3 Money laundering typologies in Jersey

The typologies and warning indicators outlined below are intended to:

• inform relevant persons about the various methods and techniques criminals may employ
  to launder the proceeds of their illicit activity;
• identify areas that require further attention and help relevant persons to identify higher
  risk activities that necessitate monitoring or enhanced monitoring; and
• more generally, assist with the prevention and detection of money laundering.

It is thought that the general effectiveness of Jersey’s AML/CFT framework has caused
criminals to seek alternative ways (and locations) to launder the proceeds of crime.
AML/CFT measures can therefore never remain static; trends evolve constantly, at a rapid
pace, and relevant persons have to be flexible enough to manage this reality if they are to
successfully prevent and detect money laundering and financing of terrorism.

3.1 Tax evasion

For the twelve month period up to the end of September 2014, of a total of 1,632 SARs filed,
673 were identified by the relevant person as being principally tax-related. The vast majority
of these tax-related SARs – somewhere in the region of 80-90 per cent – are ‘defensive’ in
their nature. That is to say they are filed in circumstances where the relevant person is not
aware of any overt indicator of criminality or the existence of any active criminal
investigation concerning the customer. This reflects the fact that employees filing SARs are
not tax specialists and cannot be expected to understand whether the underlying nature of
the issue is in fact criminal in nature. Such SARs do not establish ‘classic’ typologies or
“warning indicators”; they offer no real insight into suspicion concepts, for example
insufficient tax advice, use of complex products or structures, or questions over the
legitimacy of funds.

Tax-related SARs are generally triggered by events external to relevant persons and also as a
result of internal monitoring and review procedures. Examples of warning indicators
driven by external events include:

• approaches by customers requesting information to comply with a tax amnesty in their
  home jurisdiction; and
• adverse media coverage or court action in connection with high profile or specialist tax
  avoidance schemes.

With respect to the latter, the increased appetite of governments and regulators to pursue
individual and corporate entities in relation to their tax obligations has led to the
development of ever more innovative and sophisticated products designed to mitigate and
minimise customers’ tax liabilities.

The assets held under these products may be administered locally by relevant persons;
however, the products themselves are often devised and promoted by onshore institutions
or intermediaries. The very nature of these products, designed as they are to help retain
wealth and minimise tax liability, automatically places them under the scrutiny of their
respective tax authorities. Adverse media publicity is likely to cause relevant persons to file
SARs which are, as described above, ‘defensive’ in character and where there may be no
suspicion of tax evasion.

The development of these products must also be considered in light of the recent statement
by the Chief Minister, clarifying that Jersey has no wish, or need, to engage with those who
seek to involve the Island in aggressive tax planning schemes to avoid UK taxation.

Despite the relatively high level of SARs filed in respect of tax, it is again important to bear
in mind that the vast majority of products and services and legal persons and legal
arrangements are used for legitimate purposes and current intelligence suggests only a
small minority are used for the purposes of criminal activity.

Warning indicators driven by events internal to a relevant person include:

• The presence of longstanding customers with relatively low levels of transactional
  activity and/or assets of lower value. Where there is no obvious basis for the customer
  to require an offshore product or service, it may indicate that the product or service is
  unsuitable for the customer and may not have been disclosed to the customer’s tax
  authority. The landscape of international financial centres has evolved dramatically
  since the 1970s. The earliest services included unsophisticated financial products that
  were widely available to UK resident customers. Few regulatory criteria were required.
  Many larger onshore institutions offered offshore accounts to customers as a matter of
  course.
• Where there is reluctance on the part of customers to engage with relevant persons or to
  provide information at a relevant person’s request, often as a result of internal reviews
  triggered by requirements to comply with legislation, this may indicate that tax
  reporting obligations are not being fulfilled or that there is a possibility that criminal tax
  offences have been committed.
• A failure to respond adequately to questions about tax advice, either concerning legacy
  accounts, periodic reviews, or due to extraterritorial legislation.