At the time of writing (20/01/16) Guernsey are digesting their long awaited MONEYVAL report on Money Laundering [ML] and Financing of Terrorism [FT].
Generally, the report is very good and hopefully Jersey’s report will be as good, if not better! This said, there is a “fly in the ointment” and this is in relation to sanctions for breaches of the ML laws.
The report suggests that financial penalties (the JFSC introduced this power in June 2015) for legal persons are not an effective deterrent to non-compliance. It further notes that cases of Suspicious Activity Reporting (SAR) non-reporting are rarely fined or in any other way sanctioned.
I expect these same criticisms will also apply to Jersey, and if I’m right we are likely see a step-up in local prosecutions of purported cases of non-reporting SARs as well as other ML offences.
Jersey Citizen & Regulated Community Obligations
Every Jersey citizen must avoid becoming involved in ML/FT and the offences carry penalties of up to 14 years imprisonment. Further, there is requirement for those that are suspicious of ML to report to the authorities. In this matter the legal test between the Jersey citizen and the regulated community differs, although the five-year penalty for failure, is the same for both.
Furthermore, the ML regulated community (Financial Services Business and Designated Non-Financial Businesses and Professions (DNFBs) e.g. Lawyers and Accountants) must employ “systems and controls” to “prevent and detect” ML. Failing to do so could result in two years imprisonment. Interestingly, Jersey is still one of the only jurisdictions in the world to have prosecuted a firm and an employee for failing to meet this requirement.
What Is ML?
The common definition of ML is “dirty money” which is misleading at best. A more accurate description is: ML extends beyond dealing with the direct proceeds of crime (e.g. illegal drugs, theft, etc.) and extends through to being connected (directly/indirectly) to “all crimes” (subject to a one year de minimis in Jersey) – this therefore includes less obvious criminality such as tax evasion, insider dealing, benefit fraud and false invoicing.
In the ML law the core offence is made up of one or more of the following three steps where they are connected to Criminal Property [CP];
- Self-Laundering – acquire, use, possess = ‘laundering the proceeds of one’s own criminal activity’
- 3rd Party / Enabler- taking part in an arrangement knowing or suspecting that it facilitates the: [a] acquisition of [b] use of [c] possession or control. This offence can cover a wide range of evils, it would be used in cases where the offender is not said to be the principal offender in the criminal conduct.
- The End User – conceal; disguise; convert/transform; or remove from Jersey = common ML offence involving putting the proceeds of criminal conduct through the bank accounts of friends and/or their businesses, who themselves may end up being prosecuted.
In consideration of the above, here are two UK cases to consider:-
- ‘Self-Laundering’ – Neil Rollins, was found guilty of five counts of insider dealing and four counts of ML. Based on his knowledge of PM Group plc worsening financial position, he sold his entire shareholding and encouraged his wife to do the same. When Rollins became aware of the FSA’s interest in his dealing he laundered the proceeds to try to hide his conduct.
- The Enabler & End User – Leslie Pattison, an estate agent who helped two drug dealers launder the proceeds of crime by buying their home for a third of its value, was jailed for three years for entering into a ML arrangement and acquiring CP.
Suspicious Activity Reporting (SAR)
There are defences to ML charges, for example where the person concerned makes a SAR to the relevant authority. In Jersey, and in most cases for all regulated employees, this will be your MLRO, who then may have to report to the Joint Financial Crimes Unit “JFCU”. Unfortunately, a number of DNFBs, in the UK, have fallen foul of this provision, for example:
Jonathan Duff a founding partner at his law firm was jailed for six-months for failing to disclose knowledge or suspicions of ML – he lost his firm and his career.
Jersey had its first non-reporting case in June 2015. After a four day trial STM Fiduciaire Limited and Michelle Jardine as Director and MLRO were found not guilty of failing to report.
No Crime SAR!
Surprisingly, the SAR offence does not state that ML must be taking place for a suspicion to be raised. A person may suspect that something is taking place, albeit it later turns out that this suspicion is ill founded. The purpose of the SAR provisions is to prevent ML and to assist investigatory authorities, not to encourage those in the regulated sector to undertake the investigation themselves. Simply, if there are suspicions in doing business with your client, even though there is no CP, and you have ignored or not reported you could be liable. Remember risk does not equal suspicion but it could do if ignored.
Closing Consideration
Following MONEYVAL’s comments, the question now on everyone’s lips is ‘will we see more prosecutions for firms and individuals?’
In answering this question, I would urge you to ensure all staff are aware of the key elements highlighted in this short and non-exhaustive article. I would also advise you to prepare for the worst (by having the systems and procedures that are fit for purpose and support all employees with training) and hope for the best.
By Mathew Beale, Principal and Director, Comsure Group of Companies (originally published in the JEP law and accountancy review February 2016 edition – see below)
READ ON-LINE @ http://jerseyeveningpost.com/jersey-evening-post/supplements/law-and-accountancy-review/
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