The following notes provide an update/review of 2014 amendments to substantive offences under Proceeds of Crime Law and AML handbook

Background

1. In December 2013 MoneyVal issued a report which picks up from the 2008 International Monetary Fund (IMF) report and sets out the progress that Jersey has made following the IMF’s recommendations.

2. MoneyVal is the EU body tasked with ensuring that member states have effective systems and controls in place to combat money laundering and terrorist financing, as well as ensuring compliance with international standards in the anti-money laundering arena.

3. The recent MoneyVal progress report on developments in Jersey’s AML framework has initiated a range of activity by the Jersey Financial Services Commission (JFSC).

4. The reform of Jersey’s anti-money laundering (AML) practices and laws has been high on the legislative agenda, particularly after Jersey became a member of the Committee of Experts on the Evaluation of Anti-money Laundering Measures and the Financing of Terrorism (MoneyVal) in 2012.

In response to the both the IMF report and the MoneyVal progress report, the JFSC has implemented the following:

1. Amendments to substantive offences
   1. the Money Laundering (Amendment 7) (Jersey) Order 2014, which came into force in October 2014;
   2. the Proceeds of Crime and Terrorism (Miscellaneous Provisions) (Jersey) Law 2014, which came into force on August 4 2014; and
   3. The Proceeds of Crime and Terrorism (Tipping-Off Exceptions) (Jersey) Regulations 2014, which came into force on August 4 2014.
2. Amendments to the AML handbook

These matters are discussed further

Amendments to substantive offences

1. Reporting
   1. One of the substantive changes introduced in by the 2014 law concerns the reporting of suspicious activity.
   2. In addition to amending and replacing certain reporting requirements under the Terrorism (Jersey) Law 2002, the 2014 law makes key amendments to Articles 34A and 34D of the Proceeds of Crime (Jersey) Law 1999.
      1. Articles 34A and 34D have been amended in order to implement Moneyval’s recommendation to change the previous reporting offence of “failing to disclose suspicious transactions” to one that creates a positive obligation to report suspicious activity.
      2. Under the revised position, a person must report suspicious activity if he or she knows, suspects or has reasonable grounds to suspect money laundering.

2. Tipping off

The 2014 law and the 2014 regulations introduced substantive changes to the tipping-off offence, which was previously limited to circumstances where tipping off was “likely to prejudice” an investigation or proposed investigation. This qualification has now been removed so that if a person knows or suspects that an investigation is contemplated or underway, the tipping-off offence will apply to any information relating to the investigation, including the fact that a disclosure has been made.

The changes implement the IMF recommendation to expand the tipping-off offence in order to include all disclosures, rather than just those instances of tipping off that are “likely to prejudice” an investigation. This brings the Jersey tipping-off offence regime into line with those in most other major financial jurisdictions. In practice, the amendment largely restricts compliant disclosures to those made within a firm or group “in good faith for the purpose of preventing or detecting money laundering”. Outside of this narrow exception, there is now a clearer risk that any disclosure will be an indictable offence.

The 2014 regulation sets out a number of protected disclosures which do not contravene the tipping-off offence, including:

certain disclosures between ‘relevant persons’, which are defined in Article 1 of the Money Laundering (Jersey) Order 2008 as:

1. persons carrying on a financial services business in Jersey;
2. Jersey body corporates; or
3. other legal persons that are registered in Jersey and carry on a financial services business in any part of the world;
4. certain disclosures within a financial group;
5. certain internal disclosures between employees;
6. disclosures to certain supervisory bodies;
7. disclosures to a money-laundering reporting officer; and
8. Certain disclosures to professional advisers, with the qualification that the disclosure is not made with a view to furthering a criminal purpose.
9. Certain disclosures may also be made where the Joint Financial Crimes Unit has given written permission to the person making the disclosure. The wording of the revised Article 35 contemplates the introduction of exceptions or amendments through further regulations.

Anti-money Laundering and Combating the Financing of Terrorism Handbook (this update does not detail all of the changes set out within the handbook, the following section touches on changes that may be of immediate interest)

3. In addition to the substantive changes to the offences set out in the 2014 law and the 2014 regulation, the JFSC has initiated numerous amendments to the Anti-money Laundering and Combating the Financing of Terrorism Handbook.

4. The amendments will have a significant impact on the manner in which relevant persons complete or undertake:

1. corporate governance;
2. reporting;
3. identification measures regarding ownership and control;
4. enhanced customer due diligence and simplified identification measures;
5. reliance on obliged persons and group persons (formerly referred to as introducers and intermediaries);
6. record keeping;
7. ongoing monitoring; and
8. Screening and training of employees.
9. Reporting

5. Reporting and suspicions
   1. The rules relating to reporting are set out in the new Section 8 of the handbook.
      1. A subjective and objective test must be applied when determining whether to make a report – that is, whether there is knowledge or suspicion (subjective) or whether there are reasonable grounds to have knowledge or suspicion (objective).
   2. Section 8 revises the definition of the objective test for determining what constitutes reasonable grounds for knowledge or suspicion for the purposes of making a report.
   3. The handbook sets out that reasonable grounds for knowledge or suspicion “will be determined from facts or circumstances from which an honest and reasonable person working in a relevant person would have inferred knowledge or formed suspicion”.
   4. The revised handbook also reiterates the new positive duty to report suspicious activity, outlining that “employees of a relevant person must raise an internal SAR [suspicious activity report] as soon as practicable where they have knowledge or suspicion, or where there are reasonable grounds for having knowledge or suspicion”.
   5. The proposed amendments to Section 8 of the handbook also track the revisions to the tipping-off offence as set out in the 2014 law by removing the qualification that disclosures should be made where there is “likely prejudice” to an investigation.

6. Reliance on obliged persons

1. Relevant persons should be mindful of the recent changes in respect of reliance on introducers. Article 16 of the Money Laundering (Jersey) Order 2008 – as amended by the Money Laundering (Amendment 6) (Jersey) Order 2013 – provides that a relevant person may still rely on another relevant person or a person carrying on an equivalent business (each referred to in the amended Money Laundering Order as an ‘obliged person’):

1. to apply the identification procedures specified in the Money Laundering Order in respect of its customers (or the beneficial owners or controllers of such customers or any third parties on whose behalf the customer is acting); or
2. If the obliged person is not in Jersey, to apply similar identification procedures that satisfy Recommendation 5 of the Financial Action Task Force (on money laundering) (as defined in the Money Laundering Order).

1. The obliged person need not necessarily have introduced the customer to the relevant person and need not act as an intermediary. However, additional administrative steps must be completed in order to rely on Article 16 of the Money Laundering Order.

1. Section 5 of the draft handbook details these procedures and, in particular, the six conditions that must be followed:

1. The obliged person must consent to being relied on.
2. Identification measures adopted by the obliged person must be applied in the course of an established business relationship or one-off transaction.
3. The obliged person must provide adequate assurance in writing that full and specified identification measures have been applied and that evidence of identity has been retained.
4. Information identified about a customer by an obliged person must immediately be obtained by the relevant person.
5. The obliged person must provide assurance in writing that the evidence of identity will be retained until provided to the relevant person or until it is notified that the evidence is no longer required, and will be provided immediately on request.
6. The obliged person must assess the associated risk and record in writing the reason why it is appropriate to place reliance on the money laundering and financing of terrorism risk and the risk that evidence of identity is not provided.

7. Simplified identification measures Simplified ID

Section 7 of the draft handbook details revised procedures in relation to the application of simplified identification measures and reflects changes pursuant to the Money Laundering (Amendment 6) (Jersey) Order 2013.

Provided that a customer (formerly referred to as an ‘intermediary’) meets certain criteria, a relevant person will no longer be required to obtain evidence of the identity of third parties on whose behalf the customer acts, as long as

1. certain conditions are met (in some cases, assurances must be tested by the relevant person) and
2. The relevant person collects basic identity information concerning any significant third parties.

The changes are geared towards pooled and designated relationships.  The revised handbook sets out the following examples of pooled relationships for which simplified identification measures may apply:

1. stockbrokers and investment management firms acting as nominees for underlying investors;
2. overseas banks that place deposits on a fiduciary basis with a Jersey bank;
3. trustees of unit trusts and general partners of limited partnerships that wish to establish banking facilities for a collective investment fund; and
4. Client accounts operated by trust companies, investment managers, lawyers and accountants.

The appropriateness of applying simplified identification measures largely depends on the business relationship and nature of the customers and third parties.

It is recommended that relevant persons obtain advice on the matter to avoid incorrect application of the measures.

8. Ownership and structures
   1. Section 3 of the revised handbook sets out three steps that firms must follow to understand clients’ ultimate beneficial ownership and control structures:
      1. obtaining necessary information from customers;
      2. validating the information obtained; and
      3. Ensuring that the information makes sense.

9. Enhanced client due diligence

1. The revised handbook implements changes to the rules regarding enhanced due diligence pursuant to Article 5 of the Money Laundering (Amendment 7) (Jersey) Order 2014 (which came into force in October 2014), and requires relevant persons to undertake enhanced due diligence for a wider category of customers than under the existing framework.
2. In particular, while the existing framework adopts a risk-based approach when determining whether enhanced due diligence is required (by focusing on net risk, considering factors such as the location and nature of the customer or any connection to higher-risk states or persons), the proposed changes require enhanced due diligence where the customer:
   1. is a non-resident;
   2. has been provided with a private banking service;
   3. is a personal asset-holding vehicle; or

1. Is a company with nominee shareholders or issues bearer shares?
2. The relevant person is responsible for deciding what type of enhanced measure to apply, with such measures to be determined by applying a risk-based approach. The new requirements regarding enhanced due diligence are not retrospective and no remediation is stipulated for existing clients.

10. Comment

1. The recent amendments to the AML offences, together with the proposed revisions to the handbook demonstrate the JFSC’s continued focus and commitment to strengthening the AML framework and ensuring that it is in line with the MoneyVal recommendations and international standards.

These changes however further demonstrate the need to ensure that robust and up-to-date AML procedures are in place within businesses, and that continuous review and assessment of compliance protocols remain a fundamental part of businesses.