing mechanisms. However, the Attorney General’s Chambers maintains, and periodically reviews, these statistics regarding UNSCR freezing actions and requests.

Additional Element (SR III)—Implementation of Measures in Best Practices Paper for SR III (c. III.14):

370. Guernsey’s legislative framework and procedures reflect a number of the practices set forth in the Best Practices Paper. For instance, there are competent authorities to designate persons or entities and a reasonable grounds basis for making determinations, safeguards for the designated persons, and procedures that permit a freeze to occur without delay and without prior notice. Measures are not conditional upon the existence of criminal proceedings. There is close cooperation among law enforcement, intelligence, and security authorities who coordinate among themselves and as required with the private sector.

Additional Element (SR III)—Implementation of Procedures to Access Frozen Funds (c. III.15):

371. There are procedures in place to deal with access to frozen funds. Guidance notes relating to licenses which would provide access to such funds are available. These are based on the requirements set forth in UNSCRs 1373 and 1452.

Implementation and effectiveness:

372. To comply with its obligations under UNSCRs 1267 and 1373 and successor resolutions, Guernsey relies on provisions in Orders-in-Council that permit the Attorney General to issue freezing notices on an administrative basis. The Notices establish an affirmative obligation on named holders of funds not to make those funds or other assets available to designated persons or persons that fall under the sanctions regime of UNSCR 1373. If an institution or person receives a freeze notice, it must comply with the terms of the notice and do so immediately.

373. Such a system, if vigorously implemented, may be adequate to meet standards. However, it is not a particularly strong system. It does not impose a general obligation in the absence of a specific freeze notice. Put another way, an affirmative obligation to freeze comes into play only once actual funds are found and an administrative order is issued.

374. A system as in Guernsey where obligations are triggered by the authorities’ issuance of a notice once it locates specific funds contrasts, for instance, with the system that applies generally in the European Union and that the United Kingdom uses, to a great degree, to comply with its UNSCR 1267 and 1373 obligations. In the EU, regulations require all persons and institution to freeze funds and economic resources of those who appear at regularly-updated UNSCR 1267/1390 list or, for non-EU nationals and residents, appear on a UNSCR 1373 list drawn up by the European Council. There are no intermediate steps of first locating funds and then issuing an order.

375. In the Bailiwick, although it could be argued that all persons, not only those that receive a freeze notice, have an implied general obligation because the Orders-in-Council provide a criminal sanction if a person makes funds available to listed persons or 1373 designees, there is no explicit prohibition in law that applies to all persons. The explicit prohibition applies only to persons receiving a notice regarding funds. While arrangements for communication to a specific institution at the time they must freeze is excellent, and subsequent notification to other financial institutions of that specific freeze, authorities in Guernsey have not undertaken to communicate sufficiently with all institutions, the general public, DNFBPs, etc., the general obligation to freeze as a sanction (not to make funds available) and to whose funds that obligation applies (those whose names appear on the UN’s 1267 list and those covered by 1373). In the period since the on-site visit, there have been improvements in communication.

376. This less robust framework has been exacerbated by some limitations in the Bailiwick on the measures that have been in place to communicate with respect to responsibilities and lists. The GFSC website referred the reader to a U.K. website and U.K. lists, but it was not entirely clear what the financial sector participant’s obligation was with respect to the persons and entities that appear on U.K.-published lists. Although reliance on the U.K. 1267 list, which is continuously updated on the U.K. website, is understandable to save resources particularly given the relatively low level of threat, what has been missing is clarity regarding the import of the specific list, how to locate it, what it contains, and how it applies in the Bailiwick context. Bailiwick authorities are undertaking steps to deal with this and after the on-site visit updated the website.

377. In addition, there has been limited outreach beyond the financial sector, for instance to DNFBPs or the public at large. As a practical matter, in the case of many FSBs, as they are part of larger groups, there is use of Head Office software programs to screen the entire group database for any matches for these lists, as well as EU, U.K., and OFAC designations.

378. As noted above, the Bailiwick is reviewing the two Orders-in-Council that form the legal basis for its compliance with the UN sanction in light of the Supreme Court decision in HM Treasury vs. Ahmed and others [2010] UKSC2. With the expected updating, the Bailiwick will have the opportunity to update and strengthen its legal and practical framework for compliance.

379. In an instance, as is the case for now in Guernsey, where the laws provide for a freezing obligation only once authorities issue a specific notice with respect to specific funds, to be effective a regime must pay particular attention to: 1) clearly articulating and providing ready access to the UN 1267 list and clearly indicating the kinds of persons that may well fall within the ambit of UNSCR 1373; and 2) communicating effectively both to the financial sector and to a range of persons beyond the financial sector that might encounter such funds. The authorities are now undertaking steps to articulate obligations more clearly and communicate more widely.

380. The GFSC Handbooks and sanctions section of the GFSC website do cover UN sanctions regime and were improved after the on-site mission to provide greater guidance and specificity to the industry.

381. On another issue, the Law Officers Chambers has prepared three thorough and very useful sets of guidance notes, one general in nature that the recipient of the Freezing of Funds Notice receives when notified of his obligation to freeze funds, and two specific guides that are available upon request by anyone. These latter guides address how to seek a revocation of a Freezing of Funds Notice and how to request a license to access funds. Although they contain information very important for the person whose funds are being frozen so that he may assert rights, in the past none of these guides were provided directly to that person. The guides are available but only upon request. The authorities are now providing for service of the guides on the affected person(s) at the time the Freezing of Funds Notice is served.

2.4.2. Recommendations and Comments
  • In the legal framework, it should be made explicit that a designated person does not receive prior notice of a freeze action.
  • For convictions under Section 5 of the Terrorism Order to be successful, there should be greater clarity in relevant statutes regarding who might fall under the category of a person who commits or attempts to commit or participates or facilitates the commission of terrorism or a person controlled by such a person.
  • At the time of the on-site visit, assessors were of the view that:
    • GFSC public information, as it appeared on the website or elsewhere, should have a greater degree of clarity on the issue of the import of the lists appearing on the HM Treasury website and specifically which lists apply in Guernsey and in what manner. There should be additional clarity on the obligation of financial sector and other participants to locate and screen for funds of persons on the UNSCR 1267 list, and steps they might consider to determine who might be covered by UNSCR 1373, and thus should be part of their screening and CDD processes. There should be greater emphasis on the obligation not to make funds available that is irrespective of the STR process.
    • At the time the Freezing of Funds Notice is served on the designated person, he should also receive information regarding the availability of revocation and the possibility of a license to permit access to some assets and advised that guides are available regarding these issues.
    • Authorities should undertake efforts to enhance the monitoring of compliance with legislation, rules, and regulations relevant to the UN sanctions regime with such steps as including more in supervisory checklists.

382. These matters have each been addressed in the period since the on-site visit, but the effectiveness of these measures cannot yet be assessed.

2.4.3. Compliance with Special Recommendation III
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2.5. The Financial Intelligence Unit and its Functions (R.26)

2.5.1. Description and Analysis
Legal Framework

383. The legal basis for the reporting regime is found in the Disclosure Law (DL) 2007 (Sections 1 to 3A) and the Terrorism Law (TL) 200A2 (Sections 12, 15 and 15A), which established a direct reporting obligation of ML/FT suspicions to either a “nominated officer” (for financial services businesses) or, since quite recently, a “prescribed police officer.” The “nominated officer” is the person nominated by the FSBs for that purpose (normally but not necessarily the MLRO), who in turn is under the obligation to report suspicions to a “prescribed police officer.” Failure to disclose is an offense. According to the Disclosure (Bailiwick of Guernsey) (Amendment) Regulations, 2010, in effect since May 17, 2010, the “prescribed police officer” means a police officer who is a member of the Financial Intelligence Service (FIS).

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

384. Central national agency: The Financial Intelligence Unit for the Bailiwick of Guernsey is the Financial Intelligence Service (FIS), specifically designated as such by law with the introduction of the “prescribed police officer” function on May 17, 2010, to whom all AML/CFT disclosures must be addressed. The FIS was established on April 1, 2001 as a joint police/customs unit and was relocated in the Financial and Economic Crime Branch (FECB) in 2008 following a reorganization of the law enforcement structures. The FECB was renamed as the Financial Investigation Unit (FIU) in November 2009. Before the 2010 legal amendments, the disclosures could legally be made to any police officer, but in practice such information was channeled to the FIS.

385. The following chart shows the present organizational structure of what is now branded as the Financial Investigation Unit (FIU), consisting of three specialist divisions one of which is the FIS that performs the functions of a Financial Intelligence Unit (yellow squares).

386. Receiving and analysis: the specific remit of the FIS as a receiving and processing agency for ML and FT-related disclosures follows from the DL and the TL, as recently amended. The FIS acts as the first reception point of the disclosures and conducts an initial analysis of the information received. Although a law enforcement type Financial Intelligence Unit, the FIS within the internal organization of the Financial Investigation Unit performs a pre-investigative and intermediary role providing for a two-step process where the intelligence team decides if and to whom the information will be passed on for law enforcement purposes.

387. In practice, incoming suspicious transaction reports (STRs) are first evaluated by a senior officer and then registered in the computer system to be further analyzed. When consent is requested by the reporting entity the STR is subject to a risk assessment and a senior officer decides whether or not to grant consent, if possible, within three days. Urgent requests obviously are dealt with immediately. On average approx 22 percent of initial STRs received by the FIS contain consent requests. In practice, the transaction is halted by the reporting entity until consent is given, as this may engage the criminal liability of the reporter. Consent is withheld in approximately 4 percent of these cases, when the suspicion of ML/FT is serious or when more time is needed to make enquiries. Withholding consent amounts to an actual freezing of the assets involved.

388. Dissemination: If the information provided in an STR and the analysis performed by the FIS lead to indications of the reported activity being related to proceeds of crime or terrorism funding, the case is passed on to an officer of the Financial Criminal Team to investigate possible offenses of ML or FT as appropriate. Dissemination also occurs to other authorities, particularly to counterpart FIUs (see cr. 26.5). The dissemination rate is rather high, ranging from 70 percent to 86 percent of the total number of STRs received.

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

389. All STRs must be submitted in the prescribed form, which is attached as a Schedule to the Regulations 2007 issued by the Home Department under Section 11 of the DL and Section 15C of the TL. The form is ad rem and requests enough information (including full identification data, status of business relationship, supporting documents, reasons for suspicion) to enable the FIS to conduct an initial analysis and keep reliable statistics. The form is available on the FIS website and as an Appendix to both the FSB Handbook and the PSB Handbook, issued by the GFSC. Disclosures can be delivered manually, by mail or by fax, or transmitted electronically. The FIU is presently developing an online reporting function in its intelligence database, which is expected to become operational in June 2010.

390. Besides the guidelines issued by the supervisory authority, the FIS provides regular training sessions for the MLROs which include reporting requirements, case studies and other feedback issues. Although a report that is not in the prescribed form is not accepted, in practice it is simply sent back to be corrected and in the meantime the FIS starts its analysis anyway.

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

391. As a police/customs unit, the FIS has full and direct access to various local and U.K. law enforcement databases, such as Linkworks (Police), ICIS (Customs), and PNC (U.K. Police)2. Information from the Attorney General can be obtained by virtue of Section 2 of the Fraud Investigation Law allowing him to disclose information that he has received under that Law to any person or body for the purposes of the investigation of an offense or prosecution.

392. Administrative information is available upon request through Sections 6 of the DL allowing “authorized persons” (i.e., persons employed in a government department and authorized by a chief or equivalent officer) to disclose any information held by a government department for law enforcement purposes. Equally, tax information can be obtained by the FIS by virtue of Section 9(2) of the DL permitting the Director of Income Tax to disclose any information in his possession to a police or customs officer for (broadly) law enforcement purposes. The same is the case for information on charities and NPOs, where the Director of Income Tax acts in his capacity as the keeper of the register of charities and NPOs.

393. As for financial/commercial information, the GFSC is allowed to disclose information for the purposes of prevention or detection of crime, in accordance with Section 21(2) (b) of the Financial Services Commission Law. This, however, is limited to information the GFSC already has in its possession, so it cannot go and collect financial information at the request of the FIS. Such additional information requires a court order. Beneficial ownership details can be obtained from Company Service Providers under Section 490 of the Companies Law by police or customs officers (i.e., the FIS) on service of an authorized certificate from the Chief Officer of Police or the Chief Officer of Customs.

394. Finally, the FIU/FIS subscribes to a number of commercial databases which provide U.K. company information, worldwide media reports, and credit history records for U.K. individuals. These include Experian (+ Force view), Equifax, LexisNexis, Companies House, JARD, World Check, Country Check, and C6.

Additional Information from Reporting Parties (c. 26.4):

395. Regulation 2 of the Disclosure Regulations 2007, made under Section 11 of the DL and Section 15C of the TL, requires reporting parties to provide to the FIS requested additional material within seven days of receiving a written notice requesting such information. Failure to comply without reasonable excuse is an offense (up to five years imprisonment and unlimited fine). The powers set out in Section 11 have been used twice, but in general the incoming STRs have not yet given rise to frequent additional questioning of the reporting entities as they are aware of the importance of providing full disclosure.

396. It is important to note that this power to request additional information can only be used in respect of the entity that has made the disclosure, not with other entities that, although involved in the transaction, have not taken such initiative. Querying other FSB for relevant financial information, for instance, in order to follow the money trail, would necessitate lifting the case to investigative level and the issuing of court orders. At intelligence level, the FIS frequently makes financial account enquiries to FSB, often as a result of intelligence received from or a request made by another jurisdiction. Any information given in reply is voluntary, as there is then no legal obligation to respond.

Dissemination of Information (c. 26.5):

397. The overall legal basis for dissemination of ML/FT related information is found in Section 8 of the DL, permitting a police or customs officer to disclose to any person any information obtained under any enactment or in connection with the carrying out of any of his functions, for the purposes set out at Section 8(2), i.e., the prevention, detection, investigation, or prosecution of criminal offenses in the Bailiwick or elsewhere, the prevention, detection, or investigation of conduct for which penalties other than criminal penalties are provided under the law of the Bailiwick or of any country or territory outside the Bailiwick, the carrying out by the GFSC or an equivalent body in another country of its functions, the carrying out of the functions of any intelligence service, and any other function of a public nature designated by order of the Home Department.

398. Moreover, under Section 10 of the DL, a police officer of the rank of inspector or above and a customs officer of the rank of senior investigation officer or above may disclose to the Director of Income Tax any information which he reasonably believes may assist the Director to carry out his functions.

399. Within the FIU, dissemination occurs in the form of intelligence being passed on by the FIS to the other divisions (financial criminal team or the civil forfeiture team) for further investigation or other appropriate action. The task of the FIS is to selectively develop the case by collecting additional information and adding value to the disclosure information so it can be used to initiate or direct an investigation or support a pending enquiry. Intelligence from STRs is sanitized and evaluated into a written intelligence report, utilizing the grading system detailed within the U.K. National Intelligence Model and either placed directly on local law enforcement databases or disseminated in accordance with the Egmont principles of information exchange to overseas agencies.

Operational Independence (c. 26.6):

400. Neither the FIU nor the FIS has an autonomous legal status, although the FIU has its own budget. Both are part of the overall law enforcement structure and as such accountable to its hierarchy. The head of the FIS reports to the head of the Financial Investigation Unit, who in turn reports to the head of the Law Enforcement Division of the customs service. There is a functional interaction between the three sections of the Financial Investigation Unit, which is however operationally quite independent and remains in control of the information it holds. The assessment team did not find any indication of risk of undue outside interference or political pressure.

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

401. Section 8 of the DL, together with the equivalent provisions of the POCL (Sections 43 and 44) and the DTL (Sections 62B and C), provide for the legal protection of the information held by the FIS. The provisions specifically and restrictively spell out the instances where the information can legitimately be divulged to other persons, subject to the applicable provisions of the Data Protection Law, 2001. Furthermore, the FIS officers are contractually bound to confidentiality and any breach may lead to disciplinary action.

402. The physical protection of confidential information is well organized. The FIU is located within the separate premises of the Cross Border Crime Division of the Guernsey Border Agency. Access is secured and restricted to staff. All confidential documentation is securely stored and all cabinets are locked when the FIS office is unattended. No intelligence material can be removed from the FIS office without reference to a supervisor, and removal by any non-FIS staff is recorded. No intelligence material is placed on laptops or other data storage media e.g., USB/CD without the express permission of a senior investigation officer and appropriate security protocols adopted.

Publication of Annual Reports (c. 26.8):

403. The FIS publishes periodic reports on its website, which have also been circulated in hardcopy to various organizations. These reports contain statistical data and analysis of STRs, sanitized case reports, as well as an overview of additional activities such as the feedback project and training initiatives.

404. Details of FIS activities are also incorporated into both the police and customs service annual reports. In addition, the FIS has periodically compiled articles for inclusion in the Guernsey Association of Compliance Officers newsletter and when necessary written directly to sectors to provide them with information on particular issues e.g., research regarding cash transactions by high-value goods dealers, use of the prescribed reporting form and general awareness-raising information.

405. Within the operational context, the FIS produces quarterly reports for the benefit of law enforcement as a whole, and quarterly reports for the Bailiwick AML/CFT Advisory Committee, in order to inform them of current trends and cases of interest.

Membership of Egmont Group (c. 26.9):

406. The Guernsey Financial Intelligence Unit has been an active member of the Egmont Group of FIUs since 1997, initially as the Joint Financial Crime Unit and from 2001 as the FIS. The FIS has hosted the plenary meeting in 2004 and is an active participant to the Egmont activities, such as the Training Working Group.

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

407. The FIS Staff handbook and practice is built on the Egmont Principles for Information Exchange (free exchange for analytical purposes, prior consent before dissemination, and confidentiality) and significant use is made of the Egmont secure web for disseminations and exchanges of information.

Adequacy of Resources—FIU (R. 30):

408. The FIS currently has an establishment of 12 staff, comprising a senior investigation officer, a detective sergeant; four customs service investigators, one detective constable, two dedicated financial investigators, one financial crime analyst and two administrative staff, including a process manager. The analytical software used by the FIS is - i2 Analyst Notebook, Microsoft Excel 2007, KYC360 and iTel. The expenditure for the FIS is part of the FIU budget, which for 2009 was £1,600,000. These human and financial resources were deemed sufficient to effectively perform its functions.

409. All police and customs service personnel are required to undergo comprehensive recruitments processes, including checks for any criminal convictions. FIS personnel are selected from the customs service and police subject to their investigative experience and aptitude for financial investigation. All posts within the FIS are subject to both local and enhanced security clearance and to annual and interim appraisals in accordance with the policies of their parent organizations.

410. All personnel joining the FIS undergo a period of induction and are required to attend a number of locally based courses run by the Guernsey Training Agency which provide an understanding of a number of the core financial vehicles e.g. companies and trusts. All staff members receive data protection training. Central to FIS training for investigators is the NPIA Financial Investigation Training program. All investigative staff is accredited as financial investigators/intelligence officers and in order to maintain this status they are subject to the continuous development requirements of NPIA.

411. The FIS has two dedicated terrorist finance officers who have attended the course run by the U.K. NTFIU, and a Financial Crime Analyst who has had a long experience in the financial industry and attended several specialist training courses. Staff participate in the regular joint training sessions and presentations organized within the Bailiwick for representatives of all bodies with AML/CFT responsibilities.

Statistics (R.32):

412. The grounds for making STRs, as indicated by the reporting entities, are reflected in following chart:

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413. The disclosures based on tax and fraud grounds clearly predominate, with an average of around 60 percent of the total number of STRs over the last three years. Although the dissemination figures do not give an indication of the predicate criminality except for the local destinations (see below), according to the FIS the overall quality of the STRs is adequate and the grounds for reporting generally founded, as demonstrated by the high ratio of disseminations by the FIS.

414. The statistics for STRs analyzed and disseminated in the last 4 years are as follows:

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415. The STR dissemination rate is rather high, ranging from 70 percent in 2006 to 86 percent in 2009. These figures relate to both local and international disseminations. STR information sent at the disposal of counterpart FIUs or other foreign law enforcement authorities is also counted as dissemination. The actual number of disseminations is, however, significantly larger than that of the STRs disseminated, as most STRs are forwarded to multiple destinations, depending on the authorities/jurisdictions that may be interested or involved. The balance (STRs in-STRs out) gives the number of disclosures filed within the FIS or still under analysis.

416. Following table captures the overall figures of dissemination (local and cross-border) between 2008 and May 2010:

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417. Extrapolation of the above figures to the number of STRs disseminated between 2007 and 2009, gives around 40 percent of the reports with a local destination, with the other 60 percent forwarded to foreign authorities, mostly counterpart FIUs. This estimation needs to be viewed with caution and the local destination corrected downwards, however, when compared with the table below reflecting the country/region of residence of the person(s) subject of the STRs, where the ratio fluctuates between 11.5 percent and 25 percent:

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Ratio: 25 percent 11.5 percent - 17.5 percent - 16 percent

418. The overall picture of diversification between local and foreign dissemination becomes more confusing when the dissemination figure for the years 2007 to 2009 is compared with the breakdown figures below of STRs disseminated and investigated locally over the same period, which gives an average of barely 4.3 percent. Clearly, not all local disseminations are investigated to some extent or another.

419. Following figures reflect the results of the disseminations in terms of investigations:

OVERALL

420. Breakdown of the total amount of STRs submitted to the FIS and the total amount of STRs that resulted in further investigations being conducted / instigated (local and foreign) is as follows:

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INTERNATIONAL

421. The following table identifies the STRs that were of interest to jurisdictions outside of the Channel Islands and includes the United Kingdom.

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422. The international investigations involved countries worldwide including: Isle of Man, European Countries including (Belgium, Czech Republic, France, Germany, Turkey, Gibraltar, Italy, Norway, Portugal, Romania, Serbia, Switzerland, Sweden, and the United Kingdom), Argentina, Australia, Bermuda, Botswana, Brazil, British Virgin Islands, UAE, Ghana, Hong Kong, Iceland, India, Indonesia, Israel, Kenya, Mexico, Nigeria, the Philippines, Russia, Singapore, South Africa, Thailand, the United States, and Zimbabwe.

LOCAL

423. The Bailiwick of Guernsey investigations have been categorized in relation to the criminality of the investigation:

Mutual Legal Assistance 2007 – 2010
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Guernsey (Drug Trafficking) 2007 – 2010
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Guernsey (Crime) 2007 - 2010
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Guernsey (Crime) Money Laundering 2007 - 2010
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Guernsey (Fraud) 2007 - 2010
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Guernsey (Immigration Crime) 2007 – 2010
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Guernsey (Social Security) 2007 - 2010
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Guernsey (Housing Benefit) 2007 - 2010
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Jersey Investigations
Jersey Fraud 2007 - 2010
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SUMMARY

424. The authorities supplied the following table on the amount of funds recovered through local or international confiscation and the number of convictions and sentences for those individuals involved. These results have been deduced from follow-up checks made on the Guernsey Police system, U.K.-PNC, feedback from other jurisdictions, or open source information.

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There are two caveats here:

  • The total number of convictions (42 international + local) does not correspond with the breakdown statistics above (in total 39, including community service), but that may be attributable to double counting or incomplete feedback. Both figures are, however, close and do give an acceptable picture of the overall result in terms of convictions.
  • The relation between STRs and investigations/convictions needs to be put in perspective. Some STRs may have triggered the investigation themselves; others may have been used only as supportive or illustrative material, so their value for the investigation/prosecution is relative. The statistics do not make a differentiation on this point.
Analysis and effectiveness:

425. There is no legal statute or instrument formally establishing a Financial Intelligence Unit in the Bailiwick. The reporting regime has developed over time from an obligation to report to a “police officer” to (since May 17, 2010) a “prescribed police officer.” Only then was the FIS formally designated as the central reception point of disclosures made under the Disclosure Law. This was, however, only officially recognizing the long-standing (since April 1, 2001) practice of channeling all STRs to the Financial Intelligence Service as a subdivision within the Financial and Economic Crime Branch, now (confusingly) renamed Financial Investigation Unit-FIU. So for all purposes, the FIS assumes the functions and responsibilities of the financial intelligence unit for Guernsey, specifically designated as central authority receiving all STRs, subjecting them to an analytical process, and then deciding if and to whom the information should be disseminated.

426. The STRs follow the usual processing path: the incoming disclosures are matched with the databases the FIS has direct access to, subjected to an evaluation and forwarded to the law enforcement authorities (mostly, but not necessarily the Financial Crime Team within the FIU) if there are indications of money laundering or terrorism financing. The analysis by the FIS is in practice rather passive. Although the FIS has the power to query all administrative services of the Bailiwick, it has only done so on two occasions since 2007 (requests for tax information). The initial assessment is particularly relevant in the context of the consent procedure, when such consent is expressly requested.

427. The organizational structure of the Financial Investigation Unit allows for a clear distinction between the functions of the Unit as an intelligence unit and those of an investigative law enforcement body. This is especially important in the conduct of the external relationships of the FIS with foreign (administrative) FIUs. This clear division of tasks is also operationally effective in that the FIS fulfills a selective and pre-investigative function in filtering out reports that do not warrant further investigation and adding value to the STR information received to prepare the case for further investigation, where the analysis reveals sufficient indications. The separation between the intelligence and investigative functions of the FIU is equally relevant in the development of a relationship of trust between law enforcement and the reporting entities that can rely on the FIS to screen their reports for quality and relevance before deciding on a formal investigation. The relationship between the FIS (or, for that matter, the FIU) and the financial industry appears to be open and constructive.

428. The human and financial resources allocated to the FIU reflect the serious commitment of the Bailiwick authorities to protecting the reputation of the financial center. The assessors noted the professional level of the FIS staff and their specific training and background in AML/CFT matters. The multidisciplinary approach of combining the expert knowledge of the police and customs officers, the analysts, and the legal assistants at operational level is productive. The FIS has access to a whole range of law enforcement, administrative and commercial information but, as said, 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. There is also the practice of the FIS tracing existing financial accounts (FAE), but the financial institutions are not under the obligation to disclose that information. Any other financial information needs the intervention of the courts and the use of the statutory investigative powers of the FIU. This means the process is no longer in the analytical/intelligence stage and has passed to the investigative stage of collecting evidence. The FIS is quite active in the international scene (see statistics above and under R. 40) and does actively share information for intelligence purposes with its counterpart Financial Intelligence Units.

Effectiveness:

429. The FIU/FIS keeps detailed statistics, and all requests from the assessment team for additional figures were promptly met. The present average reporting level is approximately 50 STRs per month, and increasing. The dissemination rate is quite high, reaching 86 percent in 2009. As noted above, it is estimated that, in terms of single STRs, the dissemination rate to overseas authorities is 60 percent.

430. It is important to note that the estimation of the rate of STRs resulting in investigations, as shown in the table above (16 percent in the last two years), is made on the basis of feedback received from local and overseas agencies, and needs to be viewed with some caution. While the local information seems quite reliable, the feedback from foreign sources is more difficult to assess. This is particularly the case for the number of convictions reported from overseas, as they may lead to different interpretations and cannot really be verified. All in all though, it must be acknowledged that the figures do give a general idea of the performance of the STR regime in terms of local and overseas investigations, although the real value of the STR information to the investigations remains a question mark.

431. There are no indications of lack of timeliness or unreasonable delays in the processing of STRs due to internal structural factors. Delays are sometimes incurred where the FIU has to depend on external sources, such as its foreign counterparts. The resources allocated to the FIU/FIS are deemed sufficient in view of the number of STRs and the FIS adequately manages the process. The consent procedure puts a time pressure on the FIS, but this has not given rise to real difficulties. The positive effect of this procedure is the de facto immobilization or freezing of suspected assets so they do not disappear before law enforcement can take action.

432. As noted, there is a weakness in the information gathering capacity of the FIS. A Financial Intelligence Unit should ideally have direct or indirect access to financial and other additional information to adequately perform its functions. Under the Bailiwick regime, access to such additional financial information (besides from the reporting entity) is only available through a court order. This is, however, an investigative measure that will normally only be considered by the judge if the case is at a sufficiently high evidentiary stage. Although this circumstance is within the international standards, effectiveness could be enhanced if the FIS would dispose of a formal (additional) financial information gathering power in the context of an STR analysis.

433. 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, which is also an important factor explaining the steadily increasing number of STRs. 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.

434. The majority of the STRs and disseminations relate to foreign predicate activity with the proceeds ending up in the Bailiwick, which is no surprise considering the offshore nature of the Guernsey financial industry. Consequently the FIU/FIS is greatly dependant on the assistance received from its counterparts abroad, which is not always forthcoming or does not always contain much relevant information. Also relevant to a fair analysis of the effectiveness is the positive impact of the systematic (spontaneous) dissemination of information by the FIU/FIS to the competent authorities of other jurisdictions to assist in their analysis or investigation.

435. Focusing on the local situation, the picture is more diffused. While the STR information can be linked to a reasonable number of investigations resulting in prosecutions and convictions for predicate offenses, the law enforcement follow up on money laundering is disappointing. All in all, STRs have been more or less instrumental to the modest number of five ML investigations over a period of three years (2007–2009), with only five ML prosecutions undertaken and two convictions obtained. STR information has been used in only one prosecution. The fact that the FIU/FIS makes relevant information readily available to foreign counterparts is a positive factor, but does not effectively compensate the low level of results domestically. This is a challenge for the law enforcement authorities as a whole and not just for the FIU/FIS.

436. The FIS should 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, and leave the rest to the foreign originating country. The challenge of investigating and prosecuting money laundering as an autonomous offense by keeping the handling of the case in the Bailiwick, working on the basis of the evidence gathered in its own jurisdiction, and not so much depends on foreign authorities in deciding on and determining the outcome of the investigation/prosecution, still has to be met.

2.5.2. Recommendations and Comments
  • The FIU/FIS, as part of the Bailiwick law enforcement community, should implement steps to improve the effectiveness of the reporting system to support an increase in the number of investigations and prosecutions.
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 and 28)

2.6.1. Description and Analysis
Legal Framework

437. The legal framework for the investigation and prosecution of ML and FT offenses and for related seizure and confiscation measures is provided by Proceeds of Crime Law (POCL), the Drug Trafficking Law (DTL), the Terrorism Law (TL), and the Civil Forfeiture Law (CFL). The investigative powers of the police and the conservatory measures taken during an investigation are governed by the generally applicable provisions concerning investigations in the Police Powers and Criminal Evidence (Bailiwick of Guernsey) Law, 2003 and in the Regulation of Investigatory Powers (Bailiwick of Guernsey) Law, 2003. Customs officers can exercise the same powers as if they were police officers (see i.a. s.17 DL, s. 51 POCL).

438. Besides having the overall responsibility for the prosecution of offenses, the Attorney General has powers of investigation under the Fraud Investigation Law in cases of suspected serious or complex fraud, under the Insider Dealing Law in cases of suspected insider dealing, and under the Protection of Investors Law in cases of suspected market manipulation.

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

439. The Financial Investigation Unit (Cross Border Crime) is a division of the Guernsey Border Agency (Customs and Excise) and has primary responsibility for the investigation of money laundering and terrorism financing and all other financial crime with a cross-border element. It is staffed by police and customs officers and is made up of three teams (see chart above, cr. 26.1). The financial criminal team, which forms a part of the operational arm of the FIU, has specific responsibility for confiscation, money laundering and terrorism financing investigations, and evidence gathering and prosecution file compilation for prosecutors. The team is led by a senior investigation officer and is staffed by experienced financial investigators. The Civil Forfeiture Team has responsibility for investigations into non-conviction based asset recovery.

440. The Police Commercial Fraud Department (PCFD) is responsible for investigations in respect of domestic financial crime. A Detective Inspector leads the team and all its officers are experienced investigators, most of whom have previous experience within either the Criminal Investigation Department or Special Branch. When the investigation uncovers criminal proceeds, they may deal with the money laundering angle and consider laying additional charges. A partnership agreement is being drafted ensuring proper coordination between the PCFD and the FIU.

441. The Guernsey Police investigates offences that are not assigned to specific law enforcement departments. These would include common offences such as possession of drugs and predicate proceeds generating criminality such as theft and robbery. Drug trafficking matters fall within the remit of the Guernsey Border Agency, who works in partnership and consultation with the Police. The Police can add on a money laundering charge to any local proceed-generating offense, but any substantive money laundering or confiscation investigation will be conducted by the FIU, where the resources and expertise reside.

442. The Attorney General is responsible for issuing warrants authorizing the use of special investigative techniques under the Regulation of Investigatory Powers Law. All prosecutions are brought in his name and are presented in court by a specialist prosecution team within his Chambers. Members of the Attorney General’s Chambers provide advice and assistance to police and customs officers in respect of financial investigations and the preparation of cases for prosecution. Lawyers specialized in economic crime, mutual legal assistance, and asset recovery work closely with the law enforcement agencies in the areas of ML/FT.

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

443. The Police Powers Law confers a power to police officers to arrest and seize. The power is a permissive one and the exercise of that power can be deferred, postponed, or waived for the purposes of following the money trail, of identifying suspects, or of 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, especially in drug trafficking cases. It is the responsibility of the officer in charge of the investigation, often with legal guidance from the Law Officers, to decide on the timing of arrests, which may entail allowing an illegal situation to continue in a controlled way.

Additional Element—Ability to Use Special Investigative Techniques (c. 27.3):

444. Under the Regulation of Investigatory Powers Law, the law enforcement agencies can be authorized to employ a range of covert investigative techniques that are available for use in investigations into ML and FT offenses. Sections 3 to 5 deal with interception of communications, Sections 22 and 23 deal with directed surveillance, Section 24 with covert human intelligence sources, Section 26 with intrusive surveillance, Section 39 with entry on to and interference with property, and Section 46 with the investigation of electronic data protected by encryption. The use of the techniques is dependent on the consent of the Attorney General save for the Section 46 power which requires written permission from a person holding judicial office.

Additional Element—Use of Special Investigative Techniques for ML/FT Techniques (c. 27.4):

445. The special investigative techniques identified above have been utilized against serious crime syndicates operating in and around the Bailiwick. An example is Operation Cash Extraction, a case where movements of money were allowed which enabled some overseas jurisdictions to freeze significant amounts.

Additional Element—Specialized Investigation Groups and Conducting Multinational Cooperative Investigations (c. 27.5):

446. The Financial Criminal Team within the FIU is staffed by trained financial investigators and is responsible for investigating the proceeds of crime. It is supported by Technical Support Units within the police force and the customs service. In addition, officers possess specific skills that can be utilized during investigations, such as CHIS (Covert Human Intelligence Source) handling, there is a trained search team as well as investigators with forensic computing skills for analyzing seized computer equipment. On behalf of law enforcement, the FIU also manages a contract for forensic accountancy services, which can be called upon by any of law enforcements’ financial crime teams.

447. Assistance involving the use of the special investigatory techniques is afforded to other jurisdictions as necessary on a case-by-case basis in support of ML/FT investigations as well as investigations into underlying predicate offenses. The use of these powers is subject to the provisions of the Regulation of Investigatory Powers Law as set out above, and joint protocols are agreed in appropriate cases.

Additional Elements—Review of ML and TF Trends by Law Enforcement Authorities (c. 27.6):

448. Internal reviews of methods, techniques, and trends take place regularly within the various organizations involved in law enforcement and there are also regular reviews on an interagency basis. Within the FIU, Egmont group newsletters and sanitized cases of interest are shared with FIU staff and other Service Authority members to raise awareness of current developments. The FIU also receives assessments and circulars on FT matters from the Serious Organized Crime Agency via Special Branch and the Police Force Intelligence Bureau. The FIU subscribes to many ML publications and periodicals and a large emphasis is placed on developing the skills and sector knowledge of the FIU. Where appropriate, such information is also shared with financial investigators within the police force and the customs service, as well as with the Attorney General’s Chambers and with the GFSC. Practitioners from all the relevant competent authorities also meet on a quarterly basis through the AML/CFT Advisory Committee and at quarterly meetings of the Financial Crime Group and Terrorist Finance Team meetings, where Bailiwick developments and current cases are discussed.

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

449. There are several legal provisions conferring law enforcement authorities the power to—directly or through court intervention—demand, search for, and seize evidentiary material of a financial nature in the context of a money laundering or terrorism financing investigation.

  • Section 45 of the POCL and Section 63 of the DTL permit a police officer with the authorization of the Attorney General to apply ex-parte to the court for a production order, i.e., an order requiring a named person to deliver up specified material. Sections 46 of the POCL and 64 of the DTL permit a police officer with the authorization of the Attorney General to apply for warrant to search specified premises, such as FSB, and seize material found there, under certain conditions.
  • Section 48A of the POCL and Section 67A of the DTL provide for the possibility for the courts to issue customer information orders, requiring FSB to provide specified information related to a particular customer if that person is the subject of an investigation into money laundering, or location of criminal proceeds.
  • Account monitoring orders can be issued by the court under Section 48H of the POCL and Section 67H of the DTL. These orders require named FSB to provide information about any dealings relating to the account or group of accounts named in the order, for a period not exceeding 90 days.
  • The same powers and procedures can be applied in the context of an investigation into terrorism financing offenses. These offenses fall within the definition of criminal or unlawful conduct at Section 1 of the POCL and Section 61 of the CFL and consequently the investigatory powers under these laws are engaged.
  • Schedules 5 to 7 of the TL provides for specific investigatory powers in the context of terrorism investigations, including its financing (Section 31). Under these provisions, the court can issue warrants permitting entry, search and seizure, production orders, orders requiring an explanation of seized or produced material, customer information orders, and account monitoring orders.
  • There are generally applicable powers of search and seizure in parts I and II of the Police Powers Law. These may be invoked if there are reasonable grounds to believe that a serious arrestable offense as defined in Section 90 has been committed. As that definition covers any arrestable offense whose commission involves actual or intended substantial financial gain or serious financial loss to any person, or whose commission is likely to lead to a threat to the security of the Bailiwick or to public order or to cause death or serious injury to any person, it will apply to most predicate offenses as well as in the vast majority of cases concerned with the proceeds of crime and terrorist funding.
  • Section 1 of the Fraud Investigation Law gives the AG special powers to obtain evidence without a court order in respect of serious or complex fraud, including the financial proceeds aspect, wherever committed. In this context, the AG has the power to require the production of evidence and may seek a search and seizure warrant from the court. These powers have been frequently used, particularly in mutual legal assistance procedures. Sections 10 to 13 of the Insider Dealing Law and Sections 41L and 41M of the Protection of Investors Law provide for similar powers, which can be invoked in cases where the predicate offense involves conduct covered by those laws.
Power to Take Witnesses’ Statement (c. 28.2):

450. All law enforcement officers are entitled and have the power to take down statements of witnesses. This common authority is inherent to the investigative function of a police or customs officer and is imbedded in the general principles of criminal law and procedure.

451. For the sake of completeness, it is worth noting that specific powers to take nonvoluntary witness statements in special circumstances are found in par. 6 of Schedule 5 to the TL (explanation of material produced in response to a production order or as a result of a search warrant) and Section 1(2) and (3) (b) of the Fraud Investigation Law (AG requiring to answer questions or furnish information relevant to the investigation or the whereabouts of documents).

Statistics (R.32):

452. See statistics introduction and under 2.5

Adequacy of resources—LEA (R. 30):

453. The responsibility for investigation of money laundering, terrorist financing, other financial crime, and predicate offenses is shared by the police force and the customs service. Within the customs service, responsibility for dealing with cross-border financial crime lies with the FIU. It is funded under a budget allocated to the Law Enforcement Division and is made up of three teams: the Financial Criminal team, the FIS, and the Civil Forfeiture Team. The FIU is currently staffed by 21 personnel. The police force has an establishment of 176 officers, augmented by 61 civilian support staff, to police the Bailiwick. The Police Fraud Department has four officers who come under the line management of the Detective Inspector CID, who has command of a further twelve detectives in that Department. Both the police force and the customs service have full operational autonomy and independence and are free from undue influence or interference.

454. The day-to-day responsibility for prosecutions rests with the Director of Prosecutions, who has a team of five other lawyers, a paralegal (a former police officer), and a personal assistant. All lawyers within the directorate are criminal specialists who between them have over 80 years prosecuting experience in Guernsey or formerly as senior lawyers within the Crown Prosecution Service (CPS) in England. In addition, a mutual legal assistance lawyer and an asset recovery lawyer work alongside the prosecution directorate and share a resource in the paralegal and personal assistant referred to above.

455. All professional members of the prosecution directorate of the Attorney General’s Chambers are required to have qualified as solicitors or barristers in the United Kingdom or in a Commonwealth jurisdiction. The holders of senior positions must also demonstrate significant experience of criminal practice. All lawyers in the prosecution team are required to undertake training in the areas of money laundering and terrorist financing by attending a minimum of at least one relevant course per year.

456. Prosecutors work closely with the law enforcement agencies throughout the life of many cases, but it is well understood that the prosecutor always has the final decision with regard to whether a prosecution should be started or continued, and therefore has full operational independence. In making prosecution decisions, the Code for Crown Prosecutors is applied.

457. All staff members working for the law enforcement agencies and for the prosecution directorate are provided with regular compulsory training on AML/CFT issues. Financial investigators and analysts working for the FIU are required to attend NPI and similar training courses, presentations, and conferences. Officers of the Police Commercial Fraud Department undergo a basic fraud investigation course in the United Kingdom. Following this, they will undertake the NPIA/ARA course for financial investigation. Through partnership agreements with U.K. forces, the Metropolitan Police, and the City of London Police, staff members also have the opportunity for short-term attachments to Economic Crime Units Representatives from law enforcement also attended several of the AML/CFT training sessions set out below alongside members of the prosecution team.

Implementation and effectiveness:

458. The statistics on money laundering cases over 2006 to 2009 (see 2.1) show 26 investigations, 8 referrals to prosecutors, 5 prosecutions and 2 convictions (guilty pleas), with 1 prosecution pending on several counts of money laundering (autonomous). An STR was involved (value unknown) in only 1 case that ended in a conviction. Although the number of investigations is steadily rising, the performance of the system in terms of prosecutions is still very modest.

459. The law enforcement authorities are adequately resourced and trained. They have a sufficient legal arsenal at their disposal to conduct investigations and collect the evidence required to bring a money laundering investigation to a good end, but still the results are modest. All money laundering investigations being conducted by the FIU (Financial Crime Team), the effectiveness issues raised under 2.5, are also relevant to the analysis of the overall law enforcement aspects. 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.

460. As for the judicial side, the limited number of successful prosecutions for money laundering raises an issue of effectiveness of the overall system in this regard. Although progress is being made, as witnessed by the pending money laundering case, the overall law enforcement policy should focus more on keeping the investigation and prosecution of foreign predicated money laundering as an autonomous offense in the Bailiwick jurisdiction. 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 its own jurisdiction.

2.6.2. Recommendations and Comments
  • The authorities should implement steps to improve effectiveness by seeking to increase the number of investigations and prosecutions, particularly on autonomous money laundering.
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
Legal Framework

461. The Bailiwick of Guernsey introduced a cross-border cash control regime with the Cash Control (Bailiwick of Guernsey) Law, 2007, in order “to disrupt the cash transfer networks which support terrorism, money laundering and all forms of financial crime”3 and to align itself both with the FATF standards and the EC Regulation 1889/2005 of October 26, 2005 on controls of cash entering or leaving the Community. The Law came into effect on February 18, 2008. Other relevant statutes are the Customs Law 1972 (transportation by freight) and the Post Office Ordinance (parcel post). All extend to Sark and Alderney.

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

462. Guernsey has opted for a declaration system in line with the regime at the external borders of the EU, which imposes an obligation on individuals importing into or exporting from the Bailiwick cash and bearer-negotiable instruments to a value of €10,000 or more to make a report to an “officer”, i.e., of the Customs and Excise. It is an offense for an individual to carry in excess of a “specified” amount (set at €10,000) into or out of the Bailiwick, unless the cash passes through a designated port or customs service airport and the individual completes a truthful cash control declaration (S.1(1)).

463. The Cash Control Law does not apply to the cross-border transportation of cash by means of freight or containerized cargo. This is governed by the general declaration regime of the Customs Law 1972 (S. 14 & 28), whereby all “goods” (and their value) have to be declared to the Chief Revenue Officer of Customs and Excise. By virtue of Section 6(2) of the Cash Control Law cash (as defined in that Law) in excess of €10,000 shall be deemed to be “goods” for the purpose of the Customs Law, making the provisions of that Law applicable to all matters pertaining to the Cash Control Law.

464. As for the control of cash import and export through the mail by parcel or by courier, Guernsey applies the provisions of Section 5 and 6 of the Post Office Ordinance 1973. All packets must be accompanied by a customs declaration form stating the nature, quantity, and value of the goods they contain. Here the term “goods” is not specified nor does the Cash Control Law make any reference to the Post Ordinance. Section 5 and 6 refer to “dutiable goods, small packets, or letter packets,” which is quite unspecified and difficult to reconcile with the Cash Control Law definition.

465. The original definition of cash under the Cash Control Law (S.10 (1)) covered all currency and bearer negotiable instruments as defined by the international reference documents. While maintaining the €10,000 threshold, the definition was extended on August 10, 2009 by the Cash Control Law (definition of cash) Ordinance, 2009, to include bullion (including gold, silver, palladium, platinum bullion), and again amended on March 24, 2010 by the Cash Control Law (amendment of definition of cash) Ordinance, 2010 to include postage stamps4.

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

466. By virtue of Section 6 of the Cash Control Law, the Customs Law applies to the cross-border control regime. Consequently, all investigation and enquiry powers vested in customs officers can be used in that context. According to Section 33 of the Customs Law, officers have the power to require “evidence” in support of any information required in respect of the import or export of goods. This would include the authority to make further enquiries on the origin or use of the cash. There is, however, no equivalent provision in the Post Office Ordinance.

Restraint of Currency (c. IX.3):

467. If a declaration or non-declaration gives rise to a suspicion of the cash being criminal proceeds or intended to be used in unlawful conduct, Sections 6 and 7 of the Civil Forfeiture Law enable cash in excess of £1,000 to be seized for an initial period of 48 hours, extendable by court order to up to two years. The definition of cash in Section 3 of the Civil Forfeiture Law is similar to that of the Cash Control Law.

468. Similarly, suspected terrorist cash, i.e., cash that is intended to be used for the purposes of terrorism, consists of resources of a proscribed organization, or is property earmarked as terrorist property (Paragraph 1 of Schedule 2 TL) can be seized by virtue of Section 19 and part 2 of Schedule 3 of the TL for an initial period of 48 hours, extendable by court order for a period of up to two years. Here also cash is defined in a similar way as the Cash Control Law (Schedule 3, paragraph 1 TL). There is no minimum threshold.

469. In case of a false declaration in relation to the import or export of cash, the powers of seizure and detention under Section 56 of the Customs Law can be applied. Ultimately, the cash is liable to forfeiture under Section 22(e) of the Customs Law and Section 7(b) of the Cash Control Law. Although under Section 12 of the Post Office Ordinance, noncompliance with its declaration requirements also renders the goods in question liable to forfeiture, the Ordinance does not contain appropriate and specific provisions on temporary restraint measures.

Retention of Information of Currency and Identification Data by Authorities when appropriate (including in Supra-National Approach) (c. IX.4):

470. Section 4 of the Cash Controls Law specifically charges the Chief Officer of Customs and Excise to keep a record of all information from cash control declarations and to conserve the data for a minimum of six years. All declaration data made under the Customs Law is retained for three years. As for the declarations under the Post Office Ordinance, they are also retained for three years but only in case the goods have been forfeited because of a false declaration. All cases of suspected money laundering or terrorist financing would generate an investigation with data from the investigation being kept for 6 years. In practice the information is stored with the FIS. Declaration data are not categorized as STR information (except information disclosed by the Post Office under the Disclosure Law as STRs), and remain accessible and available to the other law enforcement agencies.

Access to Information by FIU (including in Supra-National Approach) (c. IX.5):

471. As said, there is an agreed procedure between Customs and the FIU whereby all information collected under the Cash Control Law is sent to the FIS for analysis and further investigation, if necessary. Except for two cases forwarded to the Director of Income Tax in 2008, no declaration has triggered further (law enforcement) action. Information on cash declared in freight or by post is forwarded to the FIS only if there is any suspicion regarding the cash or when periodic risk assessment exercises are conducted. In the past four years, 130 such STRs were made by the Guernsey Post Office, most about parcels containing cash.

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

472. According to the authorities, coordination for law enforcement purposes between the relevant authorities is a matter of common practice, particularly enhanced by the comparatively small size of the Bailiwick’s law enforcement community. There is an established coordination practice between law enforcement and other interested authorities, such as the Police Special Branch, the FIU, customs, and the Income Tax Authority. Coordination with Immigration is facilitated given that immigration is part of the Customs Service. Coordination between the Customs and Police is structured within the FIU, comprising officers from both agencies and which deals with all AML/CFT issues arising from the declaration system.

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

473. Section 5(1) of the Cash Controls Law allows for international cooperation, where it generally and without limitation as to jurisdiction states that information can be disclosed for the purposes of the investigation, prevention, or detection of crime or with a view to the investigation of, or otherwise for the purposes of, any criminal proceedings, which is not limited to proceedings in Guernsey. Under Section 5(1) (f), in cases in which an officer has grounds to suspect that the information relates to any illegal activity, it may be shared with the competent authority of another country or territory on a reciprocal basis.

474. In addition, the Guernsey Customs participate in the global information exchange network based on bilateral and multilateral Customs agreements. Section 4(6) of the European Communities (Bailiwick of Guernsey) Law 1973 also specifically provides for an effective exchange of information and cooperation with the Customs of the EU member States on Community obligations, which would comprise the obligations under the EU Regulation 1889/2005 on cross-border cash control.

Sanctions for Making False Declarations/Disclosures (applying c. 17.1-17.4 in R.17, c. IX.8

475. In addition to the offense of making an untrue declaration in violation of Section 1 of the Cash Controls Law, it is also an offense under Section 1(2) for an individual to enter into an agreement or arrangement by which cash in excess of the specified amount is split and carried by two or more individuals in order to avoid making cash control declaration (“smurfing”). Both offenses are punishable on indictment by an unlimited fine and a term of imprisonment of up to two years (Section 7). The cash concerned is liable to forfeiture by virtue of Section 7(b) of the Cash Controls Law and Section 22(e) of the Customs Law. In the context of freight declaration, failure to comply with Sections 14 and 28 of the Customs Law is punishable with a fine of up to £5,000 and the cash may be forfeited under Section 22. Under Section 12 of the Post Office Ordinance 1973, the parcel related to false declarations is only liable to forfeiture. The regulatory sanctions of the GFSC and the AGCC, such as license revocation, can be invoked as appropriate.

476. These sanctions apply to all natural and legal persons by virtue of Section 9 of the Interpretation Law, which provides that “person” includes any corporate or unincorporated body unless the contrary intention appears. If necessary, prosecutions of natural and legal persons for ancillary offenses under the Attempts Law and the Aiding and Abetting Law can be brought.

477. Prosecution of the above offenses is the responsibility of the prosecution directorate of the Attorney General’s Chambers and the Bailiwick courts apply the penalties. Regulatory sanctions are the responsibility of the GFSC and the AGCC. In cases where a legal person was prosecuted, concurrent prosecution could also be brought against any director or senior manager whose involvement in the offense can be established. Regulatory sanctions can also be applied to directors and senior managers whenever appropriate.

Sanctions for Cross-border Physical Transportation of Currency for Purposes of ML or TF (applying c. 17.1-17.4 in R.17, c. IX.9):

478. Depending on the evidentiary value of the available information and elements, the ML and FT-related criminal procedure and code provisions will apply (Sections 38 & 40 PCL; Sections 57 and 59 DTL; 9 and 11 TL—all carrying up to 14 years imprisonment and an unlimited fine), and criminal charges may be brought against the person also within the context of the cross-border declaration regime. See also the narrative for IX.8 above.

Confiscation of Currency Related to ML/TF (applying c. 3.1-3.6 in R.3, c. IX.10):

479. On suspicion of the cash being proceeds of crime or related to terrorism financing, all seizure and forfeiture provisions of the Civil Forfeiture Law and of the Terrorism law fully apply. This was the case in 2005 when a sum of £14,950 sent by post was seized and ultimately confiscated.

Confiscation of Currency Pursuant to UN SCRs (applying c. III.1-III.10 in SR III, c. IX.11):

480. All declarations are routinely checked against the lists of designated terrorists. Persons crossing the border with funds subject to the UNSCR 1267 and 1373 sanctions, or attempting to do so, are in breach of the legislation imposing those sanctions. Furthermore, the cash would be liable to seizure under Sections 6 and 7 CFL or Section 19 and Part 2 of Schedule 3 of the TL, and to confiscation depending on the evidentiary value of the available elements.

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

481. Since August 10, 2009, the definition of cash in the Cash Controls Law was extended to specifically include gold, silver, palladium, and platinum bullion, in response to the emerging international risk of bullion being used for money laundering purposes. Import and export of such precious goods receives special attention from the customs service who, as a matter of practice, would report any unusual or suspicious movements of gold, precious stones, or metals to the customs service or other appropriate authority in the country of origin. Also, unusual importations of precious metals or stones will be reported through the Kimberley process to the relevant U.K. office. No unusual movements have taken place to date, no notifications were sent as yet to foreign agencies.

Safeguards for Proper Use of Information (including in Supra-National Approach) (c. IX.13):

482. In addition to the applicable data protection rules, legal protection of cash declaration related data is provided for in Section 5 of the Cash Controls Law, limiting how the information can be lawfully used and the authorities it can be disclosed to. As the data are stored within the FIS, they are physically protected in the same way as STRs (see cr. 26.7 above). Furthermore, the information is categorized as intelligence material and disseminated as such.

Training, Data Collection, Enforcement and Targeting Programs (including in Supra-National Approach) (c. IX.14):

483. According to the authorities, all customs investigators and border staff have received training in respect of the requirement to identify and assess the movements of cash into and out of the Bailiwick. Guidance and instruction has been published in the customs service handbook. Data relevant to the cross-border movement of cash is collated by the FIS. Regular riskassessment exercises are mounted with the objective of identifying cross-border movement of cash, and these exercises are supported by the deployment of specially trained cash-sniffing dogs. Contravention of any enactment in relation to cash is to be reported and investigated by the FIU.

Supra-National Approach: Timely Access to Information (c. IX.15):

484. Non applicable.

Additional Element—Implementation of SR.IX Best Practices (c. IX.16):

485. Guernsey has developed technical expertise and the capacity to detect cash at the borders. All customs service officers deployed at the borders have received training in respect of the movement of cash. Regular typologies and recent national cases are provided to “up skill” all customs service staff in this specific task. Customs service staff has various tools at their disposal including X-ray equipment and other detection methods. Security staff are fully trained and briefed on the need and requirement to detect the movement of cash into and out of the Bailiwick. In addition, the Bailiwick law enforcement authorities conduct regular risk-assessment exercises at the borders specifically targeting cash movements. The use of a cash-sniffing dog has been utilized on occasions to support the officers on the controls.

486. Customs service officers and police Special Branch ports officers have good working relationships with all port staff. Port staff routinely receives briefings and updates regarding the need to detect cash being imported or exported and they will be encouraged to contact law enforcement staff with any suspicions or relevant information. Customs service officers deployed profile the movement of passengers and identify travel to or from high-risk jurisdictions, unusual routes, race, religion, or ethnicity. Typologies assist law enforcement staff to identify indicators to assist detection. Law enforcement has access to all data requirements such as passport information, ticket details, routing, shipping documents, cargo manifests, and airway bills.

487. Where cash is detected, staff is trained to evaluate the travelers’ need to carry cash. They are trained to question the person and to identify at a very early stage factors suggesting that these funds may represent the proceeds of crime or be intended for use in the funding of terrorism. Tests are available to check for traces of explosives or, for example, drugs, on currency.

Additional Element—Computerization of Database and Accessible to Competent Authorities (c. IX.17):

488. Reports made under the Cash Controls Law are centrally stored in a computerized form within the FIS. These reports are available to competent authorities for AML/CFT purposes and are disseminated in accordance with the relevant provisions contained within the POCL and DL.

Statistics (R.32):

489. The Guernsey authorities supplied following statistics on the cross-border declaration system (Cash Controls Law):

Overall number of declarations
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Note:
  • - Statistics on declarations made under the Customs Law (freight) or the Post Office Ordinance (parcels) were not available.
  • - The two cases disseminated in 2008 were forwarded to the Director of Income Tax fo criminal investigation purposes.
Overall amounts declared

490. The statistics for the overall amounts declared are as follows:

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Note:
  • - “Repatriated” means corresponding bank to bank dispatches under cash declaration forms.
  • - There has been one instance of cash seizure: in 2005, a sum of £14,950, sent by post and spread over several batches, was seized under the DTL and ultimately confiscated.
Dissemination of information obtained by virtue of Cash Declarations received under the Cash Controls (Bailiwick of Guernsey) Law, 2007
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Adequacy of Resources—Customs (R.30)

491. Resources/independence: The customs service is an autonomous body. It is responsible for law enforcement in their domain (particularly, in the areas of serious financial crime, money laundering, and drug trafficking), securing the borders of the Bailiwick in relation to persons and goods, and the collection of revenue in the form of indirect taxes. The Chief Officer reports to the Home Department of the States of Guernsey, but the customs service has complete operational independence and is free from any political interference. It currently has a staff of 92 full-time employees and is made up of four divisions: Law Enforcement, Immigration, Customs and Excise, and Corporate. The heads of the four divisions report to the Chief Officer. The customs service produces an annual report which sets out the key performance objectives of the four divisions and measures performance against those objectives. The law enforcement division has a budget of approximately £5 million, of which 87 percent comprises staff costs. It is divided into four branches. These are the Detection branch, which operates principally at the ports of entry to the Bailiwick; the Operations branch, which targets serious and organized criminals who seek to traffic controlled drugs to the Bailiwick; the Professional Standards branch; and the FIU. The law enforcement division in the discharge of its functions makes extensive use of intelligence and covert operations when appropriate. This necessitates a close working relationship with bodies such as the police force, U.K. organizations such as HM Revenue and Customs and SOCA, and international law enforcement agencies. Its work is supported by TSU, surveillance, investigative, and search teams.

492. Standards/integrity: The customs service has a well-developed officer recruitment process. Applicants that are considered to meet the standards set by the key criteria will be required to undertake an assessment day. This will involve the candidates undertaking a series of multiple exercises against which they will be assessed. Candidates that successfully pass the assessment day will then be further formally interviewed. All staff employed are of a high integrity and appropriately skilled. Customs service’s financial investigators are generally officers with extensive previous operational and investigative experience and as a consequence have received the commensurate training and development to be able to work in these areas. All Financial Investigators are subject to enhanced security clearance and nationally accredited through the National Police Improvement Agency and also to NVQ level 3 Investigation.

493. Standards are maintained and assessed through regular appraisals and through the requirement of continuous professional development that is integral to the specialized training that financial investigators are required to undertake. The Service assesses staff against key core competencies to maintain high professional standards.

494. The Professional Standards Branch is a pro-active body that measures and assesses staff performance and conduct to ensure the maintenance of high standards. All members of the customs service are bound by confidentiality agreements. They are also covered by tipping off offences under the Bailiwick’s AML/CFT legislation and more general statutory provisions in respect of data protection and computer misuse.

495. Training: A comprehensive training strategy and associated training program which is linked to the U.K.’s national occupational standards is in place throughout the customs authorities. Officers need to pass nationally-accredited training courses and follow ongoing personal development and continuous professional development programs in a number of different areas depending on their specific area of deployment. Specialist financial investigation and intelligence training is also provided to personnel deployed within the FIU which is augmented within ongoing training events and educational material/typologies to ensure that their continued professional development is maintained. This will lead to national accreditation of Financial Investigators.

Implementation and effectiveness:

496. The cross-border cash declaration regime installed by the Cash Controls Law 2007 brought the Bailiwick in line with the corresponding EC Regulation 1889/20055 and goes beyond the Regulation with the Cash Controls Law Ordinances 2009 and 2010 by expanding the definition of “cash” to bullion and postage stamps.

497. The controls are effectively implemented, as witnessed by the frequency of the declarations under the Cash Controls Law and the STRs filed by the Post Office which resulted in a sizable amount seized and confiscated. Besides the usual ports of access for organized travel like the airport and the ferry terminal, systematic controls are also conducted on private yachts and other boats, and on an ad hoc basis within the Post Office. No instances of non- or false declaration have been reported. None of the declarations have, however, given rise to further action (except the two tax related cases in 2008) or have yet been used in support of investigations. Moreover, as non-canalized movements of cash are not incorporated within the Cash Controls legislation (and, therefore, there is no requirement to complete a cash declaration form), the legal framework governing the declaration of freight and post parcels, i.e., the Customs Law and the Post Office Ordinance, deviates from the specific cross-border declaration regime and international standards on following points:

498. The items subject to a declaration under the Post Office Ordinance are referred to as “dutiable goods, small packets or letter packets.” Cash can hardly be described as “dutiable goods” and the other terms are too unspecified to adequately reflect the definition of cash or bearer negotiable instruments in the sense of the Cash Control Law or the FATF standard.

499. Under the Customs Law and the Post Office Ordinance, there is no obligation to forward any declaration of cash exceeding €10,000 to the FIS, nor is it done so in practice. This is only done when there is a suspicion surrounding the cash or as a result of risk assessment exercises, and as such—although still within the international standard—it diverges from the systematic and comprehensive reporting of the Cash Control declarations to the FIS. Furthermore, the Post Office Ordinance (which is not a “Customs Law”) does not provide for the authority to make further enquiries (cr. IX.2), nor are there any provisions on temporary restraint measures (cr. IX.3).

500. There is a significant divergence between the three applicable legal instruments in respect of the level of sanctioning. The penalty under the Cash Control Law is a term of imprisonment of up to two years, an unlimited fine and forfeiture, the Customs Law provides for a fine of maximum £5,000 and forfeiture, while only forfeiture is possible under the Post Office Ordinance. In addition, to unbalancing the system and hampering a uniform approach, there is no objective justification for these differences in approach. Further, the Post Office Ordinance sanction is disproportionally and ineffectively low (cr. IX.8).

501. The authorities suggested that, as customs have a duty to inspect the packages that arrive in the Bailiwick to ensure compliance with the Ordinance, the Ordinance is therefore an “assigned matter”6 and the penalties of the Customs Laws (forfeiture, imprisonment and fines) will apply in full to anyone in breach of the Ordinance. On the other hand, unlike the Cash Declaration Control Law (section 6), the Post Office Ordinance is not categorized as a “customs law,” making all the provisions of the Customs Law 1972 applicable to the Ordinance. In any case, the application of the Post Office Ordinance to a cross-border declaration regime as imposed by the international standards is controversial and open to legal challenge.

502. After the on-site visit, the Bailiwick authorities have taken corrective action to address the deficiencies in the declaration regime of cash transported by post, through the Post Office (Postal packets) (Amendments) Regulations 2010, came into effect on 28 July 2010 which, in short, brings the mail declaration system in line with the cash importation regime by freight7.

503. Corrective action needs to be taken to provide a firm legal basis and bring the system fully in line with the international standards. It is recommended to bring all cross-border transportation of cash above the specified threshold by any means under the uniform declaration regime of the Cash Control Law.

2.7.2. Recommendations and Comments
  • Legislative steps need to be taken to align the cross-border cash declaration control related to mail with the comprehensive approach of Cash Controls Law 2007, particularly in relation to the authority to enquire, the temporary restraint measures, and the adequate and uniform level of sanctions.
  • Although the practice of limiting the notification of the FIS to suspicious incidents when related to freight and post parcels formally complies with the standards, from an effectiveness perspective, it is recommended to adapt a uniform approach for all cross-border cash transportations.
2.7.3. Compliance with Special Recommendation IX
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