The title of this short missive is derived from a Seychelles News Agency [SNA] press release that has been issued following the recent disclosures about the 1MDb Malaysian sovereign fund scandal.
In the SNA press release it is stated;
- “While reporting that no funds from 1MDb were laundered in Seychelles”,
- “the FIU confirmed that investigations identified ELEVEN [11] OFFSHORE COMPANIES registered in Seychelles which it believes may be linked to this matter”
The press release then goes onto to quote the local FIU;
- “All of the companies were incorporated by an offshore company incorporations office managed by a local company service provider (CSP).
- The incorporation requests originated from an intermediary in Singapore,”
Responding to questions from SNA on Friday, an FIU spokesperson explained;
- “that once incorporated in Seychelles the companies appear to have been used to open bank accounts in other jurisdictions”
- “Then the alleged misappropriated funds were transferred from the fund to these bank accounts.
- This means that the money flow did not come through Seychelles but that when international investigators trace the money flows, the beneficial ownership of the bank accounts leads back to Seychelles offshore companies.
- This unfortunately creates a negative perception of Seychelles.”
What caught my attention in what was reported was the split between
- Money flows between bank accounts
and
- The beneficial owners of the bank account
In point 1 it is suggested the monies do not go through the Seychelles. This would suggest the FIU are highlighting the fact that the Placement, Layering, Integration risk of money laundering has not been crystallised.
Point 2 however does raise a number of red flags if you consider (in particular article 3) what the ANTI-MONEY LAUNDERING ACT, 2006 (as amended)[the act] says about who would be a money launderer and what money laundering is.
Let us Consider Article 3 (summarised below and extracted further below)
Article 3 of the ACT considers that a money launderer is someone who directly or indirectly deals with criminal property derived from criminal conduct (see 2a for a legal definition).
I can summarise this to be someone [a person] who fits one and both of the following descriptions:-
- THE ACTOR & BENEFITER OF THE CRIME [The Selfie] – the person who commission the criminal conduct and
- THE ENABLER OF THE CRIME – another person (not the actor) who participates in the commission the criminal conduct through their actions – these actions are defined as AIDING, ABETTING, ASSISTING, ATTEMPTING, COUNSELLING, CONSPIRING, CONCEALING OR PROCURING
As one can see in point 4 above –
- The enabler risk could capture a Corporate Service Provider. All the courts would have to find is if the CSP had acted recklessly (see 3(5) & 6) in their participation with the selfie (directly and or indirectly). Reckless behaviour could include not having adequate systems and controls to prevent and detect the money laundering as reported
- Also whether or not the court would find a CSP guilty of ML the other question is whether the CSP should have reported a suspicion that their services were being used for ML. (SEE 10 (1)(a)(I))
With all this in mind I need to answer my question;
- Does the 1MDb Malaysian create a Money Laundering Risk in the Seychelles?
On the face of it the answer is;
- YES it’s possible – if there was recklessness on behalf of the CSP and the CSP was connected (either directly/indirectly) to the proceeds of crime through their actions/participation. Also, do not forget if the CSP should have reported a suspicion and did not they could be found to have crystallised another criminal offence…the failing to report a suspicion. And it should also be remembered this can be crystallised even where there is no criminal/ property/conduct but just suspicion!!!
Obviously there is some way to go with this story but it is clear that the challenges of any CSP, in any jurisdiction is a risky one, particularly where high risk business is undertaken without suitable systems and controls.
Risk warning – as this is a very short precis on the Act, for further analysis the relevant extract of the law are shown below.
The LAW
In the 2a of the act we are told “benefit from criminal conduct” means any MONEY OR PROPERTY that is derived, obtained or realised, directly or indirectly, by any person from criminal conduct;
Further to this definition Article 3 of the act says that the offence of Money Laundering is
3(1) A person is guilty of money laundering if,
– KNOWING OR BELIEVING that property is or represents the benefit from CRIMINAL CONDUCT or
– being reckless as to whether the property is or represents such benefit, the person, without lawful authority or excuse (the proof of which shall lie on him) —
(1)(a) converts, transfers or handles the property, or removes it from the Republic;
(1)(b) conceals or disguises the true nature, source, location, disposition, movement or ownership of the property or any rights with respect to it; or
(1)(c) acquires, possesses or uses the property.
3(2) Removing property from the Republic shall include
- references to removing it from another country or territory as referred to in subsection (9) (c), and
- moving property within the Republic or a country or territory in preparation for or for the purpose of removing it from the Republic or the country or territory in question.
(3) Any person who participates in such conduct as described in subsections (1)(a),(1)(b) or (1)(c) of this section including but not limited to,
- the commission of such conduct
commits the offence of money laundering as a principal offender and shall be liable to be tried and punished accordingly.
3(4) (a) a person guilty of money laundering is liable on conviction to a fine not exceeding R5,000,000 or to imprisonment for a term not exceeding 15 years or to both;
(b) a person other than a natural person guilty of money laundering is liable on conviction to a fine not exceeding R10,000,000.
3(5) Where a person —
(a) converts, transfers, handles or removes from the Republic any property which is or represents the benefit from criminal conduct;
(b) conceals or disguises the true nature, source, location, disposition, movement or ownership of the property or any rights with respect to it; or
(c) acquires, possesses or uses the property,
in such circumstances that it is reasonable to conclude that the person —
(i) knew or believed that the property was or represented the benefit from criminal conduct, or
(ii) was reckless as to whether it was or represented benefit from criminal conduct,
that person shall be taken to have so known or believed or to have been so reckless, unless the court is satisfied having regard to all the evidence that there is a reasonable doubt as to whether the person so knew or believed or was so reckless.
(6) For the purposes of this Act —
(a) a person is reckless if he disregards a substantial risk that the property in question is or represents the benefit from criminal conduct, and for those purposes “substantial risk” means a risk of such a nature and decree that having regard to the circumstances in which the person became involved with the property and the extent of the information then available to him, the disregard of that risk involves culpability of a high degree;
(b) references to converting, transferring, handling or removing property include references to the provision of any advice or assistance in relation to converting, transferring, handling or removing the property.
Reporting Suspicious Transaction
Article 10. (1) (a) Where a reporting entity has — (i) knowledge or reasonable grounds to suspect that ANY SERVICE, or transaction may be related to the commission of criminal conduct including an offence of money laundering or of financing of terrorism or to money or property that is or represents the benefit of criminal conduct;
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