handbook for the prevention and detection …b).pdf · 1.4 scope of the handbook ... 101 6.3.1...

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HANDBOOK FOR THE PREVENTION AND DETECTION OF

MONEY LAUNDERING AND

THE FINANCING OF TERRORISM Draft May 2006

ISSUED BY

JERSEY FINANCIAL SERVICES COMMISSION

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PART 1 – STATUTORY AND REGULATORY REQUIREMENTS AND GUIDANCE NOTES..........VIII 1 INTRODUCTION..............................................................................................................................1

1.1 OBJECTIVES OF THE HANDBOOK....................................................................................2 1.2 STRUCTURE OF THE HANDBOOK ....................................................................................3 1.3 LEGAL STATUS OF THE HANDBOOK AND SANCTIONS FOR NON-COMPLIANCE......4

1.3.1 All financial services businesses ......................................................................................4 1.3.2 Regulated financial services businesses ..........................................................................5

1.4 SCOPE OF THE HANDBOOK..............................................................................................6 1.4.1 Application of the Handbook to financial services business conducted in Jersey............6 1.4.2 Application of the Handbook to financial services business conducted outside Jersey...6 1.4.3 Outsourcing.......................................................................................................................7

1.5 DEFINITION OF FINANCIAL SERVICES BUSINESS .........................................................7 1.6 RISK BASED APPROACH ...................................................................................................9 1.7 EQUIVALENCE OF REQUIREMENTS IN OVERSEAS JURISIDICTIONS .......................10

1.7.1 Equivalent business ........................................................................................................10 1.7.2 Equivalent jurisdictions ...................................................................................................11 1.7.3 Determining equivalence ................................................................................................11

1.8 ACKNOWLEDGMENTS......................................................................................................12 2 CORPORATE GOVERNANCE .....................................................................................................14

2.1 OVERVIEW OF SECTION..................................................................................................14 2.2 OBLIGATION TO HAVE PROCEDURES AND CONTROLS .............................................14 2.3 BOARD RESPONSIBILITES - THE NEED FOR A COMPLIANCE CULTURE AND A

VIGILANCE POLICY ..........................................................................................................15 2.3.1 Business risk assessment...............................................................................................16 2.3.2 Consideration of cultural barriers....................................................................................18 2.3.3 Oversight of compliance .................................................................................................19

2.4 SYSTEMS AND CONTROLS, TRAINING AND AWARENESS .........................................20 2.4.1 Outsourcing.....................................................................................................................22

2.5 THE MONEY LAUNDERING COMPLIANCE OFFICER ....................................................23 2.5.1 Role and responsibilities of the MLCO ...........................................................................25

2.6 THE MONEY LAUNDERING REPORTING OFFICER.......................................................26 2.6.1 Role and responsibilities of the MLRO ...........................................................................28

3 CUSTOMER DUE DILIGENCE REQUIREMENTS .......................................................................29 3.1 OVERVIEW OF SECTION..................................................................................................29 3.2 OBLIGATION TO CONDUCT CUSTOMER DUE DILIGENCE ..........................................30 3.3 RISK BASED APPROACH TO CUSTOMER DUE DILIGENCE.........................................31

3.3.1 Customer due diligence information – Stage 1...............................................................33 3.3.2 Customer due diligence profile – Stage 1.......................................................................34 3.3.3 Source of funds and wealth – Stages 1 and 2................................................................35

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3.3.4 Evaluation of customer due diligence information – Stage 2..........................................36 3.3.4.1 Factors to consider .....................................................................................................36 3.3.4.2 External data sources.................................................................................................38 3.3.5 Customer risk assessment – Stage 3 .............................................................................38 3.3.6 Updating customer due diligence – Stage 5 ...................................................................39

3.4 ENHANCED CUSTOMER DUE DILIGENCE .....................................................................40 3.4.1 Politically exposed persons ............................................................................................40

3.5 CUSTOMER DUE DILIGENCE REQUIREMENTS WHEN ACQUIRING A BUSINESS OR A BLOCK OF CUSTOMERS ..............................................................................................42

4 IDENTIFICATION AND VERIFICATION OF IDENTITY ...............................................................44 4.1 OVERVIEW OF SECTION..................................................................................................44 4.2 OBLIGATION TO IDENTIFY AND VERIFY IDENTITY OF APPLICANT FOR BUSINESS45 4.3 IDENTIFICATION AND VERIFICATION: INDIVIDUALS....................................................47

4.3.1 Establishing identity ........................................................................................................48 4.3.2 Verifying identity..............................................................................................................48 4.3.3 Independent data sources ..............................................................................................51 4.3.4 Guarding against the financial exclusion of Jersey residents.........................................53 4.3.5 Verification of residential address of overseas residents ...............................................54

4.4 IDENTIFICATION AND VERIFICATION: TRUSTEES AND EXPRESS TRUSTS .............55 4.4.1 Establishing identity ........................................................................................................56 4.4.2 Verifying identity..............................................................................................................57

4.5 IDENTIFICATION AND VERIFICATION: LEGAL BODIES ................................................58 4.5.1 Establishing identity ........................................................................................................58 4.5.2 Verifying identity..............................................................................................................59

4.6 IDENTIFICATION AND VERIFICATION: AUTHORISED AGENT OF APPLICANTS FOR BUSINESS..........................................................................................................................62

4.7 IDENTIFICATION AND VERIFICATION: APPLICANTS ACTING FOR THIRD PARTIES (INTERMEDIARY RELATIONSHIPS) ................................................................................63

4.8 NON-FACE TO FACE IDENTIFICATION AND VERIFICATION ........................................64 4.8.1 Evidence of identity from independent data sources......................................................64 4.8.2 Documentary evidence of identity...................................................................................65 4.8.2.1 Suitable certifiers ........................................................................................................66

4.9 EXCEPTIONS FROM IDENTIFICATION PROCEDURES .................................................68 4.9.1 Supervised financial services businesses ......................................................................68 4.9.2 Publicly traded companies ..............................................................................................68 4.9.3 Jersey public authorities .................................................................................................69 4.9.4 Persons authorised to act on behalf of an applicant.......................................................70 4.9.5 Identification procedures for retirement benefit products ...............................................70 4.9.6 Other exceptions.............................................................................................................71

4.10 REDUCED OR SIMPLIFIED MEASURES: IDENTIFICATION AND VERIFICATION OF IDENTITY IN INTERMEDIARY RELATIONSHIPS ............................................................71

4.10.1 Pooled and designated intermediary relationships with financial institutions.............72

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4.10.2 Pooled and designated relationships with intermediaries other than financial institutions ...................................................................................................................74

4.10.2.1 Pooled relationships with intermediaries other than financial institutions ..............76 4.10.2.2 Designated relationship with intermediaries other than financial institutions.........80 4.10.3 Group intermediaries ..................................................................................................82

4.11 REDUCED OR SIMPLIFIED MEASURES: VERIFICATION OF IDENTITY CONCESSION FOR VERY LOW RISK PRODUCTS/SERVICES ..............................................................83

4.12 USE OF OTHER FINANCIAL SERVICES BUSINESSES TO IDENTIFY AND VERIFY IDENTITY: INTRODUCED RELATIONSHIPS ...................................................................85

4.12.1 Group introducers.......................................................................................................88 4.13 TIMING OF INITITAL IDENTIFICATION AND VERIFICATION OF IDENTITY..................89

4.13.1 Lower risk relationships ..............................................................................................90 4.14 SUBSEQUENT REVIEW OF EVIDENCE OF IDENTITY ...................................................91 4.15 FAILURE TO COMPLETE IDENTIFICATION OR VERIFICATION OF IDENTITY ............92

5 MONITORING ACTIVITY AND TRANSACTIONS........................................................................94 5.1 OVERVIEW OF SECTION..................................................................................................94 5.2 OBLIGATION TO MONITOR ..............................................................................................95

5.2.1 Jurisdictions that do not, or insufficiently, apply FATF Recommendations ....................97 5.3 AUTOMATED MONITORING METHODS ..........................................................................97

6 REPORTING MONEY LAUNDERING AND TERRORIST FINANCING ACTIVITY AND TRANSACTIONS .........................................................................................................................99

6.1 OVERVIEW OF SECTION..................................................................................................99 6.2 DISCLOSURE OF KNOWLEDGE OR SUSPICION TO THE JFCU ................................100 6.3 PROCEDURES FOR REPORTING TO THE JFCU .........................................................101 U

6.3.1 Internal reporting procedures........................................................................................102 6.3.2 Evaluation of suspicious activity reports by the MLRO.................................................103 6.3.3 Reporting to the JFCU ..................................................................................................104

6.4 TIPPING OFF....................................................................................................................104 6.4.1 The customer due diligence process ............................................................................105 6.4.2 JFCU consent ...............................................................................................................106 6.4.3 Terminating a relationship.............................................................................................106

7 VETTING, AWARENESS AND TRAINING OF EMPLOYEES ...................................................107 7.1 OVERVIEW OF SECTION................................................................................................107 7.2 OBLIGATION TO PROMOTE AWARENESS AND TO TRAIN ........................................107 7.3 VETTING OF RELEVANT EMPLOYEES .........................................................................109 7.4 AWARENESS OF EMPLOYEES......................................................................................110

7.4.1 All relevant employees (customer facing and non-customer facing) ............................110 7.4.2 Non-relevant employees...............................................................................................111 7.4.3 Ongoing awareness (all employees) ............................................................................111

7.5 TRAINING OF EMPLOYEES............................................................................................112

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7.6 ADEQUACY OF TRAINING..............................................................................................113 7.6.1 All relevant employees (customer facing and non-customer facing) ............................113 7.6.2 The Board .....................................................................................................................113 7.6.3 The MLCO ....................................................................................................................114 7.6.4 The MLRO and designated persons.............................................................................114 7.6.5 Non-relevant employees...............................................................................................114

7.7 TIMING AND FREQUENCY OF TRAINING .....................................................................115 7.8 MONITORING THE EFFECTIVENESS OF TRAINING....................................................115

8 RECORD KEEPING ....................................................................................................................116 8.1 OVERVIEW OF SECTION................................................................................................116 8.2 RECORDING EVIDENCE OF IDENTITY AND OTHER CUSTOMER DUE DILIGENCE

MEASURES......................................................................................................................116 8.3 RECORDING TRANSACTIONS.......................................................................................117 8.4 OTHER RECORD KEEPING REQUIREMENTS..............................................................119

8.4.1 Compliance monitoring and procedures .......................................................................119 8.4.2 Suspicious activity reports ............................................................................................120 8.4.3 Records relating to unusual, complex and higher risk transactions .............................120 8.4.4 Training and awareness................................................................................................121

8.5 ACCESS TO AND RETRIEVAL OF RECORDS...............................................................121 8.5.1 External record-keeping................................................................................................122 8.5.2 Requirements on closure or transfer of business .........................................................122

APPENDICES ....................................................................................................................................123 Appendix A – glossary ............................................................................................................124 Appendix B1 - Intermediary certificate: assurance ..............................................................129 Appendix B2 - Intermediary certificate: summary sheet .....................................................130 Appendix B3 - Intermediary certificate: beneficial owners and controllers ......................131 Appendix B4 - Intermediary certificate: guidance ................................................................132

PART 2 - INFORMATION RESOURCE.............................................................................................135 1 BACKGROUND INFORMATION ................................................................................................136

1.1 UNDERSTANDING MONEY LAUNDERING....................................................................136 1.1.1 What is money laundering? ..........................................................................................136 1.1.2 Characteristics of money laundering ............................................................................136

1.2 THE NEED TO COMBAT MONEY LAUNDERING...........................................................138 1.3 HOW IS MONEY LAUNDERED?......................................................................................139

1.3.1 Professional services to the financial sector.................................................................139 1.3.2 Other FATF designated businesses and professions...................................................140

1.4 UNDERSTANDING TERRORIST FINANCING ................................................................140 1.4.1 What is terrorism?.........................................................................................................140 1.4.2 Characteristics of terrorist financing .............................................................................141 1.4.3 Recognising terrorist financing .....................................................................................141

1.5 THE NEED TO COMBAT TERRORIST FINANCING.......................................................142

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1.6 HOW IS TERRORISM FINANCED?.................................................................................142 1.6.1 Extortion and kidnapping ..............................................................................................142 1.6.2 Smuggling .....................................................................................................................143 1.6.3 Drug trafficking..............................................................................................................143 1.6.4 Charities and fundraising ..............................................................................................143 1.6.5 Donations......................................................................................................................143 1.6.6 Laundering of terrorist related funds.............................................................................143

1.7 THE INTERNATIONAL PERSPECTIVE...........................................................................144 1.7.1 Jersey’s commitments to matching international standards .........................................144 1.7.1.1 Financial Action Task Force Recommendations ......................................................144 1.7.1.2 Basel Committee on Banking Supervision (“Basel Committee”)..............................145 1.7.1.3 United Nations ..........................................................................................................145 1.7.1.4 Wolfsberg Group ......................................................................................................145 1.7.2 Independent Assessments............................................................................................146 1.7.2.1 International Monetary Fund.....................................................................................146

2 LEGISLATIVE FRAMEWORK FOR THE PREVENTION AND DETECTION OF MONEY LAUNDERING AND FINANCING OF TERRORISM .................................................................147

2.1 PROCEEDS OF CRIME LAW AND DRUG TRAFFICKING OFFENCES LAW................147 2.2 TERRORISM LAW............................................................................................................148 2.3 UNITED NATIONS MEASURES.......................................................................................149 2.4 MONEY LAUNDERING ORDER ......................................................................................150 2.5 DISCLOSURES – GENERAL ...........................................................................................151 2.6 TIPPING OFF....................................................................................................................151 2.7 SUMMARY OF THE REGULATORY POSITION .............................................................152 2.8 LEGAL AREAS INTER-RELATING WITH REQUIREMENTS TO PREVENT AND DETECT

MONEY LAUNDERING AND TERRORIST FINANCING ................................................153 2.8.1 Customer confidentiality................................................................................................153 2.8.2 Data protection..............................................................................................................153 2.8.3 Constructive trust ..........................................................................................................156 2.8.4 Civil proceedings...........................................................................................................156 2.8.5 Fraud related offences ..................................................................................................156 2.8.6 Corruption related offences ..........................................................................................157 2.8.7 Trade prohibition sanctions...........................................................................................158 2.8.8 Electronic records .........................................................................................................158

3 REPORTING KNOWLEDGE AND SUSPICION .........................................................................160 3.1 REPORTING KNOWLEDGE OR SUSPICION OF MONEY LAUNDERING AND

TERRORIST FINANCING ON BUSINESS CONDUCTED IN JERSEY ..........................160 3.2 REPORTING KNOWLEDGE OR SUSPICION OF MONEY LAUNDERING AND

TERRORIST FINANCING ACTIVITY ON BUSINESS CONDUCTED OUTSIDE JERSEY..........................................................................................................................................160

3.3 WHAT CONSTITUTES KNOWLEDGE OR SUSPICION? ...............................................161 3.4 THE OBJECTIVE TEST OF KNOWLEDGE OR SUSPICION..........................................162 3.5 THE OFFENCE OF FAILURE TO REPORT ....................................................................162

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3.6 TIMING OF REPORTING .................................................................................................162 3.7 REFUSED BUSINESS AND TRANSACTIONS................................................................163 3.8 LIAISING WITH LAW ENFORCEMENT ...........................................................................163

3.8.1 Contacting the JFCU.....................................................................................................163 3.8.2 Consent to activity and acknowledgement of suspicious activity reports by JFCU......163 3.8.3 Current JFCU practice ..................................................................................................164 3.8.4 Investigation and the use of court orders......................................................................164 3.8.5 Feedback from the JFCU..............................................................................................165

4 SUPERVISION OF COMPLIANCE WITH THE HANDBOOK ....................................................166 4.1 RISK-BASED APPROACH ...............................................................................................166 4.2 DEMONSTRATING COMPLIANCE WITH THE STATUTORY AND REGULATORY

REQUIREMENTS.............................................................................................................166 4.3 REFERRAL OF NON-COMPLIANCE WITH THE STATUTORY REQUIREMENTS TO THE

ATTORNEY GENERAL....................................................................................................167

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PART 1 – STATUTORY AND REGULATORY REQUIREMENTS AND GUIDANCE NOTES

HANDBOOK FOR THE PREVENTION AND DETECTION OF MONEY LAUNDERING AND THE FINANCING OF

TERRORISM

FOR FINANCIAL SERVICES BUSINESSES

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Jersey Financial Services Commission – Handbook for Financial Services Businesses

Consultation draft – May 2006

Prevention and detection of Money Laundering and the Financing of Terrorism 1

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1 INTRODUCTION

The continuing ability of Jersey’s finance industry to attract legitimate customers with funds and assets that are clean and untainted by criminality depends, in large part, upon the Island’s reputation as a sound, well-regulated jurisdiction. Any financial services business1 in Jersey that assists in laundering the proceeds of crime, or financing of terrorism, whether:

• with knowledge or suspicion of the connection to crime, or;

• in certain circumstances, acting without regard to what it may be facilitating through the provision of its products or services,

will face the loss of its reputation, risk the loss of its licence or other regulatory sanctions (where regulated and supervised), damage the integrity of Jersey’s finance industry as a whole, and may risk prosecution for criminal offences.

Jersey has had in place a framework of anti-money laundering legislation since 1988, and for the countering of terrorism since 1990. This legislation has continued to be updated as new threats have emerged, including legislation to extend the definition of criminal conduct for which a money laundering offence can be committed and to combat international terrorism.

Jersey’s defences against the laundering of criminal funds and terrorist financing rely heavily on the vigilance and co-operation of the finance sector. Specific financial sector legislation (the Money Laundering (Jersey) Order 2006) is therefore also in place covering financial services businesses.

Every financial services business in Jersey must recognise the role that it must play in protecting itself, and its employees, from involvement in money laundering and terrorist financing, and also in protecting the Island’s reputation of probity. This principle relates not only to business operations within Jersey, but also operations conducted by Jersey businesses outside the Island.

The Jersey Financial Services Commission (“the Commission”) strongly believes that the key to the prevention and detection of money laundering and terrorist financing lies in the implementation of, and strict adherence to, effective systems and controls, including sound customer due diligence procedures based on international standards. This Handbook therefore establishes standards which match international standards issued by the Financial Action Task Force on Money Laundering (“FATF”). The Handbook also has regard to the standards promoted by the Basel Committee on

1 The term financial services business used within the Handbook refers to a person carrying on any activity defined in the Second Schedule to the Proceeds of Crime (Jersey) Law 1999.

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Banking Supervision, International Organisation of Securities Commissions and the International Association of Insurance Supervisors. The Handbook takes account of the requirements of European Union (“EU”) legislation to counter money laundering and terrorist financing and its application of standards set by FATF.

The Commission is also mindful of the need to ensure that financial services are generally available to all Jersey residents and, where necessary, the Handbook incorporates measures to guard against the financial exclusion of Jersey residents from financial services and products.

1.1 OBJECTIVES OF THE HANDBOOK

The objectives of this Handbook are as follows:

• to outline the requirements of the Proceeds of Crime (Jersey) Law 1999 (“the Proceeds of Crime Law”), the Drug Trafficking Offences (Jersey) Law 1988 (“the Drug Trafficking Offences Law”), the Terrorism (Jersey) Law 2002 (“the Terrorism Law”), and the Terrorism (United Nations Measures) (Channel Islands) Order 2001 and the Al-Qa’ida and Taliban (United Nations Measures) (Channel Islands) Order 2002 (“United Nations Measures”), all of which apply to all persons (natural or legal) in Jersey, all persons (natural or legal) operating from within the Island, and all companies and limited liability partnerships registered in Jersey conducting activities in any part of the world;

• to outline the requirements of the Money Laundering (Jersey) Order 2006 (“the Money Laundering Order”) which supplements the above legislation by placing more detailed requirements on financial services businesses;

• to set out the Commission’s requirements - to be followed by all regulated financial services businesses in Jersey;

• to assist financial services businesses to comply with the requirements of the legislation described above and the Commission’s requirements through practical interpretation;

• to provide a base from which individual financial services businesses can design and implement systems and controls and tailor their own policies and procedures for the prevention and detection of money laundering and terrorist financing;

• to ensure that Jersey matches international standards to prevent and detect money laundering and the financing of terrorism;

• to emphasise the responsibilities of the Board of a financial services business in

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preventing and detecting money laundering and the financing of terrorism;

• to promote the use of a proportionate, risk-based approach to customer due diligence measures, and which directs resources towards higher risk relationships and transactions;

• to provide more practical guidance on identification and verification of identity;

• to emphasise the particular money laundering and terrorist financing risks of certain financial services and products; and

• to provide an information resource to be used in training and raising awareness of money laundering and terrorist financing.

This Handbook will be reviewed on a regular basis and, following consultation, may be the subject of amendment in light of experience, changes in legislation, and the development of international standards.

1.2 STRUCTURE OF THE HANDBOOK

Part I of this Handbook is structured to take a two level approach.

• Level one (Statutory Requirements) describes the statutory requirements that must be adhered to by any person (natural or legal) when carrying on a financial services business activity in relation to that activity. Failure to follow a statutory requirement is a criminal offence and may also attract regulatory sanction.

• Level two (Regulatory Requirements) sets out how a regulated financial services business must meet the statutory requirements. Failure to follow level two may attract regulatory sanction2. This level may be considered to be analogous to Codes of Practice issued by the Commission under regulatory legislation.

The Guidance Notes, which accompany the two levels, present ways of complying with the Statutory Requirements (level one) and Regulatory Requirements (level two) and must always be read in conjunction with these requirements. A financial services business may adopt other appropriate measures to those set out in the Guidance Notes, including policies and procedures established by group, so long as it can demonstrate that such measures also achieve compliance with the Statutory and Regulatory Requirements of level one and level two. This allows a financial services business discretion as to how to apply requirements in the particular circumstances of its business, products, services, transactions and customers.

2 Level two and the Guidance Notes shall also be relevant in determining whether or not requirements contained in the Money Laundering Order or in Article 23 of the Terrorism Law have been complied with.

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The provisions of the Statutory Requirements and of the Regulatory Requirements are described using the term must, indicating that these requirements are mandatory. However, in exceptional circumstances, where strict adherence to a Regulatory Requirement would produce an anomalous result, a regulated financial services business may apply in advance in writing to the Commission for variance from the requirement.

In contrast, the Guidance Notes use the term may, indicating ways in which the requirements may be satisfied, but allowing for alternative means of meeting the requirements. References to must and may elsewhere in the Handbook should be similarly construed.

In addition to the above levels, the Handbook also contains Overview text which provides some background information relevant to particular sections or sub-sections of the Handbook.

This Handbook is not intended to provide an exhaustive list of systems and controls to counter money laundering and terrorist financing. In complying with the Statutory and Regulatory Requirements, and in applying the Guidance Notes, a financial services business should (where permitted) adopt an appropriate and intelligent risk-based approach and should always consider what additional measures might be necessary to prevent their exploitation, and that of their products and services, by persons seeking either to launder money or to finance terrorism. The soundly reasoned application of the provisions contained within the Guidance Notes will provide a good indication that a financial services business is in compliance with the Statutory and Regulatory Requirements.

Level one (Statutory Requirements) necessarily paraphrases provisions contained in the Proceeds of Crime Law, Drug Trafficking Offences Law, Terrorism Law, United Nations Measures and Money Laundering Order and should always be read and understood in conjunction with the full text of each law.

References to sections within Part I of the Handbook are to sections contained within Part I.

Part II of the Handbook contains an information resource to be used in training and raising awareness of money laundering and terrorist financing.

1.3 LEGAL STATUS OF THE HANDBOOK AND SANCTIONS FOR NON-COMPLIANCE

1.3.1 All financial services businesses

This Handbook is issued by the Commission pursuant to its powers under Article 8 of the

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Financial Services Commission (Jersey) Law 1998 and in the light of provisions of Article 37 of the Proceeds of Crime Law (which provides for the Money Laundering Order) and Article 23(6) of the Terrorism Law, which anticipate that anti-money laundering and counter-terrorist financing procedures will be prescribed for persons carrying out financial services business.

Failure to comply with the Money Laundering Order is a criminal offence under Article 37(4) of the Proceeds of Crime Law. In determining whether a financial services business has complied with any of the requirements of the Order, the Royal Court is, pursuant to Article 37(8) of the Proceeds of Crime Law, required to take account of the guidance provided by the Handbook (for this purpose guidance will include the Regulatory Requirements of the Handbook in conjunction with the Guidance Notes), as amended from time to time. The sanction for failing to comply with the Money Laundering Order may be an unlimited fine or up to two years imprisonment, or both. Where a breach of the Money Laundering Order by a body corporate is proved to have been committed with the consent of, or to be attributable to any neglect on the part of, a director, manager or other similar officer, that individual, as well as the body corporate shall be guilty of the offence and subject to criminal sanctions.

Similarly, in determining whether a person has committed an offence under Article 23 of the Terrorism Law (the offence of failing to report), the Royal Court is required to take account of the guidance provided by the Handbook. The sanction for failing to comply with Article 23 of the Terrorism Law may be an unlimited fine or up to five years imprisonment, or both.

1.3.2 Regulated financial services businesses

Compliance with this Handbook will be considered by the Commission in the conduct of its supervisory visits. The ability of a regulated financial services business to demonstrate compliance with the Handbook will therefore be directly relevant to its regulated status and any assessment of the fitness and propriety of its principals. Non-compliance with the Handbook may be regarded by the Commission as an indication of:

• conduct that is not in the best economic interests of the Bailiwick under Article 6 of the Collective Investment Funds (Jersey) Law 1988;

• improper conduct under Article 10 of the Banking Business (Jersey) Law 1991;

• improper conduct under Article 7 of the Insurance Business (Jersey) Law 1996;

• a lack of fitness and propriety under Article 9 of the Financial Services (Jersey) Law 1998; and/or

• a failure to comply with certain fundamental principles within the Insurance Business Codes of Practice issued pursuant to the Insurance Business (Jersey)

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Law 1996, and the Trust Company Business and Investment Business Codes of Practice issued pursuant to the Financial Services (Jersey) Law 1998.

The consequences of non-compliance with the Handbook could include an investigation by or on behalf of the Commission, the imposition of regulatory sanctions, and criminal prosecution of the business and its employees. Regulatory sanctions include:

• issuing a public statement;

• imposing a licence condition;

• imposing a direction and making this public;

• objecting to the appointment of a principal person (or equivalent controller or manager of the business);

• appointment of a manager; and

• revocation of a licence.

1.4 SCOPE OF THE HANDBOOK

1.4.1 Application of the Handbook to financial services business conducted in Jersey

The Proceeds of Crime Law, Drug Trafficking Offences Law, Terrorism Law, United Nations Measures and Money Laundering Order (and by extension, also the Handbook) apply to any person conducting financial services business in or from within Jersey. This will include Jersey-based branches or offices of companies incorporated outside Jersey conducting financial services business in Jersey.

1.4.2 Application of the Handbook to financial services business conducted outside Jersey

The Proceeds of Crime Law, Drug Trafficking Offences Law, Terrorism Law, United Nations Measures and the Money Laundering Order (and by extension, also the Handbook) also apply to all Jersey companies and limited liability partnerships wherever they conduct financial services business, even if they do not also conduct the financial services business in Jersey. In addition, Article 10(2) of the Money Laundering Order requires a financial services business (whether incorporated or not) that conducts such business outside Jersey to have procedures in place to ensure that overseas branches

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or offices comply with the Money Laundering Order.

Where legislation in place in a jurisdiction outside Jersey prevents compliance with the Money Laundering Order, then, under Article 11 of the Money Laundering Order, the Commission must be informed that this is the case.

Where financial services business is conducted outside Jersey, overseas regulatory requirements and guidance may be followed, rather than the Regulatory Requirements and Guidance Notes contained in this Handbook, so long as the branch or office outside Jersey satisfies the definition of an equivalent business in Article 4 of the Money Laundering Order (see Section 1.7).

A financial services business must also ensure that the Handbook is applied to majority owned subsidiaries that are incorporated outside Jersey, to the extent that applicable laws and regulations permit. Overseas regulatory requirements and guidance may be followed by a majority owned subsidiary, rather than the Regulatory Requirements and Guidance Notes contained in this Handbook, so long as the subsidiary satisfies the definition of an equivalent business in Article 4 of the Money Laundering Order (see Section 1.7).

Where legislation in place in a jurisdiction outside Jersey prevents compliance with the Handbook, then the Commission must be informed that this is the case.

1.4.3 Outsourcing

Where a financial services business outsources a function to a third party (either in Jersey or outside Jersey, or within its group, or externally), the financial services business will remain responsible for its own and the third party’s compliance with the Proceeds of Crime Law, Drug Trafficking Offences Law, Terrorism Law, United Nations Measures and the Money Laundering Order (and by extension, also the Handbook).

A financial services business cannot contract out of its Statutory and Regulatory Requirements to prevent and detect money laundering and the financing of terrorism.

1.5 DEFINITION OF FINANCIAL SERVICES BUSINESS

The Second Schedule to the Proceeds of Crime Law defines financial services business activity as being:

1. Any deposit-taking business, as defined in Article 1(1) of the Banking Business (Jersey) Law 1991.

2. Any insurance business to which Article 5 of the Insurance Business (Jersey) Law 1996 applies.

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3. The business of being a functionary of a collective investment fund, as defined in Article 1(1) of the Collective Investment Funds (Jersey) Law 1988.

4. Any investment business as defined in Article 1(1) of the Financial Services (Jersey) Law 1998.

5. Any trust company business as defined in Article 1(1) of the Financial Services (Jersey) Law 1998.

6. The business of providing trusteeship services (not being services as a trustee of an occupational pension scheme).

7. The business of company formation.

8. The business of company administration.

9. The business of a bureau de change.

10. The business of providing cheque cashing services.

11. The business of transmitting or receiving money or any representation of monetary value by any means.

12. The following legal or natural persons acting in the exercise of their professional activities:

a. auditors, external accountants and tax advisors;

b. notaries and other independent legal professionals, when they participate, whether by acting on behalf of and for their client in any financial or real estate transaction, or by assisting in the planning or execution of transactions for their client concerning the:

i. buying and selling of real property or business entities;

ii. managing of client money, securities or other assets;

iii. opening or management of bank, savings or securities accounts;

iv. organisation of contributions necessary for the creation, operation or management of companies;

v. creation, operation or management of trusts, companies or similar structures;

c. real estate agents;

d. other natural or legal persons trading in goods, only to the extent that payments are made in cash in an amount of £10,000 (or equivalent amount) or more, whether the transaction is carried out in a single operation or in several operations which appear to be linked; and

e. casinos.

13. The business of engaging in any of the following activities within the meaning of the Annex to the Second Banking Coordination Directive (No. 89/646/EEC) (not

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being a business specified in any of paragraphs 1 to 12 (inclusive)):

a. the acceptance of deposits and other repayable funds;

b. lending;

c. financial leasing;

d. money transmission services;

e. the issuing and administering means of payment (such as credit cards, debit cards, travellers’ cheques, cheques, money orders, and bankers’ drafts);

f. guarantees and commitments;

g. trading for [one’s own account or for] the account of customers in:

i. money market instruments (such as cheques, bills, derivatives and CDs);

ii. foreign exchange;

iii. financial futures and options;

iv. exchange and interest rate instruments; or

v. transferable securities;

h. participation in securities issues and the provision of services related to such issues;

i. advice to undertakings on capital structure, industrial strategy and related questions and advice and services relating to mergers and the purchase of undertakings;

j. money broking;

k. portfolio management and advice;

l. the safekeeping and administration of securities; and

m. safe custody services.

1.6 RISK BASED APPROACH

To assist the overall objective to prevent money laundering and terrorist financing, the Handbook adopts a risk based approach. Such an approach:

• recognises that the money laundering and terrorist financing threat to a financial services business varies across customers, jurisdictions, products and delivery

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channels;

• allows a financial services business to differentiate between customers in a way that matches risk in a particular business;

• allows a financial services business to apply its own approach to systems and controls, and arrangements in particular circumstances; and

• helps to produce a more cost effective system.

System and controls will not detect and prevent all money laundering or terrorist financing. A risk-based approach will, however, serve to balance the cost burden placed on individual businesses and on their customers with a realistic assessment of the threat of a business being used in connection with money laundering or terrorist financing. It focuses effort where it is needed and has most impact.

1.7 EQUIVALENCE OF REQUIREMENTS IN OVERSEAS JURISIDICTIONS

1.7.1 Equivalent business

Articles 17, 18, 19 and 21 of the Money Laundering Order permit concessions from identification procedures where a person with a specific connection to a relationship is an “equivalent business”. Sections 3.5, 4.8.1, and 4.11 of the Handbook also provide concessions from requirements of the Handbook on a similar basis, and where another business has a specific connection to a financial services business (sections 1.4.2, 2.5, and 2.6).

Article 4 of the Order defines an equivalent business as being an overseas business that:

• carries on a category of financial services business equivalent to a category listed in the Second Schedule to the Proceeds of Crime Law;

• is registered under the law of that jurisdiction to carry on that business;

• is subject to requirements to combat money laundering and terrorist financing consistent with those in the FATF Recommendations; and

• is supervised for compliance with those requirements by an overseas regulatory authority.

The condition requiring that the business must be subject to requirements to combat

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money laundering and terrorist financing consistent with those in the FATF Recommendations will be satisfied where the business is both located in an equivalent jurisdiction (see below) and is subject to that jurisdiction’s requirements to combat money laundering and terrorist financing.

The fact that a business satisfies the conditions required for it to be considered an equivalent business does not automatically provide assurance that the business has adequately implemented the necessary measures to ensure compliance with those requirements to combat money laundering and terrorist financing.

Concessions provided in the Money Laundering Order and the Handbook have a restricted application, i.e. by permitting simplified identification procedures in specific low risk scenarios. As a result, a financial services business must ensure that, in respect of such relationships, it continues to apply other required customer due diligence, relationship monitoring and reporting procedures, and other risk management measures.

1.7.2 Equivalent jurisdictions

Appendix X provides a list of jurisdictions which the Commission considers to have implemented requirements to combat money laundering and terrorist financing consistent with the FATF Recommendations, hereafter referred to as “equivalent jurisdictions”.

When seeking to benefit from a concession contained in Articles 17, 18, 19 or 21 of the Money Laundering Order, or a concession of the Handbook, financial services businesses must ensure that in addition to considering the equivalence of the relevant jurisdiction, where other conditions are required by those concessions, that these are also satisfied.

1.7.3 Determining equivalence

Requirements to combat money laundering and terrorist financing will be considered to be consistent with the FATF Recommendations only where those requirements are established by law, regulation, or other enforceable means.

In determining whether or not a jurisdiction’s requirements are consistent with the FATF Recommendations, the Commission will have regard for the following:

• whether or not the jurisdiction is a member of the FATF, a Member State of the EU (including Gibraltar), a member of the European Economic Area or, another Crown Dependency (the Bailiwick of Guernsey and the Isle of Man);

• the legislation and other requirements in place in that jurisdiction;

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• recent independent assessments of that jurisdiction’s framework to combat money laundering and terrorist financing, such as those conducted by the FATF and the International Monetary Fund (“the IMF”);

• other publicly available information concerning the effectiveness of a jurisdiction’s framework; and

• in particular, the level of consistency with those FATF Recommendations directly relevant to concessions.

Where a financial services business seeks itself to assess whether an overseas jurisdiction not recognised by the Commission as an equivalent jurisdiction may be considered to be equivalent, the financial services business must conduct an assessment process comparable to that described above, and must be able to demonstrate the process undertaken and its basis for concluding that the jurisdiction has requirements to combat money laundering and terrorist financing in place that are consistent with the FATF Recommendations.

1.8 ACKNOWLEDGMENTS

This Handbook has been drafted by the Commission in consultation with the Joint Financial Crimes Unit (the “JFCU”), the Law Officers’ Department, the Jersey Post Office and the Commission’s Anti-Money Laundering Steering Group, comprising of representatives of the following industry bodies:

• Association of Private Client Investment Managers and Stockbrokers

• Jersey Association of English Solicitors

• Jersey Association of Trust Companies

• Jersey Bankers Association

• Jersey Chamber of Commerce

• Jersey Compliance Officers Association

• Jersey Finance Limited

• Jersey Funds Association

• Jersey Law Society

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• Jersey Society of Chartered and Certified Accountants

• Jersey Taxation Society

• The Society of Trust and Estate Practitioners

The Commission is grateful to members of the Steering Group for their co-operation and valuable contribution to the Handbook.

The Commission is also grateful to the United Kingdom’s (“UK”) Joint Money Laundering Steering Group for the assistance received in preparing this Handbook.

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2 CORPORATE GOVERNANCE

2.1 OVERVIEW OF SECTION

The Cadbury Report on corporate governance states that corporate governance is the system by which businesses are directed and controlled. The Cadbury Report adds that the responsibilities of the Board include setting strategic aims, providing the leadership to put them into effect and supervising the management of the business. The Organisation for Economic Co-operation and Development builds on this definition by stating that the corporate governance structure specifies the distribution of rights and responsibilities among different participants, such as the Board, managers and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs.

Under the general heading of corporate governance, this section considers:

• Board responsibilities for the prevention and detection of money laundering and the financing of terrorism;

• requirements for risk management systems and controls, and for training; and

• the appointment of a Money Laundering Compliance Officer (“MLCO”) and Money Laundering Reporting Officer (“MLRO”).

This Handbook describes a financial services business’ general framework to combat money laundering and terrorist financing as a business’ systems and controls. The Handbook refers to the way in which those systems and controls are implemented into the day-to-day operation of the business as the business’ policies and procedures.

Where a financial services business is not a company, but is, for example, a branch or partnership, references in this section to “the Board” should be read as meaning the senior management function of that business.

2.2 OBLIGATION TO HAVE PROCEDURES AND CONTROLS

STATUTORY REQUIREMENTS

In accordance with Article 37 of the Proceeds of Crime Law, a financial services business must have in place procedures to forestall and prevent money laundering. Failure to establish and maintain such procedures will result in the commission of a criminal offence by a financial services business and where such

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an offence is proved to have been committed with the consent or connivance of, or to be attributable to neglect on the part of, a director or manager or officer of the business, he too shall be deemed to have committed a criminal offence.

Article 37 enables the Treasury and Resources Minister to prescribe by Order the procedures that must be put in place by a financial services business. These procedures are established in the Money Laundering Order.

2.3 BOARD RESPONSIBILITES - THE NEED FOR A COMPLIANCE CULTURE AND A VIGILANCE POLICY

OVERVIEW

The Board has a responsibility to ensure that a financial services business’ systems and controls are appropriately designed and implemented, and are effectively operated to reduce the risk of the business being used in connection with money laundering or terrorist financing. The Board is assisted in fulfilling this responsibility by a MLCO and MLRO.


Article 10(4) of the Money Laundering Order requires a financial services business to establish and maintain procedures of internal control and communication as may be appropriate for the purposes of forestalling, detecting and preventing money laundering.

Article 10(9) of the Money Laundering Order requires a financial services business to establish and maintain procedures for monitoring and testing the effectiveness of its systems and internal controls, including the effectiveness of awareness raising and training for relevant employees (see Section 7).

REGULATORY REQUIREMENTS

The Board must establish a strategy to counter money laundering and terrorist financing. For a Jersey financial services business forming part of a group operating outside the Island, that strategy must protect both its global reputation and its Jersey business.

The Board must conduct a business risk assessment. In particular, the Board must consider, on an ongoing basis, the extent of its exposure to risks by reference to its organisational structure, its customers, the jurisdictions with which its customers are connected, its products and services, and how it delivers

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those products and services. The Board’s assessment must be kept up to date.

The Board must consider what barriers (including cultural barriers) exist to prevent the operation of effective systems and controls to counter money laundering and the financing of terrorism, and must take effective measures to address them.

The Board must adopt a formal policy in relation to the prevention and detection of money laundering and the financing of terrorism.

The Board must organise and control its affairs effectively and be able to demonstrate the existence of adequate risk management systems and controls to counter money laundering and terrorist financing (including policies and procedures).

The Board must document its systems and controls (including policies and procedures) and clearly apportion responsibilities for countering money laundering and terrorist financing, and, in particular, responsibilities of the MLCO and MLRO.

The Board must oversee compliance with risk management systems and controls and take any action necessary to remedy deficiencies highlighted.

The Board must ensure that systems and controls are kept under regular review and that breaches are dealt with quickly and effectively.

The Board must notify the Commission immediately in writing of any material failures to comply with the requirements of the Money Laundering Order or of this Handbook.

2.3.1 Business risk assessment

GUIDANCE NOTES

The Board of a financial services business may demonstrate that it has considered the business’ exposure to money laundering and terrorist financing risk by:

• Involving all members of the Board in determining the risks posed by money laundering and terrorist financing within those areas for which they have responsibility.

• Considering organisational factors that may increase the level of exposure to the risk of money laundering and terrorist financing, e.g. business volumes and

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outsourced aspects of regulated activities or compliance functions.

• Considering the nature, scale and complexity of its business, the diversity of its operations, the volume and size of its transactions, and the degree of risk associated with each area of its operation.

• Considering who its customers are and what they do.

• Considering whether any additional risks are posed by the jurisdictions with which its customers (including intermediaries and introducers) are connected. Factors such as high levels of organised crime, increased vulnerabilities to corruption and inadequate frameworks to prevent and detect money laundering and the financing of terrorism will impact the risk posed by relationships connected with such jurisdictions.

• Considering the characteristics of the products and services that it offers and assessing the associated vulnerabilities posed by each product and service. For example:

Pooled relationships with intermediaries will tend to be more vulnerable - because of the anonymity provided by the co-mingling of assets or funds belonging to several customers by the intermediary.

Products such as standard current accounts are more vulnerable because they allow payments to be made to and from third parties, including cash transactions.

Conversely, those products that do not permit third party transfers or where redemption is permitted only to an account from which the investment is funded will be less vulnerable.

• Considering how it establishes and delivers products and services to its customers. For example, risks are likely to be greater whether relationships may be established remotely (non-face-to-face), or may be controlled remotely by the customer (straight-through processing of transactions).

The Board should record and retain its business risk assessment. An annual, formal reassessment might be appropriate for a dynamic, growing business, but too often in some other cases, e.g. an established business with stable products and services.

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2.3.2 Consideration of cultural barriers

OVERVIEW

The implementation of systems and controls for the prevention and detection of money laundering and the financing of terrorism does not obviate the need for a financial services business to address the numerous cultural barriers that can prevent effective control. Indeed, systems and controls only work if they are understood, followed, and compliance therewith assessed. Sometimes referred to as 'human factors', the inter-relationships between different employees within a financial services business, and between employees and customers, can result in the creation of damaging barriers.

Unlike systems and controls, the prevailing culture of an organisation is intangible. As a result, its impact on the business can sometimes be difficult to measure.

GUIDANCE NOTES

The risk that cultural barriers might prevent the operation of effective systems and controls to prevent and detect money laundering and the financing of terrorism may be minimised by the Board considering the prevalence of the following factors:

• An assumption on the part of more junior employees that their concerns or suspicions are of no consequence.

• Negative handling by managerial staff of queries raised by more junior employees regarding unusual, complex or higher risk activity and transactions.

• An unwillingness on the part of employees to subject high value (and therefore important) customers to effective customer due diligence checks.

• Pressure applied by management or customer relationship managers outside Jersey upon employees in Jersey to transact without first conducting all relevant customer due diligence.

• Excessive pressure applied on employees to meet aggressive revenue-based targets, or where employee or management remuneration or bonus schemes are exclusively linked to revenue-based targets.

• The familiarity of employees with certain customers resulting in unusual, complex, or higher risk activity and transactions within such relationships not being identified as such.

• The inability of certain employees to understand the commercial rationale for

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customer relationships, resulting in a failure to identify non-commercial and therefore potential money laundering and terrorist financing activity.

• A tendency for line managers to discourage employees from raising concerns due to lack of time and/or resources, which would prevent any such concerns from being addressed satisfactorily.

• An excessive desire on the part of employees to provide a confidential and efficient customer service.

• Non-attendance of senior employees at anti-money laundering and terrorist financing training sessions on the basis of mistaken belief that they cannot learn anything new or because they have too many other competing demands on their time.

2.3.3 Oversight of compliance

GUIDANCE NOTES

Whilst it is a matter for the Board to determine the depth and frequency with which it reviews a financial services business’ compliance with the Money Laundering Order and Handbook (so that the Board’s responsibilities are properly discharged), the Board may demonstrate that it has addressed compliance where it:

• It receives regular and timely information relevant to the management of the business’ money laundering and terrorist financing risk.

• Periodically commissions and considers a report from the MLCO that covers compliance by the business with the Money Laundering Order and Handbook, and records and retains the report. The frequency of such reports should be determined by its business risk assessment and consideration of cultural barriers.

The periodic report may include:

• The means by which the effectiveness of the business’ systems and controls have been monitored and tested.

• Compliance deficiencies identified and details of action taken or proposed to address any such deficiencies.

• The number of internal suspicious activity reports received and the number of subsequent external suspicious activity reports submitted to the JFCU, any perceived deficiencies in internal or external reporting procedures, and the nature of changes proposed or implemented to address any such deficiencies.

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• Information concerning the training programme, which staff have received training, the methods of training and the nature of any significant issues arising from the training.

• Changes made or proposed in respect of new legislation, regulatory requirements or guidance.

• The nature of actions taken in response to notices highlighting jurisdictions which do not or insufficiently apply the FATF Recommendations or which are the subject of international countermeasures, and the measures taken to manage and monitor business relationships connected with such jurisdictions.

• Any recommendations concerning additional resource requirements to ensure effective compliance with the Proceeds of Crime Law, Drug Trafficking Offences Law, Terrorism Law, United Nations Measures and the Money Laundering Order (and by extension, also the Handbook).

To assist the MLCO in preparing the report, and to ensure that the report is a fair and accurate assessment, a financial services business may wish to provide the MLCO with support from its internal audit or compliance function, as appropriate, or to seek an assessment from external sources.

2.4 SYSTEMS AND CONTROLS, TRAINING AND AWARENESS


Article 10(4) of the Money Laundering Order requires a financial services business to establish and maintain specific procedures in relation to that business concerning identification, record-keeping, and internal reporting, and such other procedures of internal control and communication as may be appropriate for the purposes of forestalling, detecting and preventing money laundering.

Article 10(5) requires procedures established and maintained under Article 10(4) to provide for an assessment of risk that any business relationship or one-off transaction will involve money laundering, and to reflect such assessment of risk.

Article 10(7) of the Money Laundering Order requires a financial services business to take appropriate measures for the purposes of making employees whose duties relate to the provision of financial services aware of procedures required under Article 10(4) and of Jersey’s anti-money laundering legislation.

Article 10(8) of the Money Laundering Order requires a financial services business to provide employees whose duties relate to the provision of financial services with training in the recognition and handling of transactions carried out by or on

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behalf of persons who are, or appear to be, engaged in money laundering.

Article 10(9) of the Money Laundering Order requires a financial services business to establish and maintain procedures for monitoring and testing the effectiveness of its systems and internal controls, including the effectiveness of awareness raising and training for relevant employees.

Articles 6 and 7 of the Money Laundering Order require that a financial services business appoints a MLCO and a MLRO.


A financial services business must establish and maintain systems and controls to prevent and detect money laundering and terrorist financing, that enable the financial services business to:

• Apply appropriate customer due diligence policies and procedures that take into account risk - in line with Sections 3, 4, and 5 - which must include:

the development of clear customer acceptance policies;

identifying and verifying the identity of the applicant for business;

identifying the beneficial owners and controllers of an applicant that is not an individual and taking reasonable measures to verify the identity of the beneficial owners and controllers;

identifying any third parties on whose behalf the applicant acts (and the beneficial owners and controllers of the third party) and taking reasonable measures to verify the identity of any third parties (and their beneficial owners and controllers);

for express trusts and legal bodies, taking reasonable measures to also understand the ownership (legal and beneficial) and control structure;

understanding the nature of the business that the applicant expects to conduct and the rationale for the business relationship; and

conducting ongoing customer due diligence and monitoring of activity and transactions.

• Report to the JFCU when it knows or has reasonable grounds to suspect another person is involved in money laundering or terrorist financing,

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including attempted transactions - in line with Section 6.

• Ensure that relevant employees are adequately screened when they are initially employed, aware of the risks of becoming concerned in arrangements involving criminal money and terrorist financing, and provided with training - in line with Section 7.

• Keep records - in line with Section 8.

• Liaise closely with the Commission and the JFCU on matters concerning vigilance, systems and controls.

• Monitor the ongoing competence and effectiveness of the MLCO and the MLRO.

In maintaining the required systems and controls, a financial services business must ensure that the systems and controls are implemented and operating effectively.

A financial services business must have systems and controls in place, or take appropriate measures, to guard against the use of technological developments in money laundering or terrorist financing schemes.

A financial services business must have policies and procedures in place to address specific risks associated with non-face to face business relationships or transactions, which should be applied when establishing customer relationships and when conducting ongoing due diligence.

2.4.1 Outsourcing

OVERVIEW

In all instances of outsourcing, it is the delegating financial services business that bears the ultimate responsibility for the duties undertaken in its name. This will include the requirement to ensure that the third party has in place satisfactory systems and controls, and to ensure that those systems and controls are kept up to date to reflect changes in requirements.

Depending on the nature and size of a financial services business, the roles of MLCO and MLRO may require additional support and resourcing. Where a business elects to bring in additional support, or to delegate areas of the MLCO or MLRO functions to third parties, the MLCO or MLRO will remain directly responsible for his respective role, and the Board will remain responsible for overall compliance with the Proceeds of Crime Law, Drug Trafficking Offences Law, Terrorism Law, United Nations Measures and the

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Money Laundering Order (and by extension, also the Handbook).


A financial services business must follow the Commission’s policy statement and guidance notes on outsourcing (current issue dated 19 August 2002).

A financial services business must consider the effect that outsourcing has on money laundering and terrorist financing risk, in particular where a MLCO or MLRO is provided with additional support from third parties, either from within group or externally.

A financial services business must assess possible money laundering or terrorist financing risk associated with outsourced functions, record its assessment, and monitor any risk on an ongoing basis.

Where an outsourced activity is a financial services business activity, then a financial services business must ensure that the provider of the outsourced services has in place procedures that are consistent with those required under the Money Laundering Order and by this Handbook.

In particular, a financial services business must ensure that knowledge, suspicion, or reasonable grounds for suspicion of money laundering or terrorist financing activity are reported by the third party to the financial services business’ MLRO (or a designated person).

2.5 THE MONEY LAUNDERING COMPLIANCE OFFICER


Article 6 of the Money Laundering Order requires a financial services business to appoint a MLCO. The same person may be appointed as both MLCO and MLRO.

Article 6 of the Money Laundering Order requires a financial services business to notify the Commission in writing within 21 days when a person is appointed as, or ceases to be, a MLCO. However, Article 9 provides that the Commission may grant exemptions from this requirement.

The MLCO is responsible to the Board for monitoring compliance by the business with Jersey’s laws relating to money laundering.

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A MLCO must:

• be employed by the financial services business3;

• be based in Jersey4;

• have sufficient experience and [qualification/skills];

• have appropriate independence;

• have a sufficient level of seniority and authority within the business to ensure that the Board reacts to and acts upon any recommendations made;

• have sufficient resources, including sufficient time and (if appropriate) a deputy MLCO and support staff;

• have regular contact with the Board to ensure that the Board is able to satisfy itself that statutory obligations are being met and that the business is taking sufficiently robust measures to protect itself against the risk of money laundering and terrorist financing;

• report directly to the Board;

• have unfettered access to all business lines and support departments; and

• be fully aware of both his and the business’ obligations under the Proceeds of Crime Law, Drug Trafficking Offences Law, Terrorism Law, United Nations Measures and the Money Laundering Order (and by extension, also the Handbook), and take reasonable steps to ensure compliance.

In the event that the position of MLCO is expected to fall vacant, to comply with the statutory requirement to have an individual appointed to the office of MLCO at all times, a financial services business must take action to appoint a member of the Board to the position on a temporary basis.

3 In the case of a financial services business that: is a functionary of a collective investment fund, a Category B insurance permit holder, a managed bank, or other managed entity; has no staff of its own; and is administered by a regulated financial services business, it is acceptable for an employee of the administrator to be appointed by the financial services business as its MLCO. 4 In the case of a financial services business that: is a Category A or Category B insurance permit holder; has no staff of its own in Jersey; and is administered by a business that is either regulated by the Commission or satisfies the definition of an equivalent business in Article 4 of the Money Laundering Order (refer to Section 1.7), it is acceptable for the permit holder to appoint an employee of the administrator as its MLCO.

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Where temporary circumstances arise where the financial services business has a limited or inexperienced compliance resource, the financial services business must ensure that this resource is supported as necessary.

When considering whether it is appropriate to appoint the same person as MLCO and MLRO, a financial services business must have regard to:

• the respective demands of the two roles, taking into account the size and nature of the financial services business’ activities; and

• whether the individual will have sufficient time and resources to fulfil both roles effectively.

2.5.1 Role and responsibilities of the MLCO

GUIDANCE NOTES

The MLCO may demonstrate that he or she has monitored compliance by the business with legislation relating to money laundering and terrorist financing, and taken reasonable steps to ensure compliance therewith, where the MLCO:

• Develops and maintains systems and controls (including policies and procedures) in line with evolving requirements.

• Undertakes regular reviews (including testing) of the effectiveness of policies and procedures to counter money laundering and the financing of terrorism, and of compliance therewith.

• Ensures that staff are aware of their personal obligations and internal policies and procedures pertaining to money laundering and terrorist financing by arranging for all staff to receive training in money laundering and terrorist financing prevention and detection.

• Advises the Board on anti-money laundering and terrorist financing compliance issues that need to be brought to its attention.

• Reports periodically, as appropriate, to the Board on compliance with the Money Laundering Order and this Handbook.

• Responds promptly to requests for information made by the Commission and the JFCU.

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2.6 THE MONEY LAUNDERING REPORTING OFFICER

OVERVIEW

Whilst the Money Laundering Order requires one person to be appointed as MLRO, it recognises that, given the size and complexity of operations of many financial services businesses, it may be appropriate to designate additional persons to whom suspicious activity reports may be made.


Article 7 of the Money Laundering Order requires a financial services business to appoint a MLRO. The same person may be appointed as both MLCO and MLRO.

Article 7 of the Money Laundering Order requires a financial services business to notify the Commission in writing within 21 days when a person is appointed as, or ceases to be, a MLRO. However, Article 9 provides that the Commission may grant exemptions from this requirement.

Article 8 allows a financial services business to designate one or more persons (designated persons), in addition to the MLRO, to whom suspicious activity reports may be made.

Under Article 26(1), if a designated person concludes that a report does not give rise to knowledge or reasonable grounds for suspicion, he need not forward the report to the MLRO. Under Article 26(2), if a designated person, on considering a report, concludes that it does give rise to knowledge or reasonable grounds for suspicion, then either the designated person or the MLRO may disclose that matter to the JFCU.

Under Article 25(1)(h) procedures must be established and maintained which allow the MLRO and any designated persons to have access to all relevant information which may be of assistance to them when considering a suspicious activity report.


A MLRO must:

• be employed by the financial services business5;

5 In the case of a financial services business that: is a functionary of a collective investment fund, a Category B insurance permit holder, a managed bank, or other managed entity; has no staff of its own; and is

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• be based in Jersey6;

• have sufficient experience and [qualification];

• have a sufficient level of seniority and authority within the business;

• have sufficient resources, including sufficient time, and (if appropriate) be supported by designated persons;

• keep a record of all designated persons;

• provide support to and routinely monitor the performance of any designated persons;

• be able to raise issues directly with the Board;

• ensure that suspicious activity reports are considered and determined in an appropriate and consistent manner;

• maintain a record of all enquiries received from law enforcement authorities and records relating to all internal and external suspicious activity reports (Section 8);

• be fully aware of both his and the business’ obligations under the Proceeds of Crime Law, Drug Trafficking Offences Law, Terrorism Law, United Nations’ Measures and the Money Laundering Order (and by extension, also the Handbook);

• ensure that relationships are managed effectively post disclosure to avoid tipping off any third parties; and

• act as the liaison point with the Commission and the JFCU and in any other third party enquiries in relation to money laundering or terrorist financing.

In the event that the position of MLRO is expected to fall vacant, to comply with the statutory requirement to have an individual appointed to the office of MLRO at all times, a financial services business must take action to appoint a member of the Board to the position on a temporary basis.

administered by a regulated financial services business, it is acceptable for an employee of the administrator to be appointed by the financial services business as its MLRO. 6 In the case of a financial services business that: is a Category A or Category B insurance permit holder; has no staff of its own in Jersey; and is administered by a business that is either regulated by the Commission or satisfies the definition of an equivalent business in Article 4 of the Money Laundering Order (refer to Section 1.7), it is acceptable for the permit holder to appoint an employee of the administrator as its MLRO.

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Where temporary circumstances arise where the financial services business has a limited or inexperienced reporting resource, the financial services business must ensure that this resource is supported as necessary.

2.6.1 Role and responsibilities of the MLRO

GUIDANCE NOTES

The MLRO may demonstrate routine monitoring of the performance of any designated persons by reviewing:

• samples of records containing internal suspicious activity reports and supporting information and documentation;

• decisions of the designated person concerning whether to make an external suspicious activity report; and

• the bases for decisions taken.

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3 CUSTOMER DUE DILIGENCE REQUIREMENTS


Customer due diligence measures involve:

• Identifying an applicant for business and verifying the applicant’s identity using reliable, independent source documents, data or information.

• Identifying the beneficial ownership and control of the applicant and taking reasonable measures to verify the identity of the beneficial owners and controllers such that a financial services business is satisfied that it knows who the beneficial owners and controllers are.

• Obtaining information on the purpose and intended nature of the business relationship.

• Keeping the above up to date, and monitoring activity and transactions undertaken throughout the course of a relationship to ensure that the activity or transaction being conduced is consistent with the financial services business’ knowledge of the customer.

Sound customer due diligence measures are vital because they:

• help to protect the financial services business and the integrity of the financial sector in which it operates by reducing the likelihood of the business becoming a vehicle for, or a victim of, financial crime;

• assist law enforcement, by providing available information on applicants for business, customers or activities and transactions being investigated - following a suspicious activity report to the JFCU;

• constitute an essential part of sound risk management e.g. by providing the basis for identifying, limiting and controlling risk; and

• help to guard against identity fraud.

The inadequacy or absence of satisfactory customer due diligence measures can subject a financial services business to serious customer and counterparty risks, as well as reputational, operational, legal, regulatory and concentration risks, any of which can result in significant financial cost to the business.

Customer due diligence information is also a vital tool for the MLRO and financial

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services business employees in assessing whether knowledge or a suspicion has foundation.

The customer due diligence sections of the Handbook (Sections 3, 4 and 5) follow the approach taken to customer due diligence in the FATF Recommendations.

General requirements, including the application of a risk-based approach, are described in this section - Section 3 - together with the circumstances in which enhanced due diligence must be conducted.

Identification and verification elements of customer due diligence are addressed in Section 4, together with circumstances in which exceptions apply and simplified procedures might be applied to lower risk applicants for business.

Ongoing monitoring and scrutiny of activity and transactions is described in Section 5.

Accordingly, this section should be read and understood in conjunction with Sections 4 and 5.

Throughout this section, references to an “applicant for business” or “applicant” relate to a prospective customer, and references to a “customer” relate to a person with whom a business relationship has been formed or one-off transaction conducted.

An applicant for business may be an individual, trustee of an express trust, or a legal body (including bodies corporate, foundations, anstalts, partnerships, associations, or any similar bodies that can establish a permanent customer relationship with a financial services business or otherwise own property) seeking to enter into a business relationship or conduct a one-off transaction - as principal or on behalf of a third party.

The individuals considered to be the beneficial owners and controllers for each customer type are described in Section 4.

3.2 OBLIGATION TO CONDUCT CUSTOMER DUE DILIGENCE


Article 37 of the Proceeds of Crime Law enables the Treasury and Resources Minister to prescribe the identification procedures to be followed by a financial services business.

Article 10(4)(a) of the Money Laundering Order requires a financial services business to establish and maintain customer identification procedures that involve identification and verification of identity.

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Specific requirements for customer identification procedures are contained within Part 3 of the Money Laundering Order.

Article 10(4)(d) of the Money Laundering Order requires a financial services business to have procedures of internal control and communication as may be appropriate for the purposes of forestalling, detecting and preventing money laundering.

Article 10 requires that the procedures required by Article 12(4) take into account the greater potential for money laundering which arises when the applicant for business is not physically present at the time that verification of identity procedures take place.

Article 10 also requires that the procedures ensure that risk assessments are undertaken and the procedures required by Article 10(4)(a) and Article 10(4)(d) take into account the financial services business’ assessment of money laundering risk.

3.3 RISK BASED APPROACH TO CUSTOMER DUE DILIGENCE

OVERVIEW

A risk-based approach to customer due diligence is one that takes a number of discrete steps in assessing the most effective and proportionate way to manage the money laundering and terrorist financing risk faced by a financial services business.

The risk assessment of a particular applicant will determine the extent of identification information (and other customer due diligence information) that will be requested, how that information will be verified, and the extent to which the resulting relationship will be monitored.

Systems and controls will not detect and prevent all instances of money laundering or terrorist financing. A risk-based approach will, however, serve to balance the cost burden placed on a financial services business and on applicants and customers with the risk that the business may be used in money laundering or to finance terrorism by focusing resources on higher risk areas.

Care has to be exercised under a risk-based approach. Being identified as carrying a higher risk of money laundering does not automatically mean that a customer is a money launderer or is financing terrorism. Similarly, identifying a customer as carrying a lower risk of money laundering does not mean that the customer is not a money launderer or financing terrorism.

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Determination and recording of risk

Stage 1:

A financial services business must collect relevant customer due diligence information on:

the applicant for business, on any beneficial owners and controllers of the applicant, and on third parties on whose behalf the applicant acts (and beneficial owners and controllers of third parties); and

the relationship to be established,

to enable a customer profile to be prepared.

In particular, a financial services business must understand the nature of the business that the applicant expects to conduct and the rationale for the business relationship.

The extent of such measures must be determined on a risk sensitive basis.

Stage 2:

A financial services business must, on the basis of the relevant customer due diligence information collected at Stage 1, evaluate the information with reference to “factors to consider” and appropriate external data sources, and consider whether it is appropriate to collect further information.


Stage 3:

A financial services business must determine and record an initial risk assessment for the applicant.

Further guidance is provided in Sections 3.3.1 – 3.3.6.

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Application of risk-based approach

Stage 4:

A financial services business must verify the identity of the applicant and take reasonable measures to verify the identity of any beneficial owners and controllers of the applicant and of any third parties on whose behalf the applicant acts (and beneficial owners and controllers of such third parties).


Requirements for this stage are covered in Section 4.

Stage 5:

A financial services business must periodically update relevant customer due diligence information and its risk assessment (in line with stages 1 to 3). In the event of any change in beneficial ownership or control of the applicant, or third parties on whose behalf the applicant acts, Part 3 of the Money Laundering Order requires reasonable measures to be taken to verify identity (in line with stage 4). The extent of such measures must be determined on a risk sensitive basis.

3.3.1 Customer due diligence information – Stage 1

GUIDANCE NOTES

Customer due diligence information comprises both identification information and relationship information.

Information that may be considered relevant identification information is set out in Section 4. Information that may be considered relevant relationship information for individuals, express trusts, and legal bodies is described below.

The extent of relationship information sought in respect of a particular applicant, or type of applicant, will depend upon the jurisdictions with which the applicant is connected, the characteristics of the product or service requested, how the product or service will be delivered, as well as factors specific to the applicant.

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For all customer types

Purpose and intended nature of relationship.7

Type, volume and value of activity expected.

Source of funds, e.g. nature and details of occupation or employment.

Details of any existing relationships with the financial services business.

Reason for using overseas service provider (non-residents only).

Express trusts – additional relationship information

Type of trust (e.g. fixed interest, discretionary, testamentary).

Structure of any underlying companies (if applicable) and nature of activities undertaken by the trust and any underlying companies (having regard for “sensitive activities” and trading activities).

Classes of beneficiaries, including any charitable causes named in the trust instrument.

Name of trustee’s regulator, if applicable.

Legal bodies – additional relationship information

Company and group (if applicable) ownership and control structure.

Nature of activities undertaken (having regard for “sensitive activities” and trading activities).

Geographical sphere of the legal body’s activities and assets.

Name of regulator, if applicable.

3.3.2 Customer due diligence profile – Stage 1

GUIDANCE NOTES

For certain types of products or services, it may be possible to prepare a profile on the basis of generic expected activity and transactions. For more complex products or services, however, tailored activity profiles may be necessary.

In any event, a financial services business may demonstrate that a customer profile contains sufficient information where that profile enables it to:

• identify a pattern of expected business activity and transactions within each customer relationship; and

• identify unusual, complex or higher risk activity and transactions, that may indicate money laundering or terrorist financing activity.

7 For many simple retail savings or investment products, the reasons for a relationship may be self-evident.

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3.3.3 Source of funds and wealth – Stages 1 and 2

OVERVIEW

The ability to follow the audit trail for criminal funds and transactions flowing through the financial sector is a vital law enforcement tool in money laundering and terrorist financing investigations. Understanding the source of funds and, in higher risk relationships, the customer’s source of wealth is also an important aspect of customer due diligence.

GUIDANCE NOTES

A financial services business may demonstrate that it has collected relevant relationship information by:

Lower and standard risk

Taking reasonable measures to establish source of funds for each applicant and, when third party funding is involved, making further enquiries as to the relationship between the person providing the funds and the applicant.

Higher risk

Taking reasonable measures to establish source of funds for each applicant and, when third party funding is involved, making further enquiries as to the relationship between the person providing the funds and the applicant.

Taking reasonable measures to establish a customer’s source of wealth.

Considering whether it is appropriate to take measures to verify source of funds or wealth.

The source of funds is the activity which generates the funds for a relationship e.g. a customer’s occupation or business activities. Information concerning the geographical sphere of the activities may also be relevant.

The Money Laundering Order and this Handbook stipulate record keeping requirements for transaction records, which require information concerning the remittance of funds also to be recorded (e.g. the name of the bank and the name and account number of the account from which the funds were remitted). This is not to be confused with source of funds.

Source of wealth is distinct from source of funds, and describes the activities which have generated the total net worth of a person both within and outside of a relationship, i.e. those activities which have generated a customer’s funds and property. Information concerning the geographical sphere of the activities that have generated a customer’s wealth may also be relevant.

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In determining source of wealth it will often not be necessary to establish the monetary value of an individual’s net worth.

3.3.4 Evaluation of customer due diligence information – Stage 2

GUIDANCE NOTES

The following factors may be relevant when assessing and evaluating the customer due diligence information collected at stage 1, and are not exhaustive. Where this evaluation of customer due diligence information highlights a higher risk, then it may prove necessary to request further customer due diligence information.

3.3.4.1 Factors to consider

Country risk

Residence in or connection with higher risk jurisdictions. The following jurisdictions may be considered to present a higher risk:

those that are generally considered to be “un-cooperative” in the fight against money laundering and terrorist financing;

those that have inadequate safeguards in place against money laundering or terrorism;

those that have high levels of organised crime; those that have strong links with terrorist activities; and those that are vulnerable to corruption.

In assessing which jurisdictions may present a higher risk, regard should be had to objective data published by the IMF, FATF, US Department of State (International Narcotics Control Strategy Report), Office of Foreign Assets Control (“OFAC”), and Transparency International (Corruption Perception Index).

Geographical sphere of business activities, e.g. the location of the markets in which a customer does business.

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Customer risk

Type of applicant or customer. For example, a politically exposed applicant will present a higher risk (as may a domestic politician).

Nature and scope of business activities generating the funds/assets. For example, an applicant or customer conducting “sensitive” activities (as defined by the Commission) or engaged in a business which involves significant amounts of cash will be considered to present a higher risk.

Transparency of applicant or customer. For example, persons that are subject to public disclosure rules, e.g. on exchanges or regulated markets (or majority-owned and consolidated subsidiaries of such persons), or subject to licensing by a statutory regulator, e.g. the Jersey Competition Regulatory Authority will present a lower risk.

Reputation of applicant or customer. For example, a well known, reputable person, with long histories in its industry, and with abundant independent information about it and its beneficial owners and controllers will present a lower risk.

Behaviour of applicant or customer. For example, where there is no commercial rationale for a customer buying the products that he seeks, requests undue levels of secrecy, or where it appears that an “audit trail” has been deliberately broken or unnecessarily layered, an applicant for business will present a higher risk.

Type and complexity of relationship. For example, unexplained use of corporate structures and express trusts, and use of nominee and bearer shares will present a higher risk.

Value of funds.

Value and frequency of cash or other “bearer” transactions.

Delegation of authority by the applicant or customer. For example, the use of powers of attorney, mixed boards and representative offices will indicate higher risk.

Nature of the relationship between an applicant’s beneficial owners and controllers and account signatories.

In the case of an express trust, the relationship of beneficiaries with a vested right, other beneficiaries and persons who are the object of a power to the settlor(s). (See also Section 4.4.)

In the case of an express trust, the nature of classes of beneficiaries and classes within an expression of wishes for which it is not reasonable to identify specific persons within that class (for example, a trust established for the benefit of all pupils within a specified school). (See also Section 4.4.)

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Product or service risk

Ability to make payments to third parties.

Ability to pay in or withdraw cash.

Ability to migrate from one product to another.

Ability to hold boxes, parcels or sealed envelopes in safe custody.

Ability to use numbered accounts or “hold mail” facilities.

Ability to pool underlying customers.

Delivery risk

Indirect relationship with the customer - use of intermediaries.

Non-face to face relationships - product or service delivered exclusively by post, telephone, internet etc.

Availability of “straight-through processing” of customer transactions.

3.3.4.2 External data sources

Appropriate external data sources will include sources such as domestic legislation applying United Nations (“UN”) and EU sanctions and measures, and guidance issued by the Commission, and may include information published by governments and law enforcement authorities on terrorists (e.g. United States government agencies such as the Federal Bureau of Investigation and OFAC), electronic subscription databases, the internet and other media.

In particular, the Bank of England maintains a consolidated list of targets listed by the UN, EU, and UK under legislation relating to current financial sanctions regimes.

3.3.5 Customer risk assessment – Stage 3

GUIDANCE NOTES

A financial services business may demonstrate an effective process to determine an initial customer risk assessment by taking into account:

• the customer due diligence information obtained at stage 1 and the evaluation of this information carried out at stage 2; and

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• inconsistencies between the customer due diligence information obtained, for example, between specific information concerning source of funds or source of wealth, and the nature of transactions.

The sophistication of the risk assessment process may be determined according to factors established by the business risk assessment.

Where it is appropriate to do so, risk may be assessed generically for applicants and customers falling into similar categories.

• The business of some financial services businesses, their products, and customer base, can be relatively simple, involving few products, with most applicants or customers falling into similar risk categories. In such circumstances, a simple approach, building on the risk that the business’ products are assessed to present, may be appropriate for most customers, with the focus being on those customers who fall outside the norm.

• Others may have a greater level of business, but large numbers of their customers may be predominantly retail, served through delivery channels that offer the possibility of adopting a standardised approach to many procedures. Here too, the approach for most customers may be relatively straight forward - building on product risk.

• In the case of Jersey residents seeking to establish retail relationships, and in the absence of any information to indicate otherwise, such applicants may be considered to present a lower risk.

A more complex system may be appropriate for diverse customer bases or businesses with broad ranges of produces or services.

3.3.6 Updating customer due diligence – Stage 5

GUIDANCE NOTES

In the case of a customer relationship assessed as presenting higher risk, a financial services business may demonstrate that its customer due diligence information remains up to date where it is reviewed and updated on at least an annual basis.

In the case of other relationships, a financial services business may demonstrate that its customer due diligence information remains up to date where it is reviewed and updated on a risk sensitive basis.

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Trigger events e.g. the opening of a new account, the purchase of a further product, or meeting with a customer may present a convenient opportunity to update customer due diligence information.

3.4 ENHANCED CUSTOMER DUE DILIGENCE


Where a relationship or transaction is assessed as presenting a higher risk, a financial services business must perform enhanced due diligence.

Where a relationship or transaction involves a politically exposed person8 then it must always be considered to present a higher risk.

3.4.1 Politically exposed persons

OVERVIEW

Corruption by some high profile individuals, generally referred to as politically exposed persons (“PEPs”), inevitably involves serious crime, such as theft or fraud, and is of global concern. The proceeds of such corruption are often transferred to other jurisdictions and concealed through private companies, trusts or foundations, frequently under the names of relatives or close associates.

By their very nature, money laundering investigations involving the proceeds of corruption generally gain significant publicity and are therefore very damaging to the

8 Politically exposed persons are individuals who are (or have been) entrusted with prominent public functions in a jurisdiction other than Jersey, their immediate family and close associates as defined below: Prominent public functions include senior positions within:-

• the executive, legislative, administrative, military or judicial branches of a government (elected or non elected);

• a major political party; • intranational and supranational organisations; or • a government owned corporation or ruling royal family.

A relationship with a PEP includes any corporate entity, partnership or trust relationship that has been established by or for the benefit of such individuals. Immediate family typically includes the person’s parents, siblings, spouse, children, in-laws, grandparents and grandchildren. Close associate typically includes a person who is widely and publicly known to maintain a close relationship with the senior political figure, and includes a person who is in a position to conduct substantial domestic and international financial transactions on his or her behalf.

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reputation of both businesses and jurisdictions concerned. In addition to the possibility of criminal charges, constructive trust claims can also arise when the proceeds of corruption are handled.

Indications that an applicant or customer may be connected with corruption include excessive revenue from “commissions” or “consultancy fees” or involvement in contracts at inflated prices, where unexplained “commissions” or other charges are paid to third parties.

The risk of handling the proceeds of corruption, or becoming engaged in an arrangement that is designed to facilitate corruption, is greatly increased where the arrangement involves a PEP. Where the PEP also has connections to countries or business sectors where corruption is widespread, the risk is further increased.

PEP status itself does not, of course, incriminate individuals or entities, It will, however put an applicant for business or customer into a higher risk category.


On the basis of a risk sensitive basis, a financial services business must put in place appropriate systems and controls to determine whether an (i) applicant for business or customer, (ii) owner or controller of an applicant or customer, or (iii) third party on whose behalf an applicant or customer acts is a PEP. Such systems and controls must recognise that customers may subsequently acquire PEP status.

A financial services business must have a clear policy for dealing with PEPs, supplemented by detailed systems and controls (including procedures and controls), including:

• Board or appropriate senior management approval to establish a relationship with a PEP, and for continuing a relationship should a subsequent connection with a PEP be identified.

• Enhanced customer due diligence, including enhanced scrutiny and regular oversight of the relationship at board or appropriate senior management level.

GUIDANCE NOTES

The nature and scope of a financial services business’ activities will generally determine whether the existence of PEPs in its customer base is a practical issue for the business.

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Where the existence of PEPs is considered to be a practical issue, a financial services business may demonstrate that it has appropriate systems and controls for identifying PEPs where it:

• Assesses those countries to which customer relationships are connected, which pose the highest risk of corruption. One source of information is the Transparency International Corruption Perception Index.

• Establishes who are the current and former holders of prominent public functions within those higher risk countries and determines, as far as is reasonably practicable, whether or not applicants for business and customers have any connections with such individuals (including through immediate family or close associates). In determining who are the current and former holders of prominent public functions, it may have regard to information sources such as the UN, the European Parliament, the UK Foreign and Commonwealth Office, the Group of States Against Corruption, and commercially available databases.

• Exercises vigilance where applicants and customers are involved in business sectors that are vulnerable to corruption such as, but not limited to, oil or arms sales. One source of information is the Transparency International Corruption Perception Index.

3.5 CUSTOMER DUE DILIGENCE REQUIREMENTS WHEN ACQUIRING A BUSINESS OR A BLOCK OF CUSTOMERS

OVERVIEW

This sub-section establishes the requirements when established customer relationships are taken on when acquiring a business or block of customers.


Before acquiring a business with established customer relationships or a block of customers, a financial services business must undertake sufficient due diligence on the vendor to establish the level of customer due diligence information and evidence of identity held in relation to the business to be acquired.

A financial services business may rely on the information and evidence of identity previously obtained by the vendor where the following criteria are met:

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• the vendor is supervised by the Commission or is an equivalent business as defined by Article 4 of the Money Laundering Order (refer to Section 1.7); and

• the financial services business has assessed that the vendor’s customer due diligence measures are satisfactory. This assessment must either involve sample testing, or alternatively an assessment of all relevant customer due diligence for the relationships to be acquired.

When relying on this concession, a financial services business must obtain from the vendor the customer due diligence information and evidence of identity held for each customer acquired.

Otherwise, where the vendor is not supervised by the Commission, or is not an equivalent business (refer to Section 1.7), or where deficiencies in the vendor’s customer due diligence measures are identified (either at the time of transfer or subsequently), a financial services business must determine and implement a programme to conduct due diligence on each customer and to remedy deficiencies. The financial services business must agree its programme with the Commission.

Customer due diligence must be undertaken as soon as possible in line with a risk-based approach and requirements set out in this Handbook.

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4 IDENTIFICATION AND VERIFICATION OF IDENTITY


The purpose of this section of the Handbook is to establish the identification information to be requested when establishing a relationship, the information to be verified, and how that information is to be verified. This section also sets out exceptions and concessions to these general requirements, which apply in certain scenarios.

Guidance is also given on the timing of verification procedures and on what to do where it is not possible to complete identification or verification of identity.

Identification and verification requirements apply at the outset of a customer relationship and when there is a:

• change in identification information of a customer;

• change in beneficial ownership and control of a customer; or

• change in the third parties (or beneficial ownership or control of third parties) on whose behalf an applicant or customer acts.

Identification and verification requirements also apply where there is knowledge or suspicion of money laundering or where these is some doubt as to the veracity of evidence of identity that is already held.

An applicant for business may be an individual (see Section 4.3), trustee of an express trust (see Section 4.4), or a legal body (including bodies corporate, foundations, anstalts, partnerships, associations, or any similar bodies that can establish a permanent customer relationship with a financial services business or otherwise own property) (see Section 4.5) seeking to enter into a business relationship or to conduct a one-off transaction - as principal or on behalf of a third party (see Section 4.7).

This section should be read and understood in conjunction with Sections 3 and 5, which also address customer due diligence requirements.


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4.2 OBLIGATION TO IDENTIFY AND VERIFY IDENTITY OF APPLICANT FOR BUSINESS

OVERVIEW

Determining that an applicant for business is the person that he, she, or it claims to be is a combination of being satisfied that:

• a person exists - on the basis of appropriate identification information; and

• the applicant for business is that person - by verifying from reliable, independent source documents, data or information, satisfactory confirmatory evidence of appropriate components of the applicant’s identity.

Evidence of identity can take a number of forms. In respect of individuals, much weight is placed on identity documents and these are often the easiest way of providing evidence as to someone’s identity. It is, however, possible to be satisfied as to a customer’s identity by obtaining other forms of confirmation, including, in appropriate circumstances, written assurances from persons or organisations that have dealt with the customer for some time.

How much identification information to ask for, what to verify, and how to verify it in order to be satisfied as to a customer’s identity, will depend on the risk assessment for that relationship (refer to Section 3).

When verifying identity, a financial services business will need to be prepared to accept a range of documents, and may wish to also use independent data sources to verify information.

In the case of applicants for business that are trustees of express trusts, or legal bodies, Articles 15 and 16 of the Money Laundering Order require financial services businesses to conduct identification procedures in relation to the beneficial owners and controllers of legal bodies and trusts, i.e. the financial services business must know who has control over the funds or property which form or otherwise relate to the relationship.


Article 2 – Beneficial ownership and control

Part 3 of the Money Laundering Order requires identification and verification procedures to be conducted in respect of an applicant for business and any third

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parties for whom the applicant is acting (reasonable measures to verify identity in the case of the latter). Where the applicant (or the third parties) is not an individual, Part 3 also requires beneficial owners and controllers of the applicant (or third parties) to be identified and reasonable measures to be taken to verify their identity.

For persons who are not individuals, Article 2 describes:

• beneficial owners as individuals with ultimate beneficial ownership of that person, or individuals for whom a person is ultimately acting; and

• beneficial controllers as individuals who ultimately control that person.

The description of a beneficial owner or controller will apply whether the individual satisfies the description alone or jointly with other persons.

Article 2 does not include owners or controllers of bodies corporate whose stock or shares are admitted to trading on a regulated market within the definition of beneficial owner and controller.

Article 3 – Evidence of identity

Article 3 defines evidence of identity as consisting of two aspects:

• information about identity; and

• verification of that information.

Identification information and verification is satisfactory if it is reasonably capable of establishing that the applicant for business or customer (and others) is who he is said to be and the financial services business is satisfied that it does establish that fact.

Articles 12-15 and 20 – Customer identification procedures

Article 12 states that a financial services business must not undertake transactions or business arrangements for anonymous persons or those acting under fictitious names.

Where the person to be identified is not physically present when verification procedures are carried out, Article 12 requires that the verification procedures must take into account the greater money laundering risk posed.

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Article 12(5) requires that identification and verification procedures take place as soon as is reasonably practicable after contact is first made with an applicant for business.

Where identity information cannot be collected, or where identity cannot be satisfactorily verified, Article 12(5) requires that the business relationship or one-off transaction should not proceed any further.

Articles 14 and 15 require that a financial services business must identify and satisfactorily verify the identity of an applicant for business and must identify and take reasonable measures to verify the individuals who are the beneficial owners and controllers of the applicant, when:

• establishing a business relationship;

• carrying out one-off transactions where the payment to be made or received is £10,000 or more, in either a single transaction or apparently linked transactions; or

• there is a knowledge or suspicion of money laundering.

Where there is a change in the beneficial owners or controllers of a customer, Article 15(4) requires that the new beneficial owners or controllers are identified and that reasonable measures are taken to verify their identity.

Article 20 requires a financial services business to identify and to take reasonable measures to verify the identity of persons authorised to act on behalf of a customer.

4.3 IDENTIFICATION AND VERIFICATION: INDIVIDUALS

OVERVIEW

The following requirements are relevant to situations where an individual is the applicant for business or where the applicant for business is more than one individual, such as a husband and wife opening a joint account.

They also apply to situations where an individual is a beneficial owner or controller of an applicant for business, is acting on behalf of an applicant for business (e.g. is acting according to a power of attorney), or is a third party (underlying customer) on whose behalf an applicant for business is acting (see Section 4.7).

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4.3.1 Establishing identity


A financial services business must collect relevant identification information on an individual.

GUIDANCE NOTES

A financial services business may demonstrate collection of relevant identification information where it requests and keeps up to date the following:

Lower risk

Legal name, any former names (such as maiden name) and any other names used.

Principal residential address. Date of birth.

Standard


Principal residential address. Date and place of birth. Nationality. Sex. Official personal identification

number or other unique identifier contained in an un-expired official document.

Higher risk


Principal residential address. Date and place of birth. Nationality. Sex. Official personal identification

number or other unique identifier contained in an un-expired official document.

4.3.2 Verifying identity


A financial services business must verify the identity of the individual.

Where an individual’s identity subsequently changes (such as following marriage, change of nationality, or change of address), a financial services business must take reasonable measures to re-verify the identity of the individual.

All key documents (or parts thereof) used to verify identity must be understandable (i.e. in a language understood by the employees of the financial services business), and must be translated into English at the request of the JFCU or the Commission.

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GUIDANCE NOTES

A financial services business may demonstrate that it has verified the identity of an individual where it verifies the following components:

Lower risk

Full name. Principal residential address

or date of birth.

Standard

Full name. Principal residential address. Date and place of birth. Nationality.

Higher risk

Full name. Principal residential address. Date and place of birth. Nationality. Other components as

appropriate.

Components of identity may be verified as follows:

Lower risk Full name and (i) principal residential address or (ii) date of birth may be verified using at least one of the following government- issued sources:

Standard Full name, date and place of birth, and nationality may be verified using at least one of the following sources:

Higher risk Full name, date and place of birth, and nationality may be verified using at least one of the following sources:

Current passport - providing

photographic evidence of identity. Current national identity card -

providing photographic evidence of identity.

Current driving licence - providing

photographic evidence of identity. In cases where one of the above government-issued documents is unavailable, then full name, principal residential address, and date of birth may be verified using a birth certificate in conjunction with:

a bank statement; a utility bill;

correspondence from a government

source (including a government issued document without photographic evidence of identity); or

Current passport - providing photographic evidence of identity.

Current national identity card -


Current driving licence -

providing photographic evidence of identity - where the licensing authority carries out a check on the holder’s identity before issuing.

Independent data sources

(including electronic sources). Residential address may be verified using at least one of the following sources:

Correspondence from an independent source such as a central or local government department or agency (in Jersey this will include States and parish authorities).

Current passport - providing photographic evidence of identity.

Current national identity card -


Current driving licence -

providing photographic evidence of identity - where the licensing authority carries out a check on the holder’s identity before issuing.

Independent data sources

(including electronic sources). Residential address may be verified using at least one of the following sources:

Correspondence from an independent source such as a central or local government department or agency (in Jersey this will include States and parish authorities).

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a letter of introduction from a

regulated financial services business. (See standard and higher risk table.)

Full name and (i) principal residential address or (ii) date of birth may also be verified using independent data sources (including electronic sources).

A letter of introduction which

confirms residential address from: (i) a financial services business regulated by the Commission; (ii) a regulated financial services business which is operating in a well-regulated jurisdiction; or (iii) a branch or subsidiary of a group headquartered in a well-regulated jurisdiction which applies group standards to subsidiaries and branches worldwide, and tests the application of and compliance with such standards.

Personal visit to residential

address. A bank statement or utility bill.

In addition, residential address may be verified using one of the sources used for verifying full name, date and place of birth, and nationality, where this contains the individual’s residential address and has not been used as the check to verify full name, date and place of birth, and nationality.

A letter of introduction which

confirms residential address from: (i) a financial services business regulated by the Commission; (ii) a regulated financial services business which is operating in a well-regulated jurisdiction; or (iii) a branch or subsidiary of a group headquartered in a well-regulated jurisdiction which applies group standards to subsidiaries and branches worldwide, and tests the application of and compliance with such standards.

Personal visit to residential

address. A bank statement or utility bill.

In addition, residential address may be verified using one of the sources used for verifying full name, date and place of birth, and nationality, where this contains the individual’s residential address and has not been used as the check to verify full name, date and place of birth, and nationality. Additional appropriate verification checks for higher risk individuals (or those connected with higher risk relationships) may include a further check from the above lists, or a check from the list of additional verification checks for non-face to face relationships (Section 4.8).

Documentation providing evidence of identity may be obtained from a number of sources. These documents may differ in their integrity, reliability and independence. Some are issued after due diligence on an individual’s identity has been undertaken, for example passports and national identity cards; others are issued on request, without any

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such checks being carried out. A financial services business should recognise that some documents are more easily forged than others.

Where a financial services business is not familiar with the form of the evidence obtained to verify identity, appropriate measures may be necessary to satisfy itself that the evidence is genuine.

In determining whether a jurisdiction is well-regulated, a financial services business may have regard to:

• the development and standing of the jurisdiction’s regulatory framework; and

• recent independent assessments of its regulatory environment, such as those conducted by the IMF.

Where components of identity are verified through use of a passport, national identity card, or driving licence, which subsequently expires, then, in the absence of other risk factors, no further verification is necessary.

4.3.3 Independent data sources

OVERVIEW

Independent data sources can provide a wide range of confirmatory material without involving an applicant for business or customer, and are becoming increasingly accessible, for example, through improved availability of public information and the emergence of commercially available data sources such as electronic databases and research firms. Sources include:

• Registers of electors.

• Telephone directories.

• Credit reference agency checks.

• Business information services.

• Electronic checks provided by commercial agencies.

Where a financial services business is seeking to verify identity using an independent data source, whether by accessing the source directly or by using an independent third party organisation (such as a credit reference agency), an understanding of the depth, breadth and quality of the data is important to ensure that the method of verification does

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in fact provide satisfactory evidence of identity.


Where a financial services business intends to use independent data sources to verify components of identity, it must ensure that:

• The source, scope and quality of the data are satisfactory. At least two matches of each component of an individual’s identity must be obtained.

• Processes allow the financial services business to capture and record the information used to verify identity.

The level of satisfaction required will depend on the extent the financial services business relies on the independent data sources to obtain satisfactory evidence of identity.

GUIDANCE NOTES

Where a financial services business intends to use data held by independent third party organisations to verify identity, the business may demonstrate that it has ensured that data is satisfactory where the organisation is registered with a data protection agency in the European Economic Area (“the EEA”) (or with an agency in a jurisdiction that has similar data protection provisions to the EEA), and where the organisation:

• uses a range of positive information sources that can be called upon to link an applicant to both current and historical data;

• accesses negative information sources such as databases relating to fraud and deceased persons;

• accesses a wide range of alert data sources; and

• has transparent processes that enable a financial services business to know what checks have been carried out, what the results of these checks were and to be able to determine the level of satisfaction provided by those checks.

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4.3.4 Guarding against the financial exclusion of Jersey residents

OVERVIEW

On occasions, an individual may be unable to provide evidence of identity using the sources set out at Section 4.3.2. Examples of such individuals include:

• Seasonal workers who do not have a permanent residential address in Jersey.

• Individuals living in Jersey in accommodation provided by their employer, with family (for example in the case of minors), or in care homes, who may not pay directly for utility services.

• Jersey students living in university, college, school, or shared accommodation, who may not pay directly for utility services.

• Minors.


Where a financial services business has concluded that it should treat an applicant for business as financially excluded for the purposes of customer identification, and an applicant for business is identified by means other than more usual evidence, the reasons for doing so must be documented.

GUIDANCE NOTES

In the case of a lower risk minor, whose parent or guardian is unable to produce more usual documentation to verify the minor’s identity, and who would otherwise be excluded from accessing financial services and products, satisfactory verification of identity may be established with a birth certificate.

In other cases, where a lower risk individual has a valid reason for being unable to produce more usual documentation to verify principal residential address, and would otherwise be excluded from accessing financial services and products, satisfactory verification of address may be established by:

• A letter from the head of the household at which the individual resides confirming that the applicant lives at that Jersey address, setting out the relationship

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between the applicant and the head of household, together with evidence that the head of household resides at the address.

• A letter from a Jersey nursing home or residential home for the elderly, which a financial services business is satisfied that it can place reliance on, confirming residence of the applicant.

• A letter from a Jersey employer, which a financial services business is satisfied that it can place reliance on, that confirms residence at a stated Jersey address, and indicates the expected duration of employment. In the case of a seasonal worker, the worker’s residential address in his country of origin should also be obtained.

• A letter from a principal of a university or college, which a financial services business is satisfied that it can place reliance on, that confirms residence at a stated address. In the case of a Jersey student studying outside the Island, the student’s residential address in Jersey should also be obtained.

Confirmatory letters should be written on appropriately headed notepaper.

4.3.5 Verification of residential address of overseas residents

OVERVIEW

On occasions, an individual resident abroad may be unable to provide evidence of his principal residential address using the sources set out at Section 4.3.2. Examples of such individuals include residents of countries without postal deliveries and few street addresses, who rely upon post office boxes or employers for delivery of mail, and residents of countries where, due to social restraints, private addresses may not be verified by personal visits.

It is essential for law enforcement purposes that a record of an individual’s residential address (or details of how that individual’s residential address may be reached) be recorded, so that an individual may be located by law enforcement if necessary during an investigation. As a result, it is not acceptable only to record a post office box number as an address, or to fail to take steps to verify that a residential address is valid where required by this Handbook.


Where a financial services business has concluded that it is not possible to verify the address of an overseas resident using more usual evidence, the reasons for

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using alternative evidence must be documented. In addition, the financial services business must consider instituting enhanced monitoring arrangements over the customer’s activity and transactions.

GUIDANCE NOTES

Where an individual has a valid reason for being unable to produce more usual documentation to verify residential address, and who would otherwise be excluded from accessing financial services and products, satisfactory verification of address may be established by verification of a “locator” address. A locator address is an address at which it would normally be possible to physically meet or contact an individual (with or without prior arrangement), for example, an individual’s place of work.

4.4 IDENTIFICATION AND VERIFICATION: TRUSTEES AND EXPRESS TRUSTS

OVERVIEW

There is a wide variety of trusts ranging from large, nationally and internationally active organisations subject to a high degree of public scrutiny and transparency, through to trusts set up under testamentary arrangements and trusts established for wealth management purposes.

Express trusts cannot form business relationships themselves. It is the trustee of the trust who will enter into a business relationship on behalf of the trust (i.e. the trustee is acting on behalf of a third party – the trust) and who will be considered to be the applicant for business.

The following requirements are relevant to situations where a trustee of an express trust is the applicant for business.

These requirements also apply to situations where a trustee is a beneficial owner or controller of an applicant for business, or is a third party (underlying customer) on whose behalf an applicant for business is acting.

The requirements where an applicant for business is wishing to settle a trust are covered in Section x [sector specific section for trust company businesses].

Notwithstanding the requirement to obtain and verify information in relation to the trustee, the trust and those individuals who are concerned with the trust, a financial

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services business is not expected to establish the detailed terms of the trust, nor rights of the beneficiaries.



A financial services business must collect relevant identification information on the trustee(s) and on the express trust (and any subsequent changes).

A financial services business must request the trustee to notify it of the individuals who are concerned with the trust (and subsequent changes).

GUIDANCE NOTES

A financial services business may demonstrate the collection of relevant identification information where it requests (directly and indirectly) and keeps up to date the following information:

Lower risk

Name of trust. Date of establishment. Identification information of

trustee(s) - in line with guidance for individuals and legal bodies.

Mailing address of trustee(s). Identification information of

settlor(s)9 - in line with guidance for individuals and legal bodies.

Identification information of protector(s) - in line with guidance for individuals and legal bodies.

Standard

Name of trust. Date of establishment. Official identification number

(e.g. tax identification number or registered charity number).

Identification information of trustee(s) - in line with guidance for individuals and legal bodies.


settlor(s) - in line with guidance for individuals and legal bodies.


Identification information of beneficiaries with a vested right - in line with guidance for individuals and legal bodies.

Higher risk

Name of trust. Date of establishment. Official identification number

(e.g. tax identification number or registered charity number).

Identification information of trustee(s) - in line with guidance for individuals and legal bodies.


settlor(s) - in line with guidance for individuals and legal bodies.


Identification information of beneficiaries with a vested right - in line with guidance for individuals and legal bodies.

9 The settlors of a trust include the initial settlors and any persons subsequently settling funds into a trust.

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Identification information of any other beneficiaries and persons who are the object of a power that the trustee has identified as presenting higher risk - in line with guidance for individuals and legal bodies.

In order to establish that a trustee has notified a financial services business of all beneficiaries with vested rights, the business may test on a sample basis that payments are being made to (or on behalf of) persons previously notified by the trustee. Notwithstanding requirements to monitor transactions and activity (set out in Section 5), a financial services business is not expected to ensure that any payment or transfer of property or income made at the request of the trustee is to a person entitled to receive it.



A financial services business must verify the name and date of establishment of the express trust. Whilst there is no requirement for a financial services business to review an existing trust instrument (or similar instrument) as a whole, satisfactory evidence of the appointment of the trustee, and the nature of its duties must be obtained.

A financial services business must verify the identity of the trustee(s) of the express trust and any subsequent change in trustee(s) (in line with guidance for individuals and legal bodies).

A financial services business must take reasonable measures to verify the identity of the individuals who are concerned with the express trust (as set out at 4.4.1) and any subsequent changes (in line with guidance for individuals and legal bodies).

In the case of a standard or higher risk relationship, a financial services business must verify the identity of a beneficiary with a vested right at the time of or before distribution of trust property or income.

In the case of a higher risk relationship, a financial services business must verify the identity of any other beneficiaries and persons who are the object of a power that the trustee has identified as presenting higher risk at the time that higher risk status is notified to the financial services business by the trustee.

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GUIDANCE NOTES


4.5 IDENTIFICATION AND VERIFICATION: LEGAL BODIES

OVERVIEW

The following requirements are relevant to situations where a legal body is the applicant for business.

The requirements also apply to situations where a legal body is a beneficial owner or controller of an applicant for business, or is a third party (underlying customer) on whose behalf an applicant for business is acting.

A legal body includes bodies corporate, foundations, anstalts, partnerships, associations, or any similar bodies that can establish a permanent customer relationship with a financial services business or otherwise own property. For the purposes of this section, it also includes incorporated and unincorporated clubs, societies, charities, church bodies, institutes, mutual and friendly societies, co-operative and provident societies.

Article 2 of the Money Laundering Order, which describes those persons to be considered to be beneficial owners or controllers, excludes persons who are the beneficial owners or controllers of bodies corporate whose stock or shares are admitted to trading on a regulated market.



A financial services business must collect relevant identification information on a legal body.

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A financial services business must identify the beneficial owners and controllers of the legal body and any subsequent changes.

GUIDANCE NOTES

A financial services business may demonstrate collection of relevant identification and other information on beneficial ownership and control where it requests and keeps up to date the following information:

Lower risk

Name of entity. Date and country of

incorporation/registration. Official identification number. Registered office address. Principal place of

business/operations (if different).

Identification information of directors (or equivalent) - in line with guidance for individuals.

Identification information of individuals ultimately holding a 25% or more interest in the capital of the legal body - in line with guidance for individuals and trustees.

Mailing address (if different).

Standard

Name of entity. Any trading names. Date and country of



Identification information of individuals with ultimate effective control over the legal body’s assets, including the individuals comprising the mind and management of the legal body, e.g. directors - in line with guidance for individuals.

Identification information of individuals ultimately holding a 25% or more interest in the capital of the legal body - in line with guidance for individuals and trustees.

Mailing address (if different). Name of regulator, if

applicable.

Higher risk

Name of entity. Any trading names. Date and country of



Identification information of individuals with ultimate effective control over the legal body’s assets, including the individuals comprising the mind and management of the legal body, e.g. directors - in line with guidance for individuals.

Identification information of individuals ultimately holding a material interest in the capital of the legal body - in line with guidance for individuals and trustees.

Mailing address (if different). Name of regulator, if

applicable.



A financial services business must verify the identity of the legal body.

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A financial services business should take reasonable measures to verify the beneficial owners and controllers of the legal body and any subsequent changes in beneficial ownership and control (in line with guidance for individuals and trustees).


GUIDANCE NOTES

A financial services business may demonstrate that it has verified the identity of a legal body where it verifies the following components:

Lower risk

Name. Official identification number. Date and country of

incorporation.

Standard


incorporation. Registered office address. Principal place of business

(where different to registered office).

Higher risk


incorporation. Registered office address. Principal place of business

(where different to registered office).

Components of identity may be verified as follows.

Lower risk

Using one of the following sources:

Certificate of incorporation (or other appropriate certificate of registration or licensing).

Memorandum and Articles of Association (or equivalent).

Company registry search, including confirmation that body is not in the process of being dissolved, struck off,

Standard

Using two of the following sources:




Higher risk

Using two of the following sources:




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wound up or terminated.

Latest audited financial statements.

Independent data sources, including electronic sources, e.g. business information services.




Personal visit to principal place of business.




Personal visit to principal place of business.

Additional verification checks as appropriate.

A financial services business may demonstrate that it has taken reasonable measures to verify the beneficial owners and controllers of the legal body where it verifies the identity of the following:

Lower risk

Those directors (or equivalent) who have authority to operate a relationship or to give the financial services business instructions concerning the use or transfer of funds or assets - in line with guidance for individuals.

Standard

Individuals with ultimate effective control over the legal body’s assets, including the individuals comprising the mind and management of the legal body, e.g. directors - in line with guidance for individuals.

Individuals ultimately holding a 25% or more interest in the capital of the legal body - in line with guidance for individuals and trustees.

Higher risk

Individuals with ultimate effective control over the legal body’s assets, including the individuals comprising the mind and management of the legal body, e.g. directors - in line with guidance for individuals.

Individuals ultimately holding a material interest in the capital of the legal body - in line with guidance for individuals and trustees.

Additional verification checks as appropriate.

A general threshold of 25% indicates effective control or ownership. However, where the distribution of interests is uneven, the percentage where effective control may be exercised may be less than 25%, when the distribution of other interests is taken into account.

Individuals having ultimate effective control over a legal body will often include directors or equivalent. In the case of partnerships, associations, clubs, societies, charities, church bodies, institutes, mutual and friendly societies, co-operative and provident societies, this will often include members of the governing body or committee plus executives. In the case of foundations, this will include members of the governing council of a foundation and any supervisors.

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Where a director (or equivalent) holds this role by virtue of his employment by (or position in) a regulated Jersey trust company business, a financial services business may demonstrate that it has taken reasonable measures to identify that person and to verify his identity where it obtains the following:

• the full name of the director; and

• an assurance from the trust company business that the individual is an officer or employee.

4.6 IDENTIFICATION AND VERIFICATION: AUTHORISED AGENT OF APPLICANTS FOR BUSINESS

OVERVIEW

Except where a person authorised to act on behalf of an applicant for business is acting in the course of employment by a financial services business that:

• is a financial services business supervised by the Commission; or

• satisfies the definition of an equivalent business in Article 4 of the Money Laundering Order (see Section 1.7),

Article 20 of the Money Laundering Order requires a financial services business to identify persons authorised to act on behalf of an applicant for business and to take reasonable measures to obtain satisfactory evidence of identity of such persons. This will include account signatories and those to whom powers of attorney have been granted.


A financial services business must obtain a copy of the power of attorney (or other authority or mandate) that provides the individuals representing the applicant for business with the right to act on his behalf.

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GUIDANCE NOTES

For lower risk relationships a financial services business may demonstrate that it has taken reasonable measures where it verifies the identity of a minimum of two individuals that have purported authority to act on behalf of an applicant for business.

For standard or higher risk relationships, a financial services business should take into account factors such as the risk posed by the relationship and the materiality of the authority delegated to individuals.

4.7 IDENTIFICATION AND VERIFICATION: APPLICANTS ACTING FOR THIRD PARTIES (INTERMEDIARY RELATIONSHIPS)

OVERVIEW

This section covers the scenario where the applicant for business is acting on behalf of a third party (e.g. on behalf of an underlying customer(s)). Where that applicant for business is a financial services business and also meets certain other criteria detailed in Articles 17 and 18 of the Money Laundering Order, then the accepting business may be able to benefit from concessions provided by those Articles - see Section 4.10. Otherwise, the requirements detailed in this section apply.

The specific situation of a trustee acting on behalf of a third party - the trust - is addressed in Section 4.4.


Article 16 – Applicants acting for third parties

Article 12(3) requires a determination as to whether an applicant is acting on behalf of a third party or parties.

Whenever an applicant is, or appears to be, acting on behalf of a third party or parties, Article 16 requires a financial services business to identify each third party and the individuals who are its beneficial owners and controllers and to take reasonable measures to verify the identity of each third party and its beneficial owners and controllers, in addition to undertaking measures to identify and verify the identity of the applicant.

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Where there is a subsequent change of a the third party or the beneficial owners or controllers of a third party, Article 16 requires that the new third party or new beneficial owners or controllers are identified and that reasonable measures are taken to verify their identity.

4.8 NON-FACE TO FACE IDENTIFICATION AND VERIFICATION

OVERVIEW

Frequently relationships will be established where there is no face to face contact with the individuals to be identified, for example relationships established by post, telephone or via the internet.

In circumstances where identity is verified from a document or documents produced by an individual without face to face contact, or where it is not possible to have sight of original documentation, it will be more difficult for the financial services business to determine that the individual it is dealing with corresponds to the documentation provided, or that copy documents are true copies of the original. As a result, Article 12(4) of the Money Laundering Order requires that identification and verification procedures take into account the greater money laundering risk that may be presented in such circumstances.

This section contains requirements relevant where verification of identity is not face to face, whether conducted using documentary evidence or by obtaining evidence from electronic data sources.

4.8.1 Evidence of identity from independent data sources


Where verification of identity using electronic data sources is not-face to face (i.e. remote), a financial services business must perform an additional check to reduce the risk of identity fraud.

GUIDANCE NOTES

Additional checks to reduce the risk of identity fraud include:

• Verification of identity using a separate source listed at Section 4.3.2 (for the purposes of this additional check any restrictions may be disregarded).

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• Requiring the first payment for the financial services product or service to be drawn on an account in the customer’s name at a bank that is supervised by the Commission or meets the conditions required by Article 4 of the Money Laundering Order for equivalent businesses (refer to Section 1.7).

• Verifying additional aspects of identity or other customer due diligence information.

• Telephone contact with the applicant for business prior to establishing a relationship on a home or business number which has been verified, or a “welcome call” to the customer before transactions are permitted, using the call to verify additional aspects of identification information that have been previously provided.

• Internet sign-on following verification procedures where the customer uses security codes, tokens, and/or other passwords which have been set up during account opening and provided by mail (or secure delivery) to the named individual at an independently verified address.

• Specific card or account activation procedures.

4.8.2 Documentary evidence of identity


Where verification of identity is not-face to face (i.e. remote) and it is not appropriate to request original documentation to verify identity to be submitted directly to a financial services business:

Lower risk

A financial services business must perform an additional check to reduce the risk of identity fraud (refer to Section 4.8.1).

Standard

A financial services business must obtain copies of documents that have been certified by a suitable certifier.

Higher risk

A financial services business must obtain copies of documents that have been certified by a suitable certifier.

A financial services business must take steps to check that the suitable certifier is real.

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4.8.2.1 Suitable certifiers

OVERVIEW

Use of a certifier guards against the risk that copy documentation provided is not a true copy of the original document and that the documentation does not correspond to the applicant whose identity is to be verified. For certification to be effective, the certifier will need to have seen the original documentation and, where documentation is to be used to provide satisfactory evidence of identity for an individual, have met the individual (where certifying evidence of identity containing a photograph). A suitable certifier will also be subject to professional rules (or equivalent) providing for the integrity of his conduct.


A suitable certifier must be independent of the individual, express trust or legal body for which the certification is being provided, and must be subject to professional rules of conduct, which provide comfort as to the integrity of the certifier.

A suitable certifier must certify that:

• he has seen original documentation verifying identity and/ or residential address;

• the copy of the document (which he certifies) is a complete and accurate copy of that original; and

• where the documentation is to be used to verify identity of an individual and contains a photograph, the photograph contained in the document certified bears a true likeness to the individual requesting certification,

or use wording to the same effect.

The certifier must also sign and date the copy document, and provide adequate information so that he may be contacted in the event of a query.

In circumstances where the suitable certifier is located in a higher risk jurisdiction, or where the financial services business has some doubts as to the veracity of the information or documentation provided by the applicant, the financial services business must take steps to check that the suitable certifier is real.

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GUIDANCE NOTES

Acceptable persons to certify evidence of identity (suitable certifiers) may include:

• a member of the judiciary, a senior civil servant, or a serving police or customs officer;

• an officer of an embassy, consulate or high commission of the country of issue of documentary evidence of identity;

• a lawyer or notary public who is a member of a recognised professional body;

• an actuary who is a member of a recognised professional body;

• an accountant who is a member of a recognised professional body;

• an individual that is qualified to undertake certification services under authority of the Certification and International Trade Committee (in Jersey this service is available through the Jersey Chamber of Commerce); and

• a director, officer, or manager of a regulated financial services business which is operating in a well-regulated jurisdiction, or of a branch or subsidiary of a group headquartered in a well-regulated jurisdiction which applies group standards to subsidiaries and branches worldwide, and tests the application of and compliance with such standards.

An adequate level of information to be provided by a suitable certifier would include his name, position or capacity, his address and a telephone number or email address at which he can be contacted.

In determining whether a jurisdiction is well-regulated, a financial services business may have regard to:

• the development and standing of the jurisdiction’s regulatory framework; and

• recent independent assessments of its regulatory environment, such as those conducted by the IMF.

Where the copy document is to be used to verify identity, best efforts should be taken to ensure that the quality of the certified copy of photographic evidence is adequate.

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4.9 EXCEPTIONS FROM IDENTIFICATION PROCEDURES

OVERVIEW

Articles 2 and 21 of the Money Laundering Order provide for exceptions to the general requirement to identify and verify the identity of an applicant for business and any beneficial owners and controllers.

These exceptions do not apply where a financial services business knows or suspects that the applicant for business is engaged in money laundering.

4.9.1 Supervised financial services businesses


Under Article 21(7) of the Money Laundering Order, a financial services business need not identify or verify the identity of an applicant for business or its beneficial owners and controllers, whether acting as principal or on behalf of third parties, where there are reasonable grounds for believing that the applicant for business is:

• a financial services business that is supervised by the Commission; or

• a person conducting financial services business overseas, that meets the conditions required by Article 4 of the Money Laundering Order for equivalent businesses (refer to Section 1.7).

REGULATORY REQUIREMENT

A financial services business must obtain and retain documentation establishing that the applicant for business is entitled to benefit from the exemption provided in Article 21(7) of the Money Laundering Order.

4.9.2 Publicly traded companies

OVERVIEW

Where an applicant for business is a company whose securities are admitted to trading on a regulated market, or is a majority owned subsidiary of a company whose securities

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are admitted to trading on a regulated market, then, in line with Article 2 of the Money Laundering Order, there is no requirement to identify or verify the identity of beneficial owners and controllers of the company.

REGULATORY REQUIREMENT

A financial services business must obtain and retain documentation establishing that a company has been admitted to trading on a regulated market.

A financial services business must be satisfied as to the status of the regulated market.

Where a subsidiary of a company admitted to trading on a regulated market is not wholly owned, identification and verification procedures must be carried out in accordance with Section 4.5 in respect of beneficial owners and controllers not connected with the traded parent company.

4.9.3 Jersey public authorities

OVERVIEW

Where the applicant for business is a Jersey public authority, Article 21(2) of the Money Laundering Order does not require satisfactory evidence of identity to be obtained in respect of the public authority or its beneficial owners and controllers.


A financial services business must obtain and retain documentation establishing that the applicant for business is entitled to benefit from the concession in Article 21(2) of the Money Laundering Order.

GUIDANCE NOTES

The following may be considered to be Jersey public authorities:

• A department of the States of Jersey;

• A majority States-owned company;

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• An agency established by the States of Jersey; or

• A parish authority.

4.9.4 Persons authorised to act on behalf of an applicant


Under Article 21(8) and (9), a financial services business need not identify or verify the identity of persons authorised to act on behalf of an applicant for business that is a financial services business (or on behalf of an applicant for business, if acting in the course of employment by a financial services business), where the financial services business that is the applicant for business (or whose staff are signatories for an applicant for business) is:

• a financial services business that is supervised by the Commission; or

• a person conducting financial services business overseas, that meets the conditions required by Article 4 of the Money Laundering Order for equivalent businesses (refer to Section 1.7).

GUIDANCE NOTES

Where a person authorised to act on behalf of an applicant for business holds this role by virtue of his employment by (or position in) a regulated Jersey trust company business, a financial services business may demonstrate that it has taken reasonable measures to identify that person and to verify his identity where it obtains:

• the full name of the individual; and

• an assurance from the trust company business that the individual is an officer or employee.

4.9.5 Identification procedures for retirement benefit products


Under Article 21(3) of the Money Laundering Order, a financial services business need not undertake identification procedures where the business relationship

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relates to a pension scheme or superannuation scheme, or similar scheme that provides retirement benefits to an employee,

• where contributions are made by way of a deduction from wages, and

• the scheme rules do not permit the assignment of members’ interests under the scheme.

4.9.6 Other exceptions


Under Article 21(4), (5) and (6), a financial services business need not identify or verify the identity of an applicant for business when the application is for an insurance business policy:

• taken out in connection with a pension scheme relating to the customer’s employment or occupation, if the policy contains no surrender clause and cannot be used as security for a loan; or

• where the premium is a single payment of no more than £1,750; or

• where the premium payments do not exceed £750 in any calendar year.

4.10 REDUCED OR SIMPLIFIED MEASURES: IDENTIFICATION AND VERIFICATION OF IDENTITY IN INTERMEDIARY RELATIONSHIPS

OVERVIEW

Article 12(3) of the Money Laundering Order requires a financial services business to take reasonable measures to ascertain whether the applicant for business is acting on behalf of any third parties (underlying customers), and if so, Article 16 requires the financial services business to also identify and take reasonable measures to verify the identity of the third party (underlying customer) and its beneficial owners and controllers. Such relationships are referred to as intermediary relationships.

However, in certain circumstances the risk of money laundering and terrorist financing may be lower, such as where the intermediary itself is subject to legal requirements to combat money laundering and terrorist financing equivalent to those in place in Jersey.

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As a result, Articles 17 and 18 of the Money Laundering Order permit reliance to be placed on the applicant for business to conduct aspects of customer due diligence, where the conditions required by the Money Laundering Order are met.

An intermediary relationship is one where a financial services business is acting as applicant for business on behalf of one or more third parties (underlying customers) and establishes a relationship with another financial services business. Here the relationship formed is between two financial services businesses. Examples of intermediary relationships may include:

• Trustees establishing relationships with other financial services businesses on behalf of express trusts.

• Stock-brokers and investment management firms acting as nominees for underlying investors.

Intermediary relationships may be relationships on behalf of a single underlying customer or on behalf of more than one customer, including a pool of customers. Relationships established by an intermediary on behalf of a single customer or relationship, including relationships involving sub-accounts for each underlying customer, are described by the Handbook as designated relationships. A relationship established by an intermediary on behalf of more than one customer is described by the Handbook as a pooled relationship.

Some examples of pooled relationships include:

• Overseas banks (typically Swiss banks) that place pooled deposits on a fiduciary basis with Jersey banks.

• Open-ended or closed-ended investment companies, trustees of unit trusts, and general partners of limited partnerships that wish to establish banking facilities for a collective investment fund.

4.10.1 Pooled and designated intermediary relationships with financial institutions

OVERVIEW

Where an intermediary is a financial institution which meets the criteria outlined in Article 18 of the Money Laundering Order, a financial services business may rely on the financial institution to have conducted identification procedures to identify and verify the identity of the financial institution’s underlying customers, whether in pooled or

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designated relationships. This means that it will not necessarily follow that a financial services business will hold information on a financial institution’s underlying customers.

Article 18 of the Money Laundering Order defines a financial institution as:

• an investment business, collective investment fund functionary, bank or insurance business supervised by the Commission; or

• an equivalent business of one of the above categories of business.


Article 18 – Reliance on applicants that are financial institutions

Article 18 permits a financial services business to satisfy the requirement to identify and verify the identity of third parties (underlying customers) for whom an intermediary is acting (and of any beneficial owners and controllers of the third parties) where the two requirements outlined below are met.

The first requirement is that the financial services business must have reasonable grounds for believing that:

• the intermediary is a financial institution, i.e. an investment business, collective investment fund functionary, bank or insurance business supervised by the Commission; or

• the intermediary is a person conducting one of the above categories of financial services business overseas, that meets the conditions required by Article 4 of the Money Laundering Order for equivalent businesses (refer to Section 1.7).

The second requirement is that the financial services business must be satisfied that the intermediary maintains procedures enabling the intermediary to comply with FATF Recommendations 5-16 and 21-22.

A financial services business may not rely on the concession in Article 18 where it has knowledge or suspicion that the intermediary, or any third party (underlying customer) on whose behalf the intermediary is acting, is engaged in money laundering.

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A financial services business must be able to demonstrate that the conditions required by the Money Laundering Order are met.

GUIDANCE NOTES

A financial services business may demonstrate that it has satisfied itself that an intermediary that is a financial institution maintains procedures enabling the intermediary to comply with FATF Recommendations 5-16 and 21-22, where it considers the following to be satisfactory:

• the stature and regulatory track record of the financial institution; and

• the nature of the business conducted by the financial institution.

Where, having considered the factors above, a financial services business determines that it is not appropriate to place full reliance on a financial institution, it may wish to apply additional requirements. Appropriate additional requirements may include all, or some, of those required where the intermediary is a financial services business other than a financial institution.

In considering the nature of business conducted, a financial services business should consider whether or not the intermediary relationship involves PEPs or other higher risk relationships.

The provisions described above permit reliance to be placed on an intermediary that meets certain criteria to perform elements of customer due diligence. However, the financial services business should monitor its relationships with intermediaries in line with the requirements of Section 5.

4.10.2 Pooled and designated relationships with intermediaries other than financial institutions

OVERVIEW

In order to effectively manage additional risk factors presented by other financial services business sectors, and in particular the reduced transparency where underlying customers are legal bodies or express trusts, the Money Laundering Order and Handbook establish different requirements where the intermediary is a financial services business that is not a financial institution.

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Where an intermediary meets the requirements of Article 17 of the Money Laundering Order, a financial services business is permitted by Article 17 to place reliance on the intermediary to conduct identification procedures in respect of the underlying customers of both designated and pooled relationships.

Where an intermediary seeks to establish a designated relationship for an underlying customer, the financial services business may rely on the intermediary to collect the necessary customer due diligence information and to hold evidence of identity. However, the intermediary must provide the financial services business with identification information and other customer due diligence information relating to the underlying customer. See Section 4.10.2.2.

Where an intermediary seeks to establish a pooled relationship for underlying customers, the financial services business may either apply the same requirements as for designated relationship - as set out at Section 4.10.2.2 (including requiring the necessary identification information and other customer due diligence information - or alternatively place increased reliance on the intermediary. Where the financial services business wishes to place increased reliance on the intermediary, Section 4.10.2.1 details the additional requirements necessary to ensure that such additional reliance is appropriate. Where additional reliance is placed on an intermediary, it will not be necessary to automatically obtain identification information on each underlying customer of the intermediary.


Article 17 – Reliance on applicants that are other financial services businesses

Article 17 permits a financial services business to satisfy the requirement to identify and to verify the identity of third parties (underlying customers) for whom the applicant (the intermediary) is acting, and of any beneficial owners and controllers of the third parties, where the three requirements outlined below are met.

The first is that the financial services business must have reasonable grounds for believing that:

• the intermediary is a financial services business (other than a financial institution) supervised by the Commission; or

• the intermediary is an overseas financial services business, that meets the conditions required by Article 4 of the Money Laundering Order for equivalent businesses (refer to Section 1.7).

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The second is that the financial services business must be satisfied that the intermediary maintains procedures enabling the intermediary to comply with FATF Recommendations 5-16 and 21-22.

The third is that the financial services business must obtain a confirmation from the intermediary. Article 17(4) requires the confirmation to:

• be in writing;

• contain adequate assurance that the intermediary has undertaken the necessary customer identification procedures;

• contain sufficient information about the third parties (underlying customers) and any beneficial owners and controllers of the third parties;

• contain adequate assurance that the intermediary is required to keep and does keep records containing the evidence of identity of the third parties (underlying customers) for whom the intermediary is acting (and of any beneficial owners and controllers of the third parties); and

• contain adequate assurance that the intermediary will provide the information in those records or satisfactory evidence of the identity of the third parties (underlying customers), and of any beneficial owners and controllers of the third parties, without delay at the request of the financial services business.

A financial services business may not rely on the concessions in Article 17 where it has knowledge or suspicion that the intermediary, or any third party (underlying customer) on whose behalf the intermediary is acting, is engaged in money laundering.

4.10.2.1 Pooled relationships with intermediaries other than financial institutions

OVERVIEW

When operating such a relationship, it will not be necessary for a financial services business to obtain identification information on each underlying customer of the intermediary within the pooled relationship upfront. A financial services business is also permitted to place limited reliance on the intermediary to conduct ongoing monitoring of the activity of the intermediary’s underlying customers. Consequently, the Handbook establishes some additional regulatory requirements for pooled relationships with intermediaries other than financial institutions.

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In order to enable a financial services business to make an informed decision as to whether it is appropriate to place reliance on an intermediary and the level of reliance appropriate, a financial services business is required to collect sufficient customer due diligence information, for example on the location and type of customers, and consider factors such as the status and stature of the intermediary and the customer due diligence measures in place at the intermediary.

While evidence of identity and customer due diligence information in relation to the customers in the pool may be held by the intermediary, Article 17 requires the financial services business to have a contractual right to be provided by the intermediary with a copy of customer due diligence information and documents on request and without delay.

[REGULATORY REQUIREMENTS10

A financial services business must satisfy itself that the primary motive for the use of a pooled account by an intermediary is not to reduce transparency or to circumvent customer due diligence procedures.


In order to demonstrate that a financial services business is satisfied that an intermediary maintains systems and controls (including policies and procedures) that comply with the requirements of this Handbook (or with requirements to combat money laundering and terrorist financing that are consistent with FATF Recommendations 5-16 and 21 and 22 – see Section 1.7), the financial services business must:

• require the intermediary to produce, on an annual basis, a certificate of compliance from an external expert that confirms that the intermediary’s systems and controls met the above requirements and were in place and operating effectively throughout the year; and

• conduct (or commission from an external expert) a periodic review of the adequacy of the intermediary’s account opening procedures, to involve sample testing of those underlying customers whose assets are in the pool.

10 Bracketed text that is presented here is based on the content of a document that is currently under discussion between the Jersey Bankers’ Association and the Jersey Association of Trust Companies, and which it is intended will reflect best practice in this area. This text will be reviewed following the conclusion of this discussion.

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In order to demonstrate that a financial services business has obtained a confirmation containing sufficient information about the underlying customers whose assets are in the pool, a financial services business must:

• obtain sufficient information about the nature of the intermediary’s customer pool and the intermediary’s risk assessment of its customer pool, and must be satisfied that the intermediary will notify it of material changes to the information or risk assessment.

Where a relationship presents higher money laundering or terrorist financing risk, a financial services business must consider whether it is appropriate to rely solely upon assurances and information provided by an intermediary.

Where a pooled relationship contains underlying customers presenting higher money laundering or terrorist financing risk, a financial services business must consider whether it is appropriate for such customers to remain concomitant with other customers in the same pooled relationship, and whether it is appropriate to rely solely upon assurances and information provided by an intermediary.

A financial services business must establish a letter of engagement with the intermediary and review the operation of the pooled relationship against the terms of the letter of engagement with the intermediary on an annual basis.

All evidence of identity passed by the intermediary to a financial services business (on request) must be confirmed by the intermediary as being a true copy of either an original or copy document held on the intermediary’s file.

Where a financial services business resolves to identify each of the underlying customers then it must consider the concession in place for designated relationships with intermediaries other than financial institutions (see 4.10.2.2).]

GUIDANCE NOTES

Sufficient information on the nature of the customer pool

A financial services business may demonstrate that it holds sufficient information on the nature of a customer pool where it requests information on:

• the legal status of customers (individuals, legal bodies or express trusts);

• the geographic location of the customer base;

• the general nature of the customer base;

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• the nature of the services which the intermediary provides to its customers;

• whether relationships are conducted by the intermediary on a face to face basis;

• the extent to which the intermediary itself relies on third parties to identify and hold evidence of identity or to conduct other due diligence procedures on underlying customers whose assets are in the pool; and

• sources of funds for the pool.

Access to customer due diligence information and documentation on underlying customers

A financial services business may demonstrate that an intermediary will provide customer due diligence information and documentation in relation to underlying customers, and of any beneficial owners and controllers of the underlying customers, without delay by periodically requesting relevant customer due diligence information and documentation to ensure that it is made available within 5 working days.

Such periodic testing may also be used by a financial services business to ensure that the customer due diligence procedures and record keeping procedures maintained by the intermediary are acceptable and in place.

Assessment of relationship risk

A financial services business may demonstrate that is has considered whether it is appropriate for higher risk customers to remain concomitant with other customers in the same pooled relationship, and whether it is appropriate to rely solely upon assurances and information provided by an intermediary, where it has considered the intermediary’s customer due diligence measures with respect to higher risk customers and the intermediary’s risk appetite.

A financial services business may consider whether the following are necessary to appropriately manage the increased risk presented by higher risk customers:

• Requiring that pooled relationships must not be used for higher risk customers, and that designated relationships must be established for such customers.

• Requiring that customer due diligence information and documentation be provided for all higher risk customers in a pooled account at the outset.

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Template certificate

A template certificate for pooled intermediary relationships is contained within Appendix [X].

4.10.2.2 Designated relationship with intermediaries other than financial institutions

OVERVIEW

Where an intermediary is a financial service business other than a financial institution and meets the requirements of Article 17 of the Money Laundering Order, a financial services business is permitted by Article 17 to place reliance on the applicant to conduct identification procedures.

Whilst the minimum necessary information required by the Handbook for designated relationships does require a financial services business to obtain customer due diligence information on each underlying customer of the intermediary, it does not also require evidence of identity to be held by the financial services business. Evidence of identity may be held by the intermediary, so long as the financial services business is satisfied that the intermediary will provide the evidence on request and without delay.

[REGULATORY REQUIREMENTS11


In order to demonstrate that a financial services business is satisfied that an intermediary maintains systems and controls (including policies and procedures) that comply with the requirements of this Handbook (or with requirements to combat money laundering and terrorist financing that are consistent with FATF Recommendations 5-16 and 21 and 22 – see Section 1.7), the financial services business must:

• conduct (or commission from an external expert) a periodic review of the adequacy of the intermediary’s account opening procedures, to involve

11 Bracketed text that is presented here is based on the content of a document that is currently under discussion between the Jersey Bankers’ Association and the Jersey Association of Trust Companies. This text will be reviewed following the conclusion of this discussion.

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sample testing of designated relationships established with the financial services business12.

In order to demonstrate that a financial services business has obtained a confirmation containing sufficient information about the underlying customer, a financial services business must:

• obtain sufficient customer due diligence information from the intermediary on each of the intermediary’s underlying customers - in line with guidance for individuals, trustees, and legal bodies; and

• be satisfied that the intermediary will notify the financial services business of material changes to customer due diligence information provided.

A financial services business must establish a letter of engagement with the intermediary and review the operation of the designated relationship against the terms of the letter of engagement with the intermediary on an annual basis.

All evidence of identity passed by an intermediary to a financial services business (on request) must be confirmed by the intermediary as being a true copy of either an original or copy document held on the intermediary’s file.

Where a relationship presents higher money laundering or terrorist financing risk, a financial services business must consider whether it is appropriate to rely solely upon assurances and information provided by an intermediary.]

GUIDANCE NOTES

Access to underlying evidence of identity

A financial services business may demonstrate that an intermediary will provide evidence of identity of the underlying customer, and of any beneficial owners and controllers of the underlying customer, without delay by periodically requesting relevant identity documentation to ensure that it is made available within 5 working days.

Such periodic testing may also be used by a financial services business to ensure that the customer due diligence procedures and record keeping procedures maintained by the intermediary are acceptable and in place.

12 Alternatively, a financial services business may require the intermediary to produce, on an annual basis, a certificate of compliance from an external expert that confirms that the intermediary’s systems and controls met the above requirements and were in place and operating effectively throughout the year.

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A template certificate for designated intermediary relationships is contained within Appendix B. In compiling the certificate, it will be necessary for an intermediary to liaise with a financial services business to ensure that sufficient information is provided about third parties (underlying customers).

4.10.3 Group intermediaries

OVERVIEW

Where the following criteria are met, then a financial services business may rely on a group intermediary to obtain and hold evidence of identity on its behalf in the way described above, notwithstanding that the intermediary itself may not be directly subject to legal requirements to combat money laundering and terrorist financing that are consistent with the FATF Recommendations or supervision.


Requirements for acceptable group intermediaries:

• The intermediary must be a branch or subsidiary in the same group as the financial services business;

• The intermediary must be subject to group requirements to combat money laundering and terrorist financing;

• The conduct of the intermediary’s business must be subject to supervision for compliance with group requirements to combat money laundering and terrorist financing by an overseas regulatory authority; and

• The group’s parent must meet the conditions required by Article 4 of the Money Laundering Order for equivalent businesses (refer to Section 1.7).

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4.11 REDUCED OR SIMPLIFIED MEASURES: VERIFICATION OF IDENTITY CONCESSION FOR VERY LOW RISK PRODUCTS/SERVICES

OVERVIEW

Where funds involved in a relationship:

• have been received from a bank which is supervised by the Commission or meets the conditions required by Article 4 of the Money Laundering Order for equivalent businesses (refer to Section 1.7); and

• have come from an account in the sole or joint name of the applicant for business,

then the receipt of funds from such an account will be considered to provide a satisfactory means of verifying the identity of an applicant for business, where: (i) the product or service requested by the applicant for business is considered to present a very low money laundering risk, and (ii) where the applicant for business is considered to present lower risk.

The basis for this concession is that funds may only be received from and paid to an account in the customer’s name, i.e. a product or service where funds may not be paid in by, or paid out to, third parties.

Satisfactory verification of identity may be achieved in this way for applicants for business that are individuals, trustees, or legal bodies.


In considering whether it is appropriate for verification of a customer’s identity to be carried out using this concession, a financial services business must be able to demonstrate that an applicant for business presents lower risk and that it is reasonable for the concession to apply.

To benefit from this concession, the product or service must satisfy the following conditions:

• all initial and future payments must be received from an account at a bank which is supervised by the Commission or meets the conditions required

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by Article 4 of the Money Laundering Order for equivalent businesses (refer to Section 1.7), where the account can be confirmed as belonging to the applicant for business;

• no initial or future payments may be received from third parties;

• cash withdrawals are not permitted, with the exception of face to face withdrawals by the customer, where he is required to produce evidence of identity before the withdrawal can be made;

• no payments may be made, other than to an account at a bank which is supervised by the Commission or is an equivalent business (refer to Section 1.7), where the account can be confirmed as belonging to the customer, or on the death of the customer to a personal representative named in the grant of probate; and

• no future changes must be made to the product or service that enable funds to be received from or paid to third parties.

In the event that the above conditions are breached, the identity of the customer must be verified at that time in accordance with Section 4.3, Section 4.4, or Section 4.5.

A financial services business must obtain and retain evidence confirming that payment has been received from an account at a bank which is supervised by the Commission or is an equivalent business (refer to Section 1.7), and, where a request for a withdrawal or transfer to another bank account is received, confirmation that this account is also in the customer’s name and held at a bank which is supervised by the Commission or is an equivalent business (refer to Section 1.7).

If a financial services business has reason to suspect the motive behind a particular transaction or believes that the business is being structured to avoid standard identification procedures, it must not use this concession.

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4.12 USE OF OTHER FINANCIAL SERVICES BUSINESSES TO IDENTIFY AND VERIFY IDENTITY: INTRODUCED RELATIONSHIPS

OVERVIEW

Article 19 of the Money Laundering Order permits, in certain circumstances, a third party to obtain identification information and evidence of identity for an applicant for business and its beneficial owners and controllers on behalf of a financial services business. Such relationships are referred to as introduced relationships.

An introduced relationship is where an introducer (which will also be a financial services business) has an established relationship with a customer (and its beneficial owners and controllers) and wishes to introduce that customer to another financial services business. Here the applicant for business seeks to form a direct relationship with a financial services business - in addition to the direct relationship with the introducer which is already established. Introducers will include financial advisors and company service providers.

Introducers may be used to obtain and hold evidence of identity at the time that a relationship is established by an applicant for business with a financial services business or one-off transaction conducted with a financial services business, and where there is any subsequent change in the beneficial ownership or control of the applicant.

Outsourcing arrangements are not included within the scope of the this section. In an outsourcing arrangement, the customer will have a direct relationship with the financial services business and no relationship with the delegate carrying on the outsourced activity. Although the delegate may have substantial contact with the customer, the customer is a customer of the financial services business and not of the delegate. The delegate will be carrying out the outsourced activity for the financial services business according to the terms of a contract with the financial services business. An example of a typical outsourcing arrangement is where a trustee of a collective investment fund outsources the management of the fund to a third party.


Article 19 – Identification of an applicant by an introducer

Under Article 19, it is possible for a financial services business to use an introducer to identify and verify the identity of the financial services business’

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applicant for business, and of any beneficial owners and controllers, in certain circumstances.

The financial services business must have reasonable grounds for believing that:

• the introducer is itself a financial services business supervised by the Commission; or

• the introducer is a person conducting financial services business overseas, that meets the conditions required by Article 4 of the Money Laundering Order for equivalent businesses (refer to Section 1.7).

In addition, the financial services business must ensure that the following conditions are met:

• the financial services business must obtain confirmation from the introducer that the applicant for business is an established customer of the introducer;

• the financial services business must be satisfied that the introducer maintains procedures enabling the applicant to comply with FATF Recommendations 5 and 10; and

• the financial services business must obtain a confirmation from the introducer.

Article 19(4) requires the confirmation from the introducer to:

• be in writing;

• contain adequate assurance that the introducer has obtained satisfactory evidence of identity;

• contain sufficient information about the applicant for business and any beneficial owners and controllers of the applicant;

• contain adequate assurance that the introducer is required to keep and does keep records containing the evidence of identity of the applicant (and of any beneficial owners and controllers of the applicant); and

• contain adequate assurance that the introducer will provide the information in those records or satisfactory evidence of the identity of the applicant (and of any beneficial owners and controllers of the applicant) without delay at the request of the financial services business.

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However, the ultimate responsibility for ensuring that customer identification and verification procedures are adequate remains with the accepting financial services business.

A financial services business may not rely on the concession in Article 19 where it has knowledge or suspicion that the applicant for business, or any third party on whose behalf the applicant is acting, is engaged in money laundering.


All evidence of identity passed by an introducer to a financial services business (on request) must be confirmed by the introducer as being a true copy of either an original or copy document held on the introducer’s file.

Where a relationship presents higher money laundering or terrorist financing risk, a financial services business must consider whether it is appropriate to hold only the assurances and information provided by an introducer, and not also copies of the documentary evidence of identity.

In the event that an introducer terminates its relationship with a customer that it has introduced to a financial services business, then the financial services business must require the introducer to provide it with:

• copies of the relevant due diligence information and documentation; or

• an assurance that the introducer will hold the necessary information and documentation on behalf of the financial services business until notified by or agreed with the financial services business.

GUIDANCE NOTES

Establishing whether an introducer has acceptable procedures in place

A financial services business may demonstrate that it has satisfied itself that an introducer maintains procedures enabling the introducer to comply with FATF Recommendations 5 and 10, where it conducts (and concludes positively) one or more of the following:

• A review of the introducer’s anti-money laundering and terrorist financing policies and procedures.

• Enquiries concerning systems and controls (including policies and procedures) in place.

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• Enquiries concerning the introducer’s stature and regulatory track record.

• Enquiries concerning the extent to which group standards are applied to and assessed by the introducer’s compliance function or internal audit function.

Where the result of enquiries is less than satisfactory, then a financial services business may demonstrate that it has satisfied itself that an introducer maintains procedures enabling the introducer to comply with FATF Recommendations 5 and 10, where it requires the introducer to produce, on an annual basis, a certificate of compliance from an external expert that confirms that the introducer’s systems and controls (including policies and procedures) comply with the identification and verification and related record keeping requirements of this Handbook (or with requirements that are consistent with FATF Recommendations 5 and 10 – see Section 1.7), and that those systems and controls were in place and operating effectively throughout the year.

Access to underlying evidence of identity

A financial services business may demonstrate that it has satisfied the Money Laundering Order requirement for the introducer to provide information and documentation upon request and without delay by periodically requesting relevant customer due diligence information and documentation to ensure that it is made available within 5 working days.

Such periodic testing may also be used by a financial services business to ensure that the customer due diligence procedures and record keeping procedures maintained by the introducer are acceptable and in place.


A template certificate for introduced business is contained within Appendix [X]. In compiling the certificate, it will be necessary for an introducer to liaise with a financial services business to ensure that sufficient information is provided on the applicant for business and beneficial owners and controllers of the applicant.

4.12.1 Group introducers

OVERVIEW

Where the following criteria are met, then a financial services business may use a group introducer to obtain and hold evidence of identity on its behalf in the way described above, notwithstanding that the introducer itself may not be directly subject to legal requirements to combat money laundering and terrorist financing that are consistent with the FATF Recommendations or supervision.

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Requirements for acceptable group introducers:

• The introducer must be a branch or subsidiary in the same group as the financial services business;

• The introducer must be subject to group requirements to combat money laundering and terrorist financing;

• The conduct of the introducer’s business must be subject to supervision for compliance with group requirements to combat money laundering and terrorist financing by an overseas regulatory authority; and

• The group’s parent must meet the conditions required by Article 4 of the Money Laundering Order for equivalent businesses (refer to Section 1.7).

4.13 TIMING OF INITITAL IDENTIFICATION AND VERIFICATION OF IDENTITY


Part 3 of the Money Laundering Order requires identification and verification procedures to take place as soon as is reasonably practicable after contact is first made between a financial services business and the applicant for business.

Article 13 requires that a financial services business must take all of the circumstances into account when determining whether the timeframe for completion of the identification and verification procedures is reasonable.

In the case of a one-off transaction, Article 13(2) requires a financial services business to conduct these procedures at the earliest stage at which there are reasonable grounds for believing that the total amount payable is not less than £10,000, either in a single or series of linked transactions.


A financial services business must (except as noted below):

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• identify and satisfactorily verify the identity of an applicant for business before or in the course of establishing a business relationship or conducting a one-off transaction; and

• identify and take reasonable measures to verify the identity of the beneficial owners and controllers of the applicant for business, and any third party (and the third party’s beneficial owners and controllers) on whose behalf an applicant for business is acting before or in the course of establishing a business relationship or conducting a one-off transaction.

GUIDANCE NOTES

Funds may be received from the customer during the course of establishing a business relationship. A relationship is established once a financial services business acts on instructions as to the operation of that relationship, for example, invests funds in a financial product on behalf of a customer.

Guidance as to appropriate steps to take where a financial services business is unable to complete customer due diligence procedures is provided in Section 4.15.

4.13.1 Lower risk relationships


For lower risk relationships, a financial services business may complete verification of identity following the establishment of a relationship if the following conditions are met:

• all other necessary customer due diligence information (including information on identity) has been obtained;

• the need to perform verification of identity at a later stage is essential not to interrupt the normal conduct of business;

• verification of identity is carried out as soon as is reasonably practicable; and

• money laundering risk is effectively managed.

In any event, a financial services business must not pay away funds to a third party (or to another account in the name of the customer), other than to invest or

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deposit the funds on behalf of the customer, until such time as identity has been verified.

GUIDANCE NOTES

Money laundering risk may be effectively managed where:

• policies and procedures are in place for managing relationships where funds or assets have been received from customers for whom verification of identity has not been completed;

• the establishment of any relationship benefiting from this concession has received appropriate authorisation and such relationships are appropriately monitored to ensure that verification of identity is carried out as soon as is reasonably practicable; and

• appropriate limits or prohibitions are placed on the number, type and amount of transactions over an account.

4.14 SUBSEQUENT REVIEW OF EVIDENCE OF IDENTITY

OVERVIEW

Article 22 of the Money Laundering Order requires a financial services business to carry out identification and verification procedures where the business knows or suspects that a person is engaged in money laundering, whether or not an exemption or concession from verification had previously been applied.

In addition, where a financial services business no longer believes that the evidence of identity which it holds in respect of a person is satisfactory, for example where there is reason to doubt its veracity or adequacy, Article 22 requires the business to take steps to ensure that it holds satisfactory evidence of identity.


Article 22 – Review of evidence of identity

Article 22 of the Money Laundering Order requires a financial services business to confirm that evidence of identity held is satisfactory, or alternatively to obtain satisfactory evidence of identity, where:

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• The financial services business knows or suspects that a relevant person is engaged in money laundering; or

• The financial services business has previously obtained evidence of a relevant person’s identity and now knows or suspects that the evidence is no longer satisfactory.

It is immaterial whether the financial services business was required to obtain the information or evidence which the business had previously obtained.

Article 22(2) defines a relevant person as being a person whose identity must be verified in accordance with the identification procedures in Part 3 of the Money Laundering Order. Where the financial services business knows or suspects that the relevant person is engaged in money laundering, the business must disregard any exemptions, thresholds or concessions otherwise provided in Part 3.

Where a financial services business has filed a suspicious activity report, Article 22(8) of the Money Laundering Order also requires a financial services business to act on any directions given by the JFCU.

4.15 FAILURE TO COMPLETE IDENTIFICATION OR VERIFICATION OF IDENTITY


Where identification or verification of identity cannot be concluded (whether under Part 3 or Article 22 of the Money Laundering Order) within a reasonable timeframe, Article 27 of the Money Laundering Order requires that a financial services business must not proceed or continue with the business relationship or perform the one-off transaction.

Notwithstanding this, Article 27 provides that a business relationship or transaction may proceed or continue where a financial services business is acting with the consent of a designated police or customs officer (the JFCU).


Where identification or verification procedures cannot be concluded within a reasonable timeframe, a financial services business must:

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• terminate the relationship or refuse to complete the one-off transaction; and

• assess whether the circumstances surrounding failure to identify or verify identity provide grounds for suspicion of money laundering or terrorist financing.

In such circumstances a financial services business must consider making a suspicious activity report to the JFCU based on the information in its possession.

GUIDANCE

Wherever possible, when terminating a relationship where customer money or other assets have been received, a financial services business should return the assets directly to the customer, for example by returning money to the account from which it was received.

Where the customer requests that money or other assets be transferred to third parties, or to a different account in the customer’s name, the financial services business should be assess whether this provides grounds for suspicion of money laundering or terrorist financing.

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5 MONITORING ACTIVITY AND TRANSACTIONS


Sections 3 and 4 address the capturing of sufficient information about a customer that will allow a financial services business to develop a profile of expected activity to provide a basis for recognising unusual, complex, and higher risk activity or transactions which may indicate money laundering or terrorist financing activity.

This Section requires financial services businesses to monitor customer relationships and to apply scrutiny of unusual, complex, or higher risk activity or transactions, so that money laundering or terrorist financing may be identified and prevented. This may involve requesting additional customer due diligence information. The key elements of any system are having up to date customer due diligence information and asking pertinent questions to elicit reasons for unusual, complex, or higher risk activity or transactions in order to determine whether they may represent money laundering or terrorist financing.

An unusual activity or transaction may be in the form of activity that is inconsistent with the expected pattern of activity within a particular relationship, or with the normal business activities for the type of product or service that is being delivered. An unusual activity or transaction may indicate money laundering or terrorist financing activity where it has no apparent economic or visible lawful purpose.

Where monitoring indicates money laundering or terrorist financing activity, and the process of requesting additional customer due diligence information is managed without due care, contact between a financial services business and a customer (or his advisors) could unintentionally lead to the customer being tipped off. Section 6.4 addresses this situation.

Reporting of knowledge, suspicion, or reasonable grounds for suspicion of money laundering and terrorist financing is addressed in Section 6.

Sufficient guidance and training of staff better enables them to recognise money laundering and terrorist financing activity. Staff awareness and training is covered in Section 7.

This section should be read and understood in conjunction with Sections 3, 4, and 6.

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5.2 OBLIGATION TO MONITOR


Article 10(4)(d) of the Money Laundering Order requires a financial services business to establish and maintain such other procedures of internal control and communication as may be appropriate for the purposes of forestalling, preventing and detecting money laundering.

Article 25 requires internal reporting procedures to be in place. In particular, Article 25(c) of the Money Laundering Order requires a financial services business to put in place and to maintain procedures giving special attention to any application for business that is unusual and does not have an apparent economic or visible lawful purpose.


A financial services business must, as a part of its ongoing due diligence procedures, scrutinise the activity and transactions of each customer to ensure that the activity or transaction being conducted is consistent with its knowledge of the customer. This is in order to recognise unusual, complex, or higher risk activity or transactions which may indicate money laundering or terrorist financing activity. The extent of such measures must be determined on a risk sensitive basis.

In particular, a financial services business must pay special attention to the following:

• complex transactions;

• unusual large transactions; and

• unusual patterns of transactions,

which have no apparent economic or visible lawful purpose. The background and purpose of such transactions must be examined and the findings recorded.

A financial services business must also give special attention to:

• Activity and transactions connected with jurisdictions which do not, or insufficiently apply the FATF Recommendations or which are the subject of international countermeasures (including those jurisdictions highlighted as being non-cooperative and to which international sanctions apply). Where such activity or transactions have no apparent economic or visible lawful

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purpose, the background and purpose of such activity or transactions must be examined and the findings recorded.

• Activity and transactions that may be conducted with persons who are the subject of international countermeasures, such as those applied under UN and EU sanctions and measures.

A financial services business must have policies and procedures in place to address any specific risks associated with customer relationships conducted on a remote basis (i.e. non-face to face).

GUIDANCE NOTES

In determining how to scrutinise activity and transactions, a financial services business may have regard to the following factors:

• the size and complexity of its business;

• its business risk assessment;

• the nature of its systems and controls; and

• the monitoring procedures that already exist to satisfy other business needs.

Effective monitoring is likely to be based on a considered identification of transaction characteristics, such as:

• The unusual nature of a transaction. For example: abnormal size or frequency for that customer or peer group; the early surrender of an insurance policy.

• The nature of a series of transactions. For example: a number of cash credits; and the use of an account only for a single transaction or only for a very short period of time.

• The geographic destination or origin of a payment. For example, a payment to or from a higher-risk country.

• The parties concerned. For example, a payment to or from a person on a sanctions list.

A financial services business may demonstrate that it is paying special attention to specified activity and transactions where it:

• reviews the customer due diligence that it holds and make further enquiries to obtain any further information that the financial services business believes it

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requires in order to have satisfactory due diligence information; and

• reviews all relevant matters known to relate to the customer about whom it may have concerns.

For higher risk customers, scrutiny may also involve an annual review of customer due diligence information, activity, and transactions - conducted independently of day-to-day management. In the case of other relationships, such independent scrutiny may be less frequent and use manual or computerised monitoring methods.

5.2.1 Jurisdictions that do not, or insufficiently, apply FATF Recommendations

OVERVIEW

The risk that relationships are tainted by funds that are the proceeds of crime or are used to fund terrorism is increased where the relationship has a connection with a jurisdiction that does not apply, or insufficiently applies, the FATF Recommendations, as a weak framework to combat money laundering and the financing of terrorism increases the risk that the proceeds of crime or terrorist funding can enter the financial system, and remain undetected. For example, where the requirements for customer due diligence procedures are weak, or where there is an absence of transparency or regulatory measures for legal bodies or express trusts.

GUIDANCE NOTES

In determining which jurisdictions do not, or insufficiently apply the FATF Recommendations, a financial services business may consider:

• Findings of reports conducted by the FATF, FATF-style regional bodies, the Offshore Group of Banking Supervisors, and the IMF and World Bank.

• Its own experience or the experience of other group entities (where part of a multinational group), which may have indicated weaknesses in other jurisdictions.

5.3 AUTOMATED MONITORING METHODS

OVERVIEW

Monitoring is not a mechanical process and does not necessarily require sophisticated automated systems. Nevertheless, automated monitoring methods may be effective in recognising unusual, complex, and higher risk activity or transactions.

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Exception procedures and reports can provide a simple but effective means of monitoring all transactions to or from particular geographical locations or accounts, and any activity that falls outside of pre-determined parameters - based on thresholds that reflect the nature and level of activity and the risk profiles or the relationships that are being monitored.

Large or more complex financial services business may also use automated monitoring systems to facilitate the monitoring of significant volumes of transactions, or - in an e-commerce environment - where the opportunity for human scrutiny of individual transactions is limited.

However, use of automated monitoring systems does not remove the requirement for a financial services business to otherwise remain vigilant. Factors such as staff intuition, direct contact with a customer, and the ability, through experience, to recognise activity and transactions that do not seem to make sense, cannot be automated.

In the case of monitoring activity and transactions that may be conducted with individuals who are the subject of international countermeasures, such as those applied under UN and EU sanctions and measures, the use of electronic external data sources may be particularly effective.

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6 REPORTING MONEY LAUNDERING AND TERRORIST FINANCING ACTIVITY AND TRANSACTIONS


This section outlines the statutory provisions concerning disclosure of information where a financial services business has knowledge, suspicion, or reasonable grounds for suspicion that it, or another person, is involved in money laundering or financing terrorism and the requirements for reporting procedures. It also provides guidance on making internal and external suspicious activity reports. Additional information on these statutory provisions is contained within Part II of the Handbook.

This section describes disclosures made under the Proceeds of Crime Law, Drug Trafficking Offences Law and Terrorism Law, and reports made according to a financial services business’ reporting procedures (as required by the Money Laundering Order) as suspicious activity reports. Although referred to as suspicious activity reports, depending on the circumstances, the reports may involve knowledge of money laundering or terrorist financing, rather than suspicion (or reasonable grounds for suspicion).

There are three situations in which a financial services business, or one of its employees, will make a suspicious activity report:

• where the financial services business (or one of its employees) believes that the business may have, itself, committed a money laundering or terrorist financing offence, for example by becoming concerned in an arrangement facilitating money laundering or terrorist financing;

• where legislation contains an offence of failure to make a suspicious activity report to the JFCU that another person is connected with either money laundering or terrorist financing; and

• as a result of obligations under the Money Laundering Order to have procedures in place to disclose that another person is engaged in money laundering or terrorist financing.

Often, a single report may be made under two separate provisions. For example, internal reporting procedures at a financial services business may lead to a suspicious activity report - under Article 25 of the Money Laundering Order - that another person (“person A”) is engaged in money laundering. Where the same financial services business also knows or suspects that it has become concerned in an arrangement with person A, then it may also wish to make a suspicious activity report under Article 32 of the Proceeds of Crime Law - so that it does not commit an offence under that article.

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6.2 DISCLOSURE OF KNOWLEDGE OR SUSPICION TO THE JFCU


Article 32 (assisting another to retain the benefit of criminal conduct) and Article 33 (acquisition, possession or use of proceeds of criminal conduct) of the Proceeds of Crime Law state that where a person is concerned in an arrangement involving the proceeds of crime, or has possession of the proceeds of crime, he will not have committed an offence if he discloses knowledge or suspicion of his involvement in money laundering to a police officer (or to the MLRO in accordance with his employer’s procedures):

• before any further actions, and if any further actions are done with the consent of a police officer, or

• after an action, so long as the disclosure is made as soon as is reasonably possible.

Articles 37 and 38 of the Drug Trafficking Offences Law contain similar provisions. Articles 22 and 23 of the Terrorism Law contain similar provisions in circumstances where offences would otherwise be committed under Article 15 (fund-raising), Article 16 (use and possession of property), Article 17 (funding arrangements) and Article 18 (money laundering).

Article 40 of the Drug Trafficking Offences Law also contains an offence where any person fails to report to a police officer (or to the MLRO in accordance with his employer’s procedures) knowledge or suspicion that another person is involved in drug money laundering, where that person acquired the knowledge or suspicion in the course of his trade, profession, business or employment. Article 20 of the Terrorism Law contains a similar offence of failure to report knowledge or suspicion of terrorist financing or money laundering, where the knowledge or suspicion arose during the course of a trade, profession, business or employment, other than that of a financial services business.

Article 23 of the Terrorism Law contains a further offence, where a person fails to report another person’s involvement in terrorist financing or money laundering, where he has knowledge, suspicion, or where there are reasonable grounds for knowledge or suspicion (the objective test), and where this arose during the course of financial services business.

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6.3 PROCEDURES FOR REPORTING TO THE JFCU


Article 37 of the Proceeds of Crime Law enables the Treasury and Resources Minister to prescribe reporting procedures to be followed by a financial services business where another person is known to be or is suspected of money laundering (which is defined in the Proceeds of Crime Law to also include terrorist financing).

The reporting procedures have been set down in Part 5 of the Money Laundering Order.

Article 25 requires that a financial services business must establish and maintain reporting procedures which:

• identify a person as the MLRO and any other designated persons to whom reports may be made;

• require that a report is made to the MLRO (or to a designated person) of any information or other matter coming to the attention of any member of staff in the course of their business activity which, in the opinion of that person, gives rise to knowledge or reasonable grounds for suspicion that another person is engaged in money laundering or terrorist financing;

• require that a report is considered promptly by the MLRO (or a designated person) in the light of all other relevant information for the purpose of determining whether or not the information or other matter contained in the report gives rise to knowledge or reasonable grounds for suspicion of money laundering or terrorist financing;

• allow the MLRO (or a designated person) to have access to all other information which may be of assistance in considering the report; and

• ensure that the information or other matter contained in a report is disclosed as soon as is reasonably practicable by the MLRO (or designated person) to a designated police or customs officer in writing, where the MLRO (or designated person) knows or has reasonable grounds to suspect that another person is engaged in money laundering or terrorist financing.

Article 26 of the Money Laundering Order states that if a designated person, on considering a report, concludes that it does not give rise to knowledge or reasonable grounds for suspicion that another person is engaged in money laundering, the designated person need not forward it to the MLRO. If a designated person, on considering a report, has concluded that it does give rise to knowledge or reasonable grounds for suspicion that another person is engaged

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in money laundering, the MLRO need not consider that question.

Where a suspicious activity report has been submitted to the JFCU, Article 14(7) and Article 22(8) of the Money Laundering Order require a financial services business to act on any directions given by the JFCU.

6.3.1 Internal reporting procedures


A financial services business must ensure that:

• Where an applicant for business or customer fails to supply adequate customer due diligence information, or adequate documentation verifying identity (including the identity of any beneficial owners and controllers), consideration is given to making a suspicious activity report.

• Internal reporting procedures encompass the reporting of attempted transactions and business that has been turned away.

• Staff make internal suspicious activity reports containing all relevant information to the MLRO (or a designated person) as soon as it is reasonably practicable after the information comes to their attention – in writing.

• Suspicious activity reports include as full a statement as possible of the information giving rise to knowledge or reasonable grounds for suspicion of money laundering or terrorist financing activity and full details of the customer.

• Reports are not filtered out by supervisory staff or managers such that they do not reach the MLRO (or designated person).

• Reports are acknowledged by the MLRO (or a designated person).

A financial services business must establish and maintain arrangements for disciplining any member of staff who fails, without reasonable excuse, to make an internal suspicious activity report where he or she has knowledge or reasonable grounds for suspicion of money laundering or terrorist financing.

GUIDANCE NOTES

A financial services business may demonstrate that disclosure of knowledge or reasonable grounds for suspicion is made as soon as is reasonably practicable by:

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• Having in place reporting lines that are as short as possible with the minimum number of people between the employee initiating the internal suspicious activity report and the MLRO (or designated person). This ensures speed, confidentiality and access to the MLRO. While a financial services business may allow its staff to discuss relationships and transactions with line managers before making a suspicious activity report, it will be the decision of the staff member whether to make the internal report to the MLRO.

• Appointing designated persons to assist the MLRO, in the case of a larger financial services business, including those operating through branches.

A financial services business may demonstrate that it has established and maintained appropriate arrangements for disciplining staff, where employment contracts and employment handbooks provide for the imposition of disciplinary sanctions for failing to report knowledge or reasonable grounds for suspicion without reasonable excuse.

6.3.2 Evaluation of suspicious activity reports by the MLRO


A financial services business must ensure that:

• All relevant information is promptly made available to the MLRO (or designated person) on request to ensure that internal suspicious activity reports are properly assessed.

• Each suspicious activity report is considered by the MLRO (or designated person) in light of all relevant information.

• The MLRO (or designated person) documents the evaluation process followed and reasons for the decision to report or not to report to the JFCU.

GUIDANCE NOTES

In order to demonstrate that a report is considered in light of all relevant information when evaluating a suspicious activity report, the MLRO (or designated person) may:

• Review and consider transaction patterns and volumes, previous patterns of instructions, the length of the business relationship and customer due diligence information.

• Examine other connected accounts or relationships. Connectivity can arise through commercial connections, such as transactions to or from other customers or common introducers, or through connected individuals, such as third parties, common ownership of entities or common signatories. However,

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the need to search for information concerning connected accounts or relationships should not delay the making of a report to the JFCU.

6.3.3 Reporting to the JFCU


A financial services business must ensure that the MLRO makes external suspicious activity reports containing all relevant information directly to the JFCU as soon as is reasonably practicable, in a format approved by the JFCU (set out in Appendix XX). Relevant information includes:

• Full details of the customer and as full a statement as possible of the information giving rise to knowledge or reasonable grounds for suspicion.

• If a particular type of criminal conduct is suspected, a statement of this conduct.

• Where a financial services business has additional relevant evidence that could be made available, the nature of this evidence.

• Statistical information to assist the JFCU in its analysis of reports.

6.4 TIPPING OFF


Article 35 of the Proceeds of Crime Law and Articles 41 and 44 of the Drug Trafficking Offences Law make it an offence for any person to disclose to a third party any information likely to prejudice an investigation where that person knows or suspects that a suspicious activity report has been made, or that an investigation is under way or proposed. Under Article 35 of the Terrorism Law, the offence is committed where the person discloses information likely to prejudice an investigation when he has reasonable grounds to know or suspect that either a suspicious activity report has been made or will be made, or that an investigation is proposed or under way.

GUIDANCE NOTES

In order to prevent the commission of a tipping off offence, at the time of acknowledging receipt of an internal suspicious activity report, the MLRO (or designated person) may provide a reminder to the member of staff submitting the report of the risk of

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communicating information that might prejudice law enforcement enquiries.

6.4.1 The customer due diligence process

OVERVIEW

The Money Laundering Order requires identification information to be obtained and verified during the establishment or course of a business relationship or one-off transaction. Article 22 of the Money Laundering Order further requires that evidence of identity should be reviewed and reconfirmed or re-obtained if necessary, where a financial services business has knowledge or grounds for suspicion that a person is engaged in money laundering or terrorist financing. Section 5 of the Handbook requires scrutiny of customer activity and for special attention to be paid where activity is unusual, complex, or higher risk.

Where a financial services business undertakes enquiries as a result of its customer due diligence procedures, and where this due diligence leads the financial services business to gain knowledge, suspicion, or reasonable grounds for suspicion of money laundering or terrorist financing, there is a risk that the contact between the financial services business and the customer (or his advisors) could unintentionally lead to the customer being tipped off, where the process is managed without due care.

Where a suspicious activity report has been filed before identification procedures or other due diligence procedures required by the Money Laundering Order or Handbook have been completed, ordinarily a financial services business is required to complete those procedures.

GUIDANCE NOTES

In circumstances where a suspicious activity report has been filed with the JFCU, but customer due diligence procedures are incomplete, the risk of tipping off a customer (and its advisers) may be minimised by:

• Ensuring that employees undertaking due diligence enquiries are aware of tipping off provisions and are provided with adequate support, such as specific training or assistance from the MLRO.

• Obtaining advice from the JFCU where a financial services business is concerned that undertaking any additional due diligence enquiries will lead to the customer being tipped off.

• Obtaining advice from the JFCU when contemplating whether or not to ask for non-routine information or questions in relation to such customers.

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6.4.2 JFCU consent

OVERVIEW

While waiting for the JFCU to provide consent to proceed with an activity or transaction (where it is necessary for consent to be provided), or in the event that the JFCU notifies a financial services business that consent will not be given, where a financial services business fails to act on a customer instruction it should be aware of the risk of committing a tipping off offence.

Refusal to act upon a customer’s instruction (for example, as a result of the JFCU refusing to give consent for a transaction to proceed) may also lead to civil proceedings being instituted by the customer.

GUIDANCE NOTES

The risk of tipping off a customer (or its advisers) whilst waiting for JFCU consent to proceed (or where consent has been refused by the JFCU) may be minimised by promptly notifying the JFCU of a customer’s instruction and seeking its advice, or by seeking legal advice on the information that the financial services business is able to disclose.

It may be necessary in circumstances where a customer has instigated civil proceedings for the financial services business to seek the directions of the court.

6.4.3 Terminating a relationship

OVERVIEW

Unless required to do so by the JFCU, a financial services business is not obliged to continue relationships with customers if such action would place them at commercial risk.

GUIDANCE NOTES

If a financial services business, having filed a suspicious activity report, wishes to terminate a relationship or transaction - and is concerned that, in doing so, it may prejudice an investigation resulting from the report, it should seek the consent of the JFCU to do so. This is to avoid the danger of tipping off.

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7 VETTING, AWARENESS AND TRAINING OF EMPLOYEES


One of the most important controls over the prevention and detection of money laundering and terrorist financing is to have vetted staff who are: (i) alert to money laundering and terrorist financing risks; and (ii) well trained in the identification of unusual, complex or higher risk activities or transactions, which may indicate money laundering or terrorist financing activity.

The effective application of even the best designed control systems can be quickly compromised if staff lack competence or probity, are unaware of or fail to apply systems and controls, and are not adequately trained.

It is essential that a financial services business has a clear and well articulated policy for ensuring that appropriate staff are:

• competent and have probity;

• aware of their obligations under the Proceeds of Crime Law, Drug Trafficking Offences Law, Terrorism Law, United Nations Measures and the Money Laundering Order (and by extension, also the Handbook); and

• trained in the identification of unusual, complex or higher risk activities or transactions, which may indicate money laundering or terrorist financing activity, and in the business’ reporting procedures.

In particular, customer facing employees and those who handle or are responsible for the handling of customers and transactions will provide the business with its strongest defence, or its weakest link.

A financial services business should also encourage its staff to “think risk” as they carry out their duties within the legal and regulatory framework governing money laundering and terrorist financing.

7.2 OBLIGATION TO PROMOTE AWARENESS AND TO TRAIN

OVERVIEW

The Money Laundering Order’s requirements concerning both training and awareness apply to employees whose duties relate to the provision of financial services (hereafter

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referred to as “relevant employees”), and not to all employees of a financial services business. However, primary money laundering and terrorist financing offences are wider in scope, and all employees will need to have a basic understanding of money laundering and terrorist financing and an awareness of internal reporting procedures (including the identity of the MLRO).


Article 37 of the Proceeds of Crime Law enables the Treasury and Resources Minister to prescribe training procedures to be followed by a financial services business.

The procedures have been laid down in Article 10 of the Money Laundering Order.

Article 10 requires that a financial services business must, in relation to employees whose duties relate to the provision of financial services:

• take appropriate measures from time to time for the purposes of making them aware of:

the identification, record keeping and internal reporting procedures, and such other procedures of internal control and communication as may be appropriate for the purposes of forestalling and preventing money laundering or terrorist financing; and

the enactments in Jersey relating to money laundering and terrorist financing;

• provide those employees from time to time with training in the recognition and handling of transactions carried out by or on behalf of any person who is or appears to be engaged in money laundering or terrorist financing; and

• establish and maintain procedures that monitor and test the effectiveness of the financial services business’ systems, employees’ awareness and the training provided to employees.


The term employee must not be limited to individuals working under a contract of employment, but must also include temporary and contract staff, and the staff of any third parties fulfilling a function in relation to a financial services business under an outsourcing agreement.

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GUIDANCE NOTES

When determining whether an employee is a relevant employee, a financial services business may take into account the following:

• whether the employee is undertaking any customer facing functions, or handles or is responsible for the handling of business relationships or transactions;

• whether the employee is directly supporting a colleague who carries out the above activity; and

• whether an employee’s role has changed to involve the above activities.

Relevant customer facing employees will include, for example, relationship managers, trust and company administrators, and stock-brokers. Non-customer facing relevant employees will include, for example, the MLRO, the MLCO and individuals processing and book-keeping customer transactions. Relevant employees will also include the Board and senior managers.

7.3 VETTING OF RELEVANT EMPLOYEES


A financial services business must vet and monitor the competence and probity of relevant employees.

GUIDANCE NOTES

A financial services business may demonstrate that vetting procedures are appropriate where (at the time of recruitment or subsequent change in role) it:

• Obtains and confirms references.

• Confirms employment history and qualifications disclosed.

• Requests details of any regulatory action taken against the individual (or absence of such action).

• Requests and verifies details of any criminal convictions13 (or absence of such convictions).

13 Enquiries into an individual’s criminal record must be subject to the Rehabilitation of Offenders (Jersey) Law 2001, which prevents a financial services business requesting information from its directors, senior

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7.4 AWARENESS OF EMPLOYEES


A financial services business must have appropriate measures in place to make relevant employees are aware of:

• The financial services business’ systems and controls (including policies and procedures) designed to prevent and detect money laundering and terrorist financing.

• The statutory obligations under which the business operates and under which they may be held personally liable.

• The implications of failing to report information in accordance with procedures, and that as well as criminal or regulatory sanctions, disciplinary proceedings can also arise.

7.4.1 All relevant employees (customer facing and non-customer facing)

GUIDANCE NOTES

A financial services business may demonstrate that its has appropriate measures in place where it:

• Provides relevant employees with a copy of the financial services business’ procedures manual for anti-money laundering and countering the financing of terrorism.

• Provides relevant employees with a document outlining the financial services business’ and their own obligations and potential criminal liability under the Proceeds of Crime Law, Drug Trafficking Offences Law, Terrorism Law, United Nations Measures and the Money Laundering Order (and by extension, also the Handbook).

• Requires employees to acknowledge that they have received and understood the business’ procedures manual and document outlining statutory obligations.

managers and other employees (and prospective directors, senior managers and other employees) about convictions that are "spent", except where provided for by the Rehabilitation of Offenders (Exceptions) (Jersey) Law 2002 (“the Regulations”).

In the case of directors, senior managers and "finance employees" (and prospective directors, senior managers and "finance employees"), the Regulations permit a financial services business that is regulated by the Commission to request information about all "relevant" convictions, whether "spent" or not.

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• Periodically tests employees’ awareness of policies and procedures and statutory obligations.

It is not sufficient solely to provide employees with a copy of this Handbook, as this Handbook is designed to provide a base from which a financial services business can design and implement systems and tailor its own policies and procedures appropriate to its business.

7.4.2 Non-relevant employees

A financial services business may demonstrate that it has appropriate measures in place where it:

• Informs staff of the identity of the MLRO and the procedures to make internal suspicious activity reports.

• Provides staff with a document outlining the financial services business’ and their own obligations and potential criminal liability under the Proceeds of Crime Law, Drug Trafficking Offences Law, Terrorism Law, United Nations Measures and the Money Laundering Order (and by extension, also the Handbook).

• Requires employees to acknowledge that they have received and understood the business’ procedures for making internal suspicious activity reports and document outlining statutory obligations.

7.4.3 Ongoing awareness (all employees)

OVERVIEW

With the passage of time between training initiatives, the level of employee awareness of the risk of money laundering and terrorist financing decreases. The utilisation of techniques to maintain a high level of awareness can greatly enhance the effectiveness of a financial services business’ defences against money laundering and terrorist financing.

GUIDANCE NOTES

A financial services business may demonstrate that its has appropriate measures to maintain awareness where it:

• keeps employees aware of anti-money laundering and terrorist financing developments (such as updates issued by the Commission or JFCU, or developments in international standards) as they occur;

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• provides employees with case studies illustrating how products or services provided by the financial services business may be abused;

• advises employees of current news stories involving money laundering and terrorist financing activity; and

• sends e-mail reminders of employee obligations and the need to remain vigilant.

7.5 TRAINING OF EMPLOYEES

OVERVIEW

The guiding principle of all anti-money laundering and terrorist financing training should be to encourage employees, irrespective of their level of seniority, to understand and accept their responsibility to contribute to the protection of the business against the threat of money laundering and terrorist financing.

There is a tendency, in particular on the part of more junior employees, non-customer facing staff, and support staff to mistakenly believe that the role that they play is less pivotal than, or secondary to, that of more senior colleagues or customer facing colleagues. Such an attitude can lead to failures to report important information because of mistaken assumptions that the information will have already been identified and dealt with by other colleagues.


A financial services business must provide employees with adequate training at appropriate frequencies. Such training must:

• be tailored to the business and relevant to the employees to whom it is delivered; and

• highlight to employees the importance of the contribution that they can individually make to the prevention and detection of money laundering and terrorist financing.

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7.6 ADEQUACY OF TRAINING

7.6.1 All relevant employees (customer facing and non-customer facing)

GUIDANCE NOTES

A financial services business may demonstrate the provision of adequate training to relevant staff where it addresses:

• The Proceeds of Crime Law, Drug Trafficking Offences Law, Terrorism Law, United Nations Measures and the Money Laundering Order.

• Vulnerabilities of services and products offered by the financial services business, and subsequent money laundering and terrorist financing risk.

• Policies and procedures, and employees’ responsibilities.

• Application of risk-based customer due diligence policies and procedures.

• Recognition and handling of unusual, complex, or higher risk activity and transactions, such as activity outside of the expected patterns, unusual settlements, abnormal payment or delivery instructions and changes in the patterns of business relationships.

• Money laundering and terrorist financing trends and typologies.

• Management of customer relationships which have been the subject of a suspicious activity report, e.g. risk of committing the offence of tipping off, and dealing with questions from such customers, and/or their advisers.

7.6.2 The Board

GUIDANCE NOTES

A financial services business may demonstrate the provision of adequate training where (in addition to training for relevant employees) it addresses the evaluation of the effectiveness of systems and controls (and policies and procedures) in place to prevent and detected money laundering and the financing of terrorism.

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7.6.3 The MLCO

GUIDANCE NOTES

A financial services business may demonstrate the provision of adequate training where (in addition to training for relevant employees) it addresses:

• the design and implementation of systems and controls to counter money laundering and terrorist financing;

• the design and implementation of compliance testing and monitoring programmes; and

• the evaluation of the effectiveness of systems and controls in place.

Guidance on the role and responsibilities of the MLCO can be found in Section 2.

7.6.4 The MLRO and designated persons

GUIDANCE NOTES

A financial services business may demonstrate the provision of adequate training where (in addition to training for relevant employees) it addresses:

• the handling and validation of internal disclosures;

• liaising with the JFCU and law enforcement;

• management of the risk of tipping off; and

• the handling of production and restraint orders.

7.6.5 Non-relevant employees

GUIDANCE NOTES

A financial services business may demonstrate the provision of adequate training where the training promotes an awareness of the threat of money laundering and terrorist financing and the reporting procedures that should be followed in the event that unexplained unusual, complex, or higher risk activity or transactions are spotted.

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7.7 TIMING AND FREQUENCY OF TRAINING

GUIDANCE NOTES

A financial services business may demonstrate the provision of training at appropriate frequencies by:

• Providing all employees within induction training within 10 working days of the commencement of employment and, when necessary, where there is a subsequent change in an employee’s role.

• Delivering training to all employees at least once every two years, and otherwise determining the frequency of training for relevant employees on the basis of risk, with more frequent training where appropriate.

7.8 MONITORING THE EFFECTIVENESS OF TRAINING

GUIDANCE NOTES

A financial services business may demonstrate that it has assessed the effectiveness of training provided by:

• Testing employees’ understanding of the business’ policies and procedures to combat money laundering and terrorist financing, and also their ability to recognise money laundering and terrorist financing activity.

• Monitoring the compliance of employees with systems and controls (including policies and procedures) to prevent and detect money laundering and terrorist financing, and taking any action that may be necessary.

• Monitoring internal reporting patterns, and taking any action that may be necessary.

• The routine supervision of employees.

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8 RECORD KEEPING


The record keeping obligations of the Money Laundering Order and additional regulatory requirements are essential to facilitate effective investigation, prosecution and confiscation of criminal property. If law enforcement agencies, either in Jersey or elsewhere, are unable to trace criminal property due to inadequate record keeping, then prosecution for money laundering and confiscation of criminal property may not be possible. Likewise, if the funds used to finance terrorist activity cannot be traced back through the financial system, then the sources and the destination of terrorist funding will not be identified.

Records may be kept:

• by way of original documents;

• by way of photocopies of original documents (certified where appropriate);

• in scanned form; or

• in computerised or electronic form.

8.2 RECORDING EVIDENCE OF IDENTITY AND OTHER CUSTOMER DUE DILIGENCE MEASURES


Article 37 of the Proceeds of Crime Law enables the Treasury and Resources Minister to prescribe record keeping procedures to be followed by a financial services business.

Part 4 of the Money Laundering Order requires a financial services business to make and retain the following records:

• copies of evidence of identity obtained in accordance with Part 3; or

• information as to where a copy of the evidence can be obtained; or

• sufficient information as to enable the details of a person’s identity to be re-obtained, but only where it is not reasonably practicable to either obtain a copy of the evidence, or to retain information as to where a copy can be

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obtained.

Article 24 requires a financial services business to retain records in relation to evidence of identity for at least five years from the end of the relationship with the customer (or the completion of the one-off transaction).


A financial services business must make and retain records of customer due diligence information for at least five years from the end of the relationship with the customer (or the completion of the transaction, for one-off transactions). This must include information and evidence of identity obtained in line with the requirements of Sections 3 and 4 and any customer files and business correspondence relating to the relationship.

A financial services business must ensure that the way in which customer due diligence information is recorded and stored facilitates periodic update of the information.

A financial services business must ensure that the way in which customer due diligence information (including transaction information) is recorded facilitates ongoing monitoring of each relationship, i.e. the information must be immediately accessible.

A financial services business must retain customer due diligence information beyond the retention period at the request of the JFCU or other appropriate authority.

GUIDANCE NOTES

A financial services business may demonstrate adequate recording and storage of customer due diligence information by ensuring that updated information relating to a customer that is obtained through meetings, discussions, or other methods of communication with the customer is recorded and retained.

A financial services business may demonstrate that its customer due diligence information is immediately accessible if the information is readily to hand.

8.3 RECORDING TRANSACTIONS


Article 37 of the Proceeds of Crime Law enables the Treasury and Resources

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Minister to prescribe record keeping procedures to be followed by a financial services business.

Part 4 of the Money Laundering Order requires a financial services business to make and retain a record containing details of every transaction carried out with or for the customer in the course of financial services business. In every case, sufficient information must be recorded to enable the reconstruction of individual transactions.

In particular, Article 23 requires transaction records to contain the following information:

• the name and address of the customer;

• if a monetary transaction, the kind of currency and the amount;

• if the transaction involves a customer’s account, the number, name or other identifier for the account; and

• the date of the transaction.

Article 24 also requires a financial services business to retain records relating to transactions for at least five years from the date when all activities relating to the transaction were completed.


In addition to the information required by Article 23, transaction records must contain the following details of each transaction carried out with or for the customer in the course of financial services business:

• details of the counterparty, including account details;

• the nature of the transaction; and

• details of the transaction.

The records prepared and retained by a financial services business in relation to customer transactions must be such that the audit trail for incoming and outgoing funds or asset movement is clear and complete.

When original documents (such as transaction related vouchers) that would ordinarily have been destroyed are requested for investigation purposes, a financial services business must ascertain whether the documents have in fact been destroyed.

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A financial services business must retain transaction records beyond the retention period at the request of the JFCU or other appropriate authority.

GUIDANCE NOTES

Adequate recording of details of transactions may be demonstrated by including (where appropriate):

• valuation(s) and price(s);

• the form (e.g. cash, cheque, electronic transfer) in which funds are transferred;

• memoranda of instruction(s) and authority(ies);

• memoranda of purchase and sale;

• custody of title documentation; and

• other records in support of transaction records where these are necessary to enable a clear and complete audit trail of fund or asset movements to be established.

Adequate recording of details of transactions may be demonstrated by recording all transactions undertaken on behalf of a customer within that customer’s records, enabling a complete transaction history for each customer to be easily constructed. For example, a customer’s records should include all requests for wire transfer transactions where settlement is provided other than from funds drawn from a customer’s account with the financial services business.

When original vouchers are used for account entry, and are not returned to the customer or his agent, it is of assistance to the law enforcement agencies if these original documents are kept for at least one year to assist forensic analysis.

8.4 OTHER RECORD KEEPING REQUIREMENTS

8.4.1 Compliance monitoring and procedures


A financial services business must keep for at least five years sufficient records to enable the Commission, internal and external auditors and other competent authorities to assess the effectiveness of systems and controls that are maintained by a financial services business to prevent and detect money

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laundering and the financing of terrorism.

A financial services business must keep records documenting its policies and procedures to prevent and detect money laundering and the financing of terrorism for at least five years from the date those policies and procedures are superseded.

GUIDANCE NOTES

A financial services business may demonstrate that it has retained sufficient records where it keeps:

• its business risk assessment;

• compliance reports to the Board; and

• the working papers of the MLCO to the extent that these provide details of the testing programmes conducted.

This does not necessitate the retention of all compliance testing working papers.

8.4.2 Suspicious activity reports


A financial services business must keep, for a period of five years from the date the business relationship ends, or, if in relation to a one-off transaction, for five years from the date that the transaction was completed, records containing:

• internal suspicious activity reports and supporting documentation;

• the decision of the MLRO (or designated person) concerning whether to make an external suspicious activity report and the basis of that decision; and

• any external suspicious activity reports.

8.4.3 Records relating to unusual, complex and higher risk transactions


A financial services business must keep records containing the findings of

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reviews of:

• complex transactions;

• unusual large transactions; and

• unusual patterns of transactions

which have no apparent economic or visible lawful purpose, for a period of five years from the date the business relationship ends, or, if in relation to a one-off transaction, for five years from the date that the transaction was completed.

A financial services business must keep records containing the findings of reviews of customers and transactions: (i) connected with jurisdictions which do not or insufficiently apply the FATF Recommendations, where the business relationship or transaction has no apparent economic or visible lawful purpose; or (ii) which are the subject of international countermeasures - for a period of five years from the date the business relationship ends, or, if in relation to a one-off transaction, for five years from the date that the transaction was completed.

8.4.4 Training and awareness


A financial services business must keep records for five years detailing the dates on which training on the prevention and detection of money laundering and the financing of terrorism was provided, the nature of the training and the names of employees who received the training.

8.5 ACCESS TO AND RETRIEVAL OF RECORDS


The records retained by a financial services business must be readily-accessible by the business and be in a format that can be made readily available. Unless otherwise specified, records must be accessible within 5 working days (whether held in Jersey or outside Jersey), or such longer period as agreed with the Commission.

A financial services business must periodically review the accessibility of, and condition of, paper and electronically retrievable records and ensure adequate consideration of the safekeeping of records.

A financial services business must periodically test procedures relating to

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retrieval of records.

A financial services business that undergoes mergers, take-overs, or internal reorganisations, must ensure that records remain readily retrievable for the required period when rationalising computer systems and storage arrangements.

8.5.1 External record-keeping

OVERVIEW

Where documentation is held overseas or by third parties, such as under outsourcing arrangements, or where reliance is placed on introducers or intermediaries, this will present additional factors for a financial services business to consider.

Where record keeping is outsourced, a financial services business remains responsible for compliance with all requirements.

Where an introducer ceases to trade or have a relationship with a customer that it has introduced to a financial services business, particular care needs to be taken to retain, or hand over, the appropriate customer records.


A financial services business must not enter into outsourcing arrangements or place reliance on third parties to retain records where access to records is likely to be impeded by confidentiality or data protection restrictions.

8.5.2 Requirements on closure or transfer of business

OVERVIEW

Where a financial services business terminates activities, or disposes of business or a block of customer relationships to other service providers, record keeping requirements are unaffected by the termination or disposal.


Record-keeping arrangements must be agreed with the Commission where a financial services business terminates activities, or disposes of business or a block of customer relationships to another service provider.

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APPENDICES

Appendix A Glossary

Appendix B1 Intermediary certificate: assurance (separate document)

Appendix B2 Intermediary certificate: summary sheet (separate document)

Appendix B3 Intermediary certificate: beneficial owners and controllers (separate document)

Appendix B4 Intermediary certificate: guidance (separate document)

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APPENDIX A – GLOSSARY General guide to the Handbook

The provisions of the Statutory Requirements and of the Regulatory Requirements are described using the term “must”, indicating that these requirements are mandatory. In contrast, the Guidance Notes use the term “may”, indicating ways in which the requirements may be satisfied, but allowing for alternative means of meeting the requirements.

References to must and may elsewhere in the Handbook should be similarly construed.

Beneficial owners and controllers

The beneficial owners and controllers of a relationship are the individuals who ultimately own or control a relationship, and/or the person on whose behalf the relationship is being conducted. Refer to Section 4.

Beneficiaries with vested rights

These are persons named in a trust instrument (or supplementary instrument), ascertainable by reference to a class named in a trust instrument (or supplementary instrument), or ascertainable from a trust instrument (or supplementary instrument) by reference to a relationship to some other person, to whom a legal right to trust property or income thereon has been transferred.

This term covers those currently benefiting or due to benefit from a trust. It does not cover beneficiaries of discretionary trusts until such time as the trustee exercises discretion in their favour, or circumstances occur - where vesting is conditional upon some future event, e.g. marriage or birthday.

Board

The term Board of a financial services business should be read to mean the senior management function where the business is not a company, but is a branch or partnership, for example.

Business relationship

The term business relationship is defined in the Money Laundering Order as meaning any arrangement between two or more persons (at least one of whom is acting in the course of a business) where –

• the purpose of the arrangement is to facilitate the carrying out of transactions between the persons concerned on a frequent, habitual or regular basis; and

• the total amount of any payment to be made by any person to any other person

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in the course of that arrangement is not known or is not capable of being ascertained at the time the arrangement is made.

Business risk assessment

The business risk assessment documents the exposure of a business to money laundering and terrorist financing risks and vulnerabilities with reference to its organisational structure, its customers, the jurisdictions with which its customers are connected, its products and services, and how it delivers those products and services. Refer to Section 2.3.

Customer due diligence information

Customer due diligence information includes customer identification information (Section 4) and customer relationship information (Section 3).

In relation to the record keeping requirements of Section 8, customer due diligence information also includes the documentation establishing evidence of identity (as required by Section 4) and any customer files and business correspondence relating to the relationship.

Customer due diligence procedures

The term customer due diligence procedures encompasses Stages 1 to 5 of the customer due diligence process described in Section 3.3 and the record keeping requirements of Section 8.

Customer due diligence profile

A customer due diligence profile contains the customer due diligence information and information concerning the type, volume and value of activity that is expected within the relationship. Refer to Section 3.3.2.

Customer relationship

The term customer relationship in this Handbook means a relationship with a customer that is either a business relationship or a one-off transaction exceeding the statutory threshold, as defined by the Money Laundering Order.

Customer risk assessment

A customer risk assessment is carried out in respect of each customer relationship based on the customer due diligence obtained for that customer. Refer to Section 3.3.5.

Designated relationship

A relationship established by an intermediary on behalf of a single customer or relationship, including relationships involving sub-accounts for each underlying

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customer. Where sub-accounts are established, each sub-account is to be treated as a separate designated relationship.

Expression of wishes

Wishes or requests, expressed in any form, which a trustee is expected to consider when deciding how to exercise his power of discretion.

Existing customers

Customers with whom a relationship was established before the date of introduction of the Money Laundering Order (Jersey) 2006.

Financial exclusion

Financial exclusion may occur where individuals are prevented from having access to essential financial services, such as banking services, because they are unable, for valid reasons, to produce more usual identification documentation. Refer to Section 4.3.4.

Financial services business

The term financial services business in the Handbook means a person carrying on a financial services business activity, listed in the Second Schedule to the Proceeds of Crime Law, and refers to that activity only, without encompassing any other business activities that the person may also be carrying on.

Legal body

This includes bodies corporate, foundations, anstalts, partnerships, associations, or any similar bodies that can establish a permanent customer relationship with a financial institution or otherwise own property.

“Maintain”

The Money Laundering Order requires that a financial services business maintain certain procedures. The regulatory requirements of the Handbook make it clear that maintain in this context is to be read to mean that the relevant procedures must be established, implemented and that the financial services business should ensure that these are operating effectively.

MLCO

A financial services business is required to appoint a Money Laundering Compliance Officer. The role and responsibilities of the MLCO are detailed in Section 2.5.

MLRO

A financial services business is required to appoint a Money Laundering Reporting

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Officer. The role and responsibilities of the MLRO are detailed in Section 2.6.

One-off transaction

The term one-off transaction is defined in the Money Laundering Order as meaning any transaction that is not carried out in the course of an established business relationship formed by a person acting in the course of a financial services business.

Pooled relationship

A relationship established by an intermediary on behalf of more than one customer, which will contain the funds or assets of more than one customer. A relationship containing a series of sub-accounts is not a pooled relationship, but is a series of designated relationships.

Individuals who are the objects of a power and other beneficiaries

Other beneficiaries

These are persons named in a trust instrument, ascertainable by reference to a class named in a trust instrument, or ascertainable from the trust instrument by reference to a relationship to some other person, without a vested right to trust property or income thereon. This term covers those named or identifiable in the trust instrument.

Objects of a power

Persons who are individually referred to by name (or otherwise individually referred to) in an expression of wishes in whose favour discretion to make a distribution from a trust is likely to be exercised.

Persons (not individually referred to in an expression of wishes) in whose favour, to the best of the trustee’s knowledge and belief (having taken account of any expression of wishes of the settlor and information otherwise in the possession of the trustee), discretion to make a distribution from a trust is likely to be exercised.

This term cover beneficiaries of discretionary trusts where the trustee has yet to exercise discretion in their favour. This term includes those likely to benefit from a trust.

Relevant employee

The term employee is not limited to individuals working under a contract of employment, but will also include temporary and contract staff, and the staff of any third parties undertaking financial services business under an outsourcing agreement. Relevant employees will include the Board.

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SAR

Suspicious activity report. Refer to Section 6.

Settlor

Settlors are those persons who donate assets to, or create wealth for, a trust.

Suitable certifier

Suitable certifiers are persons who it is acceptable to rely on to certify that a copy of a document is a complete and accurate copy of the original document, and for documentation establishing identity, that a photograph bears a true likeness of the individual. Refer to Section 4.8.2.1.

Underlying customer

The underlying customer is the person on whose behalf an intermediary is acting, or the customer who is seeking to form a direct relationship with a financial services business through an introduction from another financial services business.

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APPENDIX B1 - INTERMEDIARY CERTIFICATE: ASSURANCE

Entity name (in full)

Name of intermediary

Assurance

[Provided by the intermediary to the accepting financial services business]

We confirm that the information provided accurately reflects the customer due diligence information that we hold.

We confirm that we have identified and verified the identity of the underlying customer (and any beneficial owners and controllers) and recorded the evidence of identity according to procedures established and maintained by us.

We confirm that our customer due diligence procedures are equivalent to the standards established in the Financial Action Task Force’s Forty Recommendations.

We agree to provide other relevant customer due diligence information and copies of documentation establishing evidence of identity of the underlying customer (and any beneficial owners and controllers) upon request and without delay; we undertake to use best efforts to do so within 5 working days of the request.

We agree to notify the accepting business of material changes to the information provided.

Signature:

Full name:

Official position:

Date:

To be completed by the accepting business

I have reviewed the information provided on this certificate and confirm that the information provided relating to this customer meets the requirements of our customer acceptance policy.

Signature:

Full name:

Official position:

Date:

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APPENDIX B2 - INTERMEDIARY CERTIFICATE: SUMMARY SHEET

Name of accepting financial services business


Address of intermediary

Name of intermediary’s regulator

Identification and relationship information (*refer to B4 – guidance)


Entity identification information*

Entity address*

Type of entity*

Nature of entity’s activities and geographical sphere*

Purpose/intended nature of business relationship*

Source of wealth*

Expected annual transaction activity*

Expected balance

Details of associated relationships*

Risk factors (*refer to B4 – guidance)

Is the entity involved in trading?* (yes/no)

Is the entity associated with a PEP?* (yes/no)

Is the entity connected with a high risk jurisdiction*? (yes/no)

Is commission a source of wealth? (yes/no)

Is the entity part of a complex structure? (yes/no)

Are bearer shares in issue? (yes/no)

Other risk factors identified* (provide details)

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APPENDIX B3 - INTERMEDIARY CERTIFICATE: BENEFICIAL OWNERS AND CONTROLLERS



Names of directors/trustees* (Please use additional copies of this sheet as required)

Full name

Full name

Full name

Full name

Full name

Full name

Full name

Details of beneficial owners and controllers* (Please complete the sections below for each beneficial owner and controller - use additional copies of this sheet as required)

Beneficial owner or controller Details

Full name

Role* of beneficial owner or controller and date relationship commenced

Current residential address (PO Box only address is insufficient; include post code)

Nationality

Date and place of birth

Beneficial owner or controller Details

Full name

Role* of beneficial owner or controller and date relationship commenced

Current residential address (PO Box only address is insufficient; include post code)

Nationality

Date and place of birth

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APPENDIX B4 - INTERMEDIARY CERTIFICATE: GUIDANCE This guidance is issued by the Jersey Financial Services Commission to provide a standard format for relationships between intermediaries and other financial services businesses on behalf of underlying customers.

These notes and the definitions below are intended to provide guidance to assist the intermediary in completing the required forms and to enable greater consistency to be achieved.

“Associated relationships”

Other business relationships established by the intermediary with the accepting financial services business which are associated with the entity, i.e. where the entity or any of its any of the principals are connected with this business relationship.

“Beneficial owner or controller”

Beneficial owners and controllers are the individuals who ultimately own or control the relationship.

For a trust, beneficial owners and controller include:

• the settlor(s);

• the protector(s);

• persons whose wishes the trustee would be expected to take into account;

• beneficiaries with a vested right; and

• where they present higher risk, other beneficiaries and objects of a power.

For a legal body, beneficial owners and controller include:

• the individuals ultimately holding a 25% or more interest in the capital of the legal body; and

• the individuals with ultimate effective control over the legal body’s assets, including the individuals comprising the mind and management of the legal body.

Further guidance is provided in the Handbook.

“Entity identification information”

The registration number and place of registration of a company. Official registration number and place of registration for a trust (if any).

“Entity address” The registered office address for a company or partnership. Not applicable for a trust.

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“Expected annual transaction activity”

An estimate of the transaction size and number of transactions expected in a year.

“High risk jurisdiction”

Indicators that a country may be high risk include those that are generally considered to be “un-cooperative” in the fight against money laundering and terrorist financing, have inadequate safeguards in place against money laundering or terrorism, have high levels of organised crime, have strong links with terrorist activities, or which are vulnerable to corruption, having regard to data available from the IMF, FATF, US Department of State (International Narcotics Control Strategy Report), US Treasury (OFAC), and Transparency International (Corruption Perception Index).

“Names of directors/trustees”

The full names of all directors and trustees (or equivalent) should be provided.

“Nature of entity’s activities and geographical sphere”

A sufficient description should be provided of the business which the entity undertakes and the geographical sphere of that business to enable the accepting financial services business to properly categorise the underlying nature of the arrangements. For example: holding commercial property – Eastern Europe.

“Other risk factors” Other factors which are material to the risk presented by the entity should also be disclosed. Further guidance is provided in the Handbook.

“Politically exposed person”

Politically exposed persons are individuals who are (or have been) entrusted with prominent public functions overseas, their immediate family and close associates. Further guidance is provided in the Handbook.

“Purpose/intended nature of business relationship”

A sufficient description should be provided of the reason for the business relationship. For example: provision of current account facilities to the entity; investment of cash assets in equity.

“Role” For example: 25% shareholder, beneficiary, settlor, partner.

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“Source of wealth” Source of wealth describes the activities which have generated the total net worth of a person both within and outside of a relationship, i.e. those activities which have generated a customer’s funds and property. Information concerning the time frame over which that wealth was generated and the geographical sphere of the activities that have generated a customer’s wealth may also be relevant.

Bland statements are not acceptable, such as “life time savings”; fuller descriptions, such as “life time savings of settlor who was a doctor”, are required.

“Trading” Where an entity undertakes commercial activity of any kind, including invoicing or re-invoicing operations.

“Type of entity” For example: private limited company, public limited company, limited partnership, discretionary trust, fixed interest trust, testamentary trust.

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PART 2 - INFORMATION RESOURCE

HANDBOOK FOR THE PREVENTION AND DETECTION OF MONEY LAUNDERING AND THE FINANCING OF

TERRORISM

FOR FINANCIAL SERVICES BUSINESSES

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1 BACKGROUND INFORMATION

1.1 UNDERSTANDING MONEY LAUNDERING

1.1.1 What is money laundering?

In its widest sense money laundering occurs whenever there is any form of relationship or arrangement involving property that represents the proceeds of a crime for which a person is liable on conviction to imprisonment for a term of one or more years.

Thus in circumstances where a financial services business enters into a relationship involving criminally derived property, it will be engaged in laundering activity. Also, where the source of funds for the relationship may be legitimate, but the purpose of the relationship is unlawful, the financial services business will be engaged in laundering activity. Where the financial services business does so and in addition it knows, suspects, or (in certain cases) has reasonable grounds to suspect, that the property is the proceeds of crime, it may also be guilty of the criminal offence of money laundering.

Any property derived from crime will constitute the proceeds of crime; property need not be in the possession of the person who originally committed the criminal offence that initially generated those proceeds for a money laundering offence to be committed. For example, a criminal may have passed his proceeds to other family members or associates and may not himself have retained any control or beneficial interest in the proceeds.

1.1.2 Characteristics of money laundering

Common descriptions of money laundering include:

“the processing of illegal or dirty money through a cycle of transactions so that criminal proceeds emerge as apparently legal or clean money or assets”

“turning dirty money into money that appears to have derived from a legitimate source”

These descriptions accurately describe examples of money laundering, but they do not adequately describe what money laundering is, such as to provide a financial services business and its employees with sufficient knowledge to be able to identify the activity in all of its guises. Without a broader awareness of what money laundering actually is, finance sector employees may fail to identify relationships being used to launder property simply because the activity does not follow the patterns they have come to expect from their anti-money laundering training.

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In order to accurately describe money laundering, it is important to initially examine what it is not. The term money laundering is itself a misnomer. Firstly it is not an activity that exclusively involves money, but any form of tangible or intangible property that has derived directly or indirectly, in whole or in part, from crime. Secondly the term ‘laundering’ encourages the perception that it is a process by which criminals seek to ‘wash’ or ‘clean’ their criminal property, such that at the end of the process the property has a different appearance from that which it once had. The common perception is that criminals will seek to do this by utilising a number of different types of products, services, currencies and jurisdictions. This is not always the case. Consider the following example:

A criminal deposits the proceeds of a street robbery into a bank account. The following day he withdraws some of the money and spends it.

Did the criminal use the bank to launder the money? The answer is of course yes (under Article 32(1)(b)(i) of the Proceeds of Crime (Jersey) Law 1999 (“the Proceeds of Crime Law”) despite the fact that the bank does not appear to have helped him to ‘wash’ the property or even change its appearance.

Consider a further example:

A criminal settles a property previously purchased with the proceeds of crime into a trust administered by a trust company in Jersey. The property remains in the trust.

Is the trust company laundering the property? The answer is of course yes (under Article 33(1) of the Proceeds of Crime Law), despite the fact that the trust company has not changed or converted the property or disguised it in any way.

Traditionally money laundering has been described by reference to three distinct phases, as follows:

• Placement: The funds generated from crime are placed into the financial system either directly or indirectly. This is the point at which the proceeds of crime are most apparent. Deposit takers, money transmitters, bureaux de change and cash based businesses are most vulnerable to being used at this stage.

• Layering: The illicit proceeds are separated from their criminal source by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity. This stage can involve a range of different financial services businesses, products and entities such as companies and trusts within multiple jurisdictions.

• Integration: Once the criminal origin of the funds has been obscured, they are integrated back into the economy as legitimate funds or assets. All financial and non–financial businesses are vulnerable to being used at this stage.

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The traditional model is useful insofar as it goes, but it does not adequately explain a host of situations in which money laundering occurs where the facts do not fit the model. In some cases, money laundering may be more about disguising ownership of property rather than any of the three stages described above.

Consider this example.

A customer is both a director and a shareholder of a Jersey company administered by a trust company business. The Jersey company owns stock in Company X. Acting on inside information about Company X, the director requests the company, administered by the trust company business, to sell the stock. It does so.

Has the corporate service provider assisted in the laundering of property? The answer is yes (under Article 32(1)(b)(i) of the Proceeds of Crime Law). Does this scenario fit into the traditional three staged model of money laundering? No. There is no placement of property, there is no layering and as yet there has been no integration.

The perception that money laundering always occurs as some form of staged process involving the washing of criminal property ignores the fact that relationships which involve legitimate property can also pose a laundering threat. Consider the following example:

A legitimate businessman earns income through legitimate business activities outside of his home jurisdiction. The income is paid into an account in Jersey. In breach of the law in his home jurisdiction he does not declare the income to his revenue authority.

Is the bank in Jersey laundering his money? The answer is that it may be, despite the fact that it is handling legitimately earned money and that it is not changing the appearance of or converting the property in any way (under Article 33(1) of the Proceeds of Crime Law).

1.2 THE NEED TO COMBAT MONEY LAUNDERING

Crimes are generally committed to enable someone to benefit from the proceeds. Whilst criminal conduct and the associated laundering of the proceeds cannot be wholly prevented, putting obstacles in the way of criminals and making it more difficult and costly to launder proceeds acts as a powerful disincentive. As a result, robust regulation, together with arrangements that prohibit money laundering, are powerful tools in the fight against crime. Lower criminal proceeds will also help to reduce the incentive of crime as a lifestyle.

Apart from the compelling social reasons for prohibiting money laundering, there are also sound national economic reasons for doing so. The perception of Jersey as a respectable and well regulated financial centre in which to do business and invest funds

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depends on its reputation for honesty and integrity. Property derived from crime has the potential to undermine national and regional economies and to irreparably damage the reputation of an individual financial services business. It generally acts to dispel legitimately earned property upon which sound economies are built. The presence of strong anti-money laundering legislation and regulation will deter the criminals from seeking to launder their ill-gotten gains through Jersey.

Reputations can be severely damaged if international bodies such as the International Monetary Fund (“the IMF”) and the Financial Action Task Force (“the FATF”) judge a financial centre to be failing in its fight against money laundering. Conversely, Jersey continues to benefit from being judged by such international bodies as being compliant with international standards for the prevention and detection of money laundering, and the regulation and supervision of its financial sector.

1.3 HOW IS MONEY LAUNDERED?

As criminals become increasingly more sophisticated, the number of ways in which money can be laundered becomes almost limitless and all financial services and products are, to a greater or lesser extent, vulnerable to abuse. A financial services business must consider the various ways in which their services and products may be used to achieve the money laundering objectives. Clearly, the most vulnerable aspect of a transaction designed to launder money is that its purpose is just that – money laundering – rather than a genuine commercial or economic rationale. Vigilance as to the economic or commercial rationale for relationships and transactions, so as to be able to identify those which have no such rationale, is the most effective way of identifying possible money laundering.

Appendix X contains a number of money laundering typologies and cases.

1.3.1 Professional services to the financial sector

Criminals have responded to the anti-money laundering measures taken by the traditional financial sector over the past decade and have sought other means to convert their proceeds of crime or to mix them with legitimate income before they enter the banking system, thus making them harder to detect. Professionals such as lawyers, notaries, other independent legal professionals and accountants who interface with the financial sector have frequently been used as a conduit for criminal property to enter the financial system.

The FATF has recognised the access that such professionals provide for their clients to financial services and products and has extended the scope of certain of its Forty Recommendations to also cover these professionals, often referred to as gatekeepers.

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When dealing with such professionals, it may not be immediately obvious to a financial services business whether the professional is acting on his own behalf, or on behalf of a client. In addition, such professionals frequently operate client accounts through which client funds are transferred, which may not conform to an expected pattern of activity, making it difficult for a financial services business to identify money laundering activity. The professional may also create obstacles when a financial services business seeks to obtain customer due diligence information on the underlying clients or understand the nature of a transaction.

1.3.2 Other FATF designated businesses and professions

In addition to lawyers, notaries, other independent legal professionals and accountants, the FATF has extended aspects of its Recommendations to casinos, estate agents and dealers in precious metals and stones, as a result of the findings of its work on money laundering typologies. The FATF has identified that such businesses are frequently used by criminals as a means of laundering the proceeds of crime.

1.4 UNDERSTANDING TERRORIST FINANCING

1.4.1 What is terrorism?

Terrorism is defined in the Terrorism (Jersey) Law 2002 (“the Terrorism Law”) as “the use or threat of action where:

• the action involves: serious violence against a person or involves serious damage to property; or endangers a person’s life, other than that of the person committing the action; or creates a serious risk to the health or safety of the public or a section of the public; or is designed seriously to interfere with or seriously to disrupt an electronic system;

• the use or threat is designed to influence the States of Jersey or the government of any other place or country or to intimidate the public or a section of the public; and

• the use or threat is made for the purpose of advancing a political, religious or ideological cause”.

Terrorism contrasts with other types of criminal activity where financial gain is generally the ultimate objective. Whilst there is a difference in goals, terrorist organisations still require financial support in order to achieve their aims and a successful terrorist group, like any criminal organisation, is therefore one that is able to build and maintain an effective financial infrastructure.

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Terrorists and their organisations need finance for a wide variety of purposes –recruitment, training, travel, materials and safe haven protection. Tracking, intercepting, and strangling the flow of funds is a vital element in the global effort against terrorism.

The intelligence that can be gained into terrorist networks through knowledge of their financial transactions and dealings is vital in protecting national and international security and upholding the integrity of national and international financial systems.

1.4.2 Characteristics of terrorist financing

Terrorists often control funds from a variety of sources around the world and employ increasingly sophisticated techniques to move these funds between jurisdictions. In doing so they draw on the services of professionals such as bankers, accountants and lawyers and take advantage of a range of financial services products.

Although the total funds required by terrorist networks may be large, the funding required to finance individual terrorist attacks may be small. The United States (“US”) authorities estimate the total cost of the planning and execution of the September 11th attacks in the US as US$200,000. United Kingdom (“UK”) experience bears out the relatively low costs required for an effective terrorist attack. The 1993 ‘Bishopsgate bomb’ in the City of London, which caused both loss of life and over £1 billion of damage to property, is estimated to have cost only £3,000.

1.4.3 Recognising terrorist financing

One means of determining that relationships or transactions are connected with terrorism and terrorist financing is where a customer features on a published list of terrorist suspects or organisations (for example, the Bank of England list and the US Treasury Office of Foreign Assets Control list). However, many financial disclosures that are subsequently determined to highlight a link to terrorism are in fact made on the basis of suspicion of more general criminality or unexplained activity, and may not initially appear to be directly related to the financing of terrorist activity at all. Internationally, the number of suspicious activity reports based on suspected criminal activity that have resulted in the provision of valuable information about terrorist groups highlights evidence of the close links between crime and terrorism.

Individuals and organisations who are listed by the United Nations (“UN”) Sanctions Committee under UN Security Council Resolution 1390 (UNSCR 1390), or who are suspected of committing or facilitating terrorist acts, are listed on the terrorism page of the Commission’s website (http://www.jerseyfsc.org).

Further guidance on detecting terrorist financing is available from the FATF publication - Guidance for Financial Institutions in Detecting Terrorist Financing, which is available on

http://www.jerseyfsc.org/

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its website (www.fatf-gafi.org).

1.5 THE NEED TO COMBAT TERRORIST FINANCING

Terrorism is an increasingly destabilizing force, with the potential to impact any jurisdiction. As a result, international organisations such as the FATF and national governments are increasingly focusing on means of improving measures to prevent and detect terrorism and terrorist financing. Measures which enable terrorist financing to be identified at an early stage may prevent planned terrorist acts and will provide law enforcement with an insight into terrorist organisations.

Business relationships with individuals or entities that support or commit acts of terror will expose a financial services business to significant reputational, operational and legal risks. The risk is even more serious if the terrorist involved is later shown to have exploited ineffective systems of control or a lack of effective due diligence.

The risk of funds destined to support terrorism entering the financial system can be reduced if a financial services business applies satisfactory anti-money laundering and counter terrorist financing strategies and, in particular, customer due diligence procedures.

1.6 HOW IS TERRORISM FINANCED?

Terrorist financing comes from two primary sources.

The first source is the direct financial support provided to terrorist groups by nation states, organisations, individuals and non-governmental organisations.

The second major source of terrorist funding is legitimate or illegitimate revenue-generating activity undertaken by terrorist organisations themselves. Criminality can provide a consistent revenue stream, and terrorist organisations will choose activities that carry low risks and generate large returns. The following financing activities are typical.

1.6.1 Extortion and kidnapping

This form of fund raising continues to be one of the most prolific and highly profitable. Monies are raised from within communities of which the terrorists are an integral part in return for 'protection', usually against the terrorists themselves. In some cases businesses subject to extortion by terrorist organisations are coerced by the terrorists into laundering funds through the business. Terrorist organisations in some jurisdictions also use kidnapping as a means of raising funds, while also raising the profile of their

http://www.fatf-gafi.org/

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organisation.

1.6.2 Smuggling

Smuggling across borders has become one of the most profitable activities for terrorist organisations. Successful smuggling operations require co-ordination, and established distribution networks through which smuggled goods can be sold for profit.

1.6.3 Drug trafficking

The proceeds of drug trafficking activity can be a highly profitable source of funds for terrorist groups and nation states that sponsor terrorism. Even if a terrorist group is not directly involved in the importation or distribution of drugs, they often profit from the activity by allowing drug suppliers and dealers to operate within the communities that they control and through the imposition of levies.

1.6.4 Charities and fundraising

Community solicitation and fundraising appeals provide a very effective means of raising funds to support terrorism. Often such fundraising is carried out by organisations with the appearance of having 'charitable' or 'relief' status. Fundraising activity may be targeted at particular communities where individuals either donate money knowing that it will be used for terrorist purposes, but more often believe that they are giving for good causes. Often, the charitable organisations to which they make donations do in fact engage in some charitable work, in addition to acting as effective terrorist fund raising mechanisms.

1.6.5 Donations

It is common practice within certain communities for amounts calculated as a percentage of income to be donated automatically to charity. Obviously it would be wrong to assume that such donations are either made with the intention of, or are used for, the benefit of terrorists. Nevertheless it should be recognised that both community donations and donations from wealthy private individuals and nation states that support terrorism are an important source of funding for many terrorist organisations.

1.6.6 Laundering of terrorist related funds

As with other criminal organisations, terrorist groups will often attempt to obscure or disguise links between themselves and the sources of funding. The methods used to achieve this objective are generally the same as for other criminal organisations. See

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Appendix X – Money Laundering Typologies and Cases.

There have also been indications that some forms of alternative remittance systems, such as the hawala system, may play a role in the movement and laundering of terrorist funds.

1.7 THE INTERNATIONAL PERSPECTIVE

1.7.1 Jersey’s commitments to matching international standards

Jersey is fully committed to acting with its international partners in preventing and detecting money laundering and terrorist financing. In October 2003 the Policy and Resources Committee of the States of Jersey made a commitment to adhere to the revised FATF Recommendations on Money Laundering and Eight Special Recommendations on Terrorist Financing (now Nine Special Recommendations). The Handbook encompasses the requirements of the revised FATF Recommendations.

Money laundering and the financing of terrorism are global phenomena that have provoked a concerted international response by responsible members of the international community. Jersey not only supports but also plays an active role in shaping international initiatives to prevent money laundering and terrorist financing through the role played by officers of the Commission on international committees.

Jersey must at all times have regard for international initiatives against which its own framework for preventing and detecting money laundering and terrorist financing will be appraised. To maintain its reputation of probity, Jersey must be seen to comply with internationally recognised standards of best practice.

The following are some of the most important international initiatives to combat money laundering and terrorist financing to which Jersey is committed to complying.

1.7.1.1 Financial Action Task Force Recommendations

The FATF has issued Forty Recommendations on Money Laundering and nine Special Recommendations on Terrorist Financing. Full details of the FATF’s Recommendations may be obtained by visiting www.fatf-gafi.org.

In February 2004, the FATF issued a detailed Methodology for Assessing Compliance with the Forty Recommendations and Special Recommendations. This Methodology has been approved by the IMF and the World Bank, and will be used by the FATF, FATF-style regional bodies, the Offshore Group of Banking Supervisors, and the IMF and World Bank as part of assessment programmes of the financial sector.

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1.7.1.2 Basel Committee on Banking Supervision (“Basel Committee”)

The Basel Committee Paper on Customer Due Diligence (published in October 2001) has been highly influential in promoting the importance of implementing effective customer due diligence procedures to the management of risk.

Additional information about the Basel Committee including the full text of its papers can be obtained by visiting www.bis.org.

1.7.1.3 United Nations

Countries are expected to become party to and implement fully the 1988 UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the Vienna Convention), the 1999 UN International Convention for the Suppression of the Financing of Terrorism, the 2000 UN Convention on Transnational Organized Crime (the Palermo Convention), and the UN Convention against Corruption 2003.

In particular, countries should:

• Criminalise money laundering on the basis of the Vienna and Palermo Conventions;

• Ensure that the intent and knowledge required to provide the offence of money laundering is consistent with the standards set forth in the Vienna and Palermo Conventions.

In addition, the UN Sanctions Committee requires countries to freeze the assets of terrorists and their associates, close their access to the international financial system and, consistent with legislation, make public the list of terrorists whose assets are subject to freezing.

1.7.1.4 Wolfsberg Group

The private sector Wolfsberg Group of banks has also published best practice guidelines in relation to: private banking; correspondent banking; suppression of the financing of terrorism; and monitoring, screening and searching.

More recently, it has published: (ii) a list of frequently asked questions on anti-money laundering issues in the context of investment and commercial banking, and on correspondence banking; and (ii) guidance on a risk-based approach for managing money laundering risks, and on mutual funds and other pooled vehicles. See www.wolfsberg-principles.com.

http://www.bis.org/

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1.7.2 Independent Assessments

1.7.2.1 International Monetary Fund

In 1999, the IMF and the World Bank agreed to create a joint Financial Sector Assessment Programme (“FSAP”) specifically designed to assess the strengths and weaknesses of countries' financial sectors. In recent years, the IMF and the World Bank have taken a central role in developing, implementing and assessing internationally recognised standards and codes in areas that are crucial for the efficient functioning of a modern economy.

In July 2000, the IMF, at the request of the Financial Stability Forum (a body set up by the G7 countries), extended its financial sector work to include offshore and international financial centres through a voluntary programme of assessments and technical assistance. IMF staff undertake detailed assessments of the extent to which offshore and international financial centres meet the standards advocated by international standard setters, and of any further action required to meet these standards.

Each assessment follows a similar approach in examining a jurisdiction's adherence to international standards.

The report containing the results of the assessment of Jersey is published on the OFC programme page of the IMF’s website (http://www.imf.org/external/np/ofca/ofca.asp).

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2 LEGISLATIVE FRAMEWORK FOR THE PREVENTION AND DETECTION OF MONEY LAUNDERING AND FINANCING OF TERRORISM

2.1 PROCEEDS OF CRIME LAW AND DRUG TRAFFICKING OFFENCES LAW

The Proceeds of Crime Law (Articles 32, 33 and 34) and the Drug Trafficking Offences (Jersey) Law 1988 (“the Drug Trafficking Offences Law”) (Articles 30, 37 and 38) contain the following offences:

• Assisting another person (A) to retain the benefit of criminal conduct knowing or suspecting that A is a person who is or has been engaged in criminal conduct or has benefited from criminal conduct.

• Acquiring, using, or possessing the proceeds of criminal conduct knowing that any property represents another person’s proceeds of criminal conduct.

• Concealing, disguising, converting, transferring or removing the proceeds of criminal conduct for the purpose of avoiding prosecution for a specified offence, or the making of a confiscation order, knowing or having reasonable grounds to suspect that property represents the proceeds of crime.

For the purposes of the Proceeds of Crime Law, criminal conduct may be described as any conduct, except drug trafficking and terrorist offences, wherever committed which, if it had been committed in Jersey, would constitute an offence in Jersey which, upon conviction, may render a person liable to a sentence of imprisonment of one year or more. Similarly, the Drug Trafficking Offences Law criminalises the laundering of the proceeds of drug trafficking, wherever committed. This means that offences committed overseas may also constitute predicate offences for the purposes of Jersey’s anti-money laundering legislation, regardless of whether the conduct would also have been an offence overseas.

It is not necessary for a person to know or suspect a specific type of criminal conduct in order to commit an offence of money laundering, or that particular property is definitely the proceeds of crime.

For the purposes of both laws, property is deemed to be the proceeds of criminal conduct or drug trafficking where it represents a benefit arising from such conduct.

The substantive offences outlined above are punishable by a maximum term of

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imprisonment of 14 years, or a fine or both.

In addition, the Drug Trafficking Offences Law makes it an offence to fail to disclose information that comes to the attention of any person in the course of their trade, profession, business or employment (which is a much wider population than financial services businesses) as soon as is reasonably practicable, which causes them to know or suspect that another person is engaged in drug money laundering.

This offence is punishable by a maximum term of imprisonment of five years or a fine or both.

2.2 TERRORISM LAW

Articles 16, 17 and 18 of the Terrorism Law contain the following offences:

• Possessing property and intending that it should be used or having reasonable cause to suspect that it may be used for the purposes of terrorism (use and possession of property).

• Entering into or becoming concerned in an arrangement as a result of which property is made available or is to be made available to another, knowing or having reasonable cause to suspect that it will or may be used for the purposes of terrorism (so called “funding arrangements”).

• Becoming concerned in an arrangement which facilitates the retention or control by, or on behalf of, another person of terrorist property by concealment, removal from the Island, transfer to nominees or in any other way. The offence is committed in all circumstances other than where a person is able to show that he did not know or had no reasonable cause to suspect that the arrangement related to terrorist property (money laundering).

It should be noted that in relation to this latter offence, the burden of proof is upon a defendant to show that he did not know or had no reasonable cause to suspect in order to avail himself of a defence.

For the purposes of the Terrorism Law, terrorist property includes property that is likely to be used for the purpose of terrorism, the proceeds of the commission of acts of terrorism and proceeds of acts carried out for the purposes of terrorism. Property is deemed to be the proceeds of an act where it wholly or partly, directly or indirectly represents the proceeds of the act.

The substantive offences within the Terrorism Law outlined above are punishable by a maximum term of imprisonment of 14 years, or a fine or both.

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The Terrorism Law makes it an offence to fail to disclose information that comes to the attention of any person in the course of their trade, profession, business or employment (except in the course of financial services business) as soon as is reasonably practicable, which causes them to believe or suspect that another person is raising funds for the purpose of terrorism, using and possessing terrorist property, funding terrorism, or laundering terrorist property.

The Terrorism Law also introduces a new offence of failure by a financial services business to disclose knowledge or suspicion of money laundering, which can be committed where there are reasonable grounds to know or suspect that another person is raising funds for the purpose of terrorism, using and possessing terrorist property, funding terrorism, or laundering terrorist property. There is the possibility of criminal liability even where the defendant lacks actual knowledge or suspicion.

The offences within the Terrorism Law relating to failure to disclose are punishable by a maximum term of imprisonment of five years, or a fine or both.

The Terrorism Law also establishes a list of proscribed organisations, with which a financial services business may not deal.

2.3 UNITED NATIONS MEASURES

The Terrorism (United Nations Measures) (Channel Islands) Order 2001 contains the following relevant offences:

• Receiving funds and intending that they should be used or knowing or having reasonable cause to suspect that they may be used for the purposes of terrorism.

• Other than under the authority of a licence granted by the Chief Minister’s Department of the States of Jersey, making any funds or financial services available to or for the benefit of persons who commit terrorism, control persons who commit terrorism, or act on behalf of persons who commit terrorism.

• Failing to disclose information which causes an institution to know or suspect that a customer or person with whom it has had dealings is a person who commits or attempts to commit or participates in terrorism or has committed an act of terrorism.

The Al-Qa’ida and Taliban (United Nations Measures) (Channel Islands) Order 2002 contains the following relevant offences:

• Making funds available to Usama bin Laden and any person designated by the UN Sanctions Committee under UN Security Council Resolution 1390 (“listed

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person”).

• Failing to disclose information which causes an institution to know or suspect that a customer or person with whom it has had dealings is a listed person or person acting on behalf a listed person or has committed an offence of making funds available to a listed person.

United Nations Measures extend beyond the financing of terrorism, including measures to limit the supply and export of restricted goods, and provision of certain technical assistance or training.

2.4 MONEY LAUNDERING ORDER

In addition to the legislation outlined above, a financial services business is required to comply with the Money Laundering (Jersey) Order 2006 (“Money Laundering Order”), which places additional administrative responsibilities upon such businesses.

The objective of the Money Laundering Order is to ensure that a financial services business has in place an appropriate framework to facilitate the identification and reporting of money laundering activity. Specifically the Money Laundering Order requires the following:

• Identification procedures.

• Record keeping procedures.

• Internal reporting procedures.

• Such other procedures of control and communication as may be appropriate for the purposes of forestalling and preventing money laundering.

• Training of employees on anti-money laundering procedures, Jersey’s anti-money laundering laws, and the recognition and handling of suspicious transactions.

• The appointment of a Money Laundering Compliance Officer and a Money Laundering Reporting Officer (“MLRO”).

• The maintenance of procedures that monitor and test the effectiveness of anti-money laundering procedures and training.

Article 37 of the Proceeds of Crime Law provides an offence of failing to comply with the Money Laundering Order punishable by a fine (for a body corporate) and a maximum

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term of imprisonment of two years or a fine or both for an individual.

Money laundering is defined to include terrorist financing.

2.5 DISCLOSURES – GENERAL

Any disclosure of information concerning knowledge, suspicion or reasonable grounds for suspicion pursuant to the above legislation will not be treated as a breach of any restriction imposed by statute, contract or otherwise. As such, the duty of customer confidentiality should never override the duty to disclose information concerning money laundering or terrorist financing.

Any person employed by a financial services business will satisfy his obligations to disclose by making an internal suspicious activity report in accordance with the procedures laid down by his employer.

2.6 TIPPING OFF

Under the Proceeds of Crime Law and Drug Trafficking Offences Law, a person is guilty of the offence of tipping off if he discloses information to anyone that is likely to prejudice an investigation into money laundering or a terrorist investigation:

• whilst knowing or suspecting that an investigation into money laundering or terrorist financing is being, or is about to be, conducted; or

• whilst knowing or suspecting that a disclosure has been made to a police officer; or

• whilst knowing or suspecting that a disclosure has been made to the appropriate internal reporting officer at his place of employment.

The tipping off offence under the Terrorism Law contains an objective test, where the information or other matter likely to prejudice an investigation or proposed investigation is disclosed when there is reasonable cause to suspect that either a suspicious activity report has (or is to be made), or that an investigation is underway (or proposed).

Tipping off can occur when information or other matter likely to prejudice an investigation or proposed investigation is disclosed to any other person. The information or other matter does not need to be disclosed directly to the customer or individual under suspicion, and disclosure may mean little more than communicating or advising a matter.

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However, a person will not have committed a tipping off offence if he is able to prove either of the following:

• that he is a professional legal advisor disclosing the information in connection with, or in contemplation of, legal proceedings or the giving of legal advice (except where there is a view to furthering a criminal purpose); or

• that he did not know or suspect that the disclosure was likely to prejudice the investigation.

No offence is committed where disclosure that a suspicion has been reported would not be likely to prejudice an investigation. For example, where the existence and contents of a disclosure have been revealed in the course of criminal proceedings, it is unlikely that any prejudice would be caused by the subsequent disclosure of the report to the individual concerned.

In practice, this means that enquiries by a financial services business of a customer to obtain additional customer due diligence information (e.g. to ascertain source of funds, or to establish the precise nature of a transaction being undertaken) are unlikely to constitute a tipping off offence if managed appropriately.

2.7 SUMMARY OF THE REGULATORY POSITION

The Commission regards the implementation by regulated financial services businesses of robust internal arrangements designed to guard against involvement in financial crime, including the prevention and detection of money laundering and terrorist financing, as an essential indicator of “fitness and propriety” to carry on regulated activities.

Although the primary consequence of any significant failure to comply with the requirements of the Handbook, or to implement equivalent measures, will be legal ones (i.e. failure may indicate a breach of the Money Laundering Order, which could lead to criminal sanctions), the Commission is entitled to take such failure into account in the exercise of its supervisory and regulatory powers.

In addition, failure to comply with the requirements of industry sector specific Codes of Practice, issued by the Commission pursuant to Article 19 of the Financial Services (Jersey) Law 1998 (or to equivalent provisions of the Insurance Business (Jersey) Law 1996 or the Collective Investment Funds (Jersey) Law 1988), which require regulated businesses to operate robust arrangements for guarding against financial crime (including the prevention and detection of money laundering), can lead to a number of actions on the part of the Commission, including issuance of a direction, issuance of a public statement, and revocation of the licence of a registered person.

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2.8 LEGAL AREAS INTER-RELATING WITH REQUIREMENTS TO PREVENT AND DETECT MONEY LAUNDERING AND TERRORIST FINANCING

2.8.1 Customer confidentiality

In common with the UK and other jurisdictions, Jersey common law (law established by the courts) protects the rights of legitimate customers of financial services businesses to have their information protected from unauthorised disclosure. However, in certain circumstances, as is the position in other jurisdictions, that obligation of confidentiality may be lifted. These circumstances, known as the Tournier principles (Tournier v. National Provincial and Union Bank of England (1924)), are where:

• The disclosure is pursuant to statute (i.e. through a statutory compulsion to disclose or through statutory permission for disclosure);

• There is a public duty to disclose;

• It is in the financial services business’ interest to disclose; or

• There is express or implied customer consent for disclosure.

Where one financial services business (A) wishes to establish a business relationship with another financial services business (B) on behalf of one or more of A’s customers, disclosure to B of the necessary customer due diligence information (including information on A’s underlying customers) is likely to be in A’s interest. Notwithstanding this, A may also wish to seek the express consent of its customers to provide relevant information to B in appropriate circumstances.

2.8.2 Data protection

Subject access provisions

Under Article 7 of the Data Protection (Jersey) Law 2005 (“the Data Protection Law”), on making a request to a data controller (i.e. any organisation that determines the purposes for which and manner in which personal data is to be processed) an individual is entitled to:

• A description of:

The personal data being processed of which the individual is the data

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subject;

The purposes for which the data is (or is to be) processed by the data controller; and

The recipients or classes of recipients to whom the data is or may be disclosed;

• Obtain any information constituting personal data processed by a data controller of which that individual is the subject; and

• Obtain information available to the data controller as to the source of that data.

Such a request is known as “subject access request”. Data users must respond to subject access requests promptly, and in any case within 40 days. The 40 days begin from the date of receipt of the request by the data controller or date of receipt of any further information that may be needed to identify the applicant and locate the personal data sought, and, if a fee is charged, the date of receipt of the fee (of up to £10 maximum).

Exemptions from subject access provisions

Data controllers may withhold information on an individual that also identifies another individual, for example information identifying a bank cashier as the source of the data, unless that individual has consented to the disclosure or it is reasonable in all the circumstances to disclose the information without their consent (see Articles 7(7), (8), (9) and (10) of the Data Protection Law).

The Data Protection Law provides certain exemptions to the right of subject access, of which Articles 29, 31 and the Data Protection (Subject Access Exemptions) (Jersey) Regulations 2005 (“the Subject Access Exemption Regulations”) are the most relevant.

Article 29 provides that personal data is exempt from Article 7 in any case to the extent to which the application of that provision would be likely to prejudice the prevention, detection or investigation of crime. Article 31 exempts personal data from the subject access provisions in any case to the extent to which the disclosure of that personal data would be likely to prejudice the proper discharge of the regulation of financial services. Article 2 of the Subject Access Exemption Regulations provides that where the disclosure of personal data in response to a subject access request would lead to the commission of a tipping off offence, that personal data will be exempt from the subject access provisions of Article 7 of the Data Protection Law.

Even when relying on an exemption, however, data controllers should provide as much information as they can in response to a subject access request.

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It is not possible to lay down any general rules as to how to deal with a subject access request, as the requirements of Article 7 of the Data Protection Law and the application of the above exemptions must be considered on a case-by-case basis. It should never be assumed that the exemptions apply automatically to suspicious activity reports. Each time a subject access request is received, the business concerned must carefully consider whether, in that particular case, disclosure of the information in the suspicious activity report would be likely to prejudice the prevention or detection of crime, the regulation of financial services or lead to an offence of tipping off.

In determining whether the exemptions apply, it is legitimate to take account of the particular way in which financial crime is investigated. The investigation and detection of money laundering often depends on fitting together a number of separate pieces of information. Thus even though a particular piece of information (for example, the information in a suspicious activity report) does not show clear evidence of criminal conduct when viewed in isolation, it might ultimately form part of the jigsaw which enables law enforcement agencies to detect crime.

Where a financial services business is in doubt as to whether disclosure would be likely to prejudice an investigation or potential investigation, it should approach the Joint Financial Crimes Unit (“JFCU”) for guidance. Businesses should bear in mind the requirement to respond promptly to a subject access request and in any event within 40 days and ensure that they approach the JFCU in good time.

It should be noted that, where a business withholds a piece of information in reliance on the exemptions provided by Articles 29 and 31 of the Data Protection Law, or Article 2 of the Subject Access Exemption Regulations, the data controller is not required to tell the individual that any information has been withheld. The data controller can simply leave out that piece of information and make no reference to it when responding to the individual who has made the request.

It is advisable for data controllers to keep a record of the steps they have taken in determining whether disclosure of a suspicion would involve tipping off and/or the availability of the Article 29 or 31 exemptions. This might be useful in the event of the data controller having to respond to enquiries made subsequently by the Data Protection Commissioner or the courts.

When an employee of a financial services business makes a suspicious activity report to an MLRO but the MLRO has not passed on a report to the JFCU, the same principles outlined above also apply. While this particular suspicious activity report may not have raised enough suspicion for the MLRO to deem it worth passing to the JFCU, the internal report may be the basis for establishing a pattern of future transactions that arouse suspicion. Therefore, when dealing with a subject access request the same considerations apply as set out above.

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2.8.3 Constructive trust

The risk of becoming a constructive trustee is inherent in the conduct of financial services business. There is always a danger that, in handling property for A, the property may in fact belong to B. Where a financial services business holds property that it knows, or suspects, or has reasonable grounds to suspect does not belong to its customer, the financial services business may be regarded in law as a constructive trustee. In such circumstances a business may be deemed to hold the property on trust for the rightful owner. In the event that a business subsequently utilises or transfers that property to the detriment of the interests of the rightful owner, it can be held legally accountable for breach of trust, even where the transfer is made with the consent of the JFCU.

The risk of constructive trusteeship is a powerful disincentive for a financial services business to enter into or continue relationships on the basis of inadequate customer due diligence. Effective use of customer due diligence information, including source of funds and source of wealth (where appropriate), can help a financial services business to guard against potential constructive trust liability arising out of fraudulent misuse or misappropriation of funds, as well as against money laundering.

2.8.4 Civil proceedings

Refusal to act upon a customer’s request for a transaction to take place (for example, as a result of the JFCU refusing to give consent for a transaction to proceed) may lead to civil proceedings being instituted by the customer for breach of contract or mandate.

A financial services business might reduce the potential threat of civil proceedings by ensuring that terms of business that govern customer relationships specifically exclude breaches in circumstances where following a customer instruction might lead to the commission of a criminal offence.

2.8.5 Fraud related offences

Fraud, including fiscal offences (such as tax evasion) and exchange control violations, are commonly and mistakenly regarded as distinct from other types of crime for money laundering purposes. They are not. Any fraud related offence is capable of predicating an offence of money laundering in Jersey where it satisfies the requirements of the definition of criminal conduct within the Proceeds of Crime Law.

Even in circumstances where conduct committed elsewhere constitutes a criminal offence which does not exist under Jersey law, e.g. exchange control violations, a financial services business should be aware that such conduct may contain elements that will satisfy other types of offence that are recognised under Jersey law, including

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fraud or false accounting.

A financial services business is not obliged to positively ascertain that property has not derived from criminal conduct or indeed that a customer has not or is not engaged in criminal conduct. For example, they are not obliged to ascertain whether a customer is paying all of the tax that he is due to pay in his home jurisdiction. That said, where there are circumstances that indicate that a customer may be or may have been engaged in potentially criminal conduct, businesses should not resist making further enquiries of that customer.

2.8.6 Corruption related offences

Corruption is an activity to which the international community is increasingly turning its attention. A number of high profile corruption scandals in recent years, e.g. President Marcos of the Philippines, President Bhutto of Pakistan, Nigeria’s General Abacha and General Augusto Pinochet of Chile have emphasised the need for a concerted effort to prevent corruption, including the prevention and detection of its facilitation through the handling of the property that it generates.

As with many fraud related offences, corruption is commonly and mistakenly regarded as distinct from other types of crime for money laundering purposes, which it is not. Actions arising from corruption, whether they occur in Jersey or overseas, are capable of predicating an offence of money laundering in Jersey where they satisfy the requirements of the definition of criminal conduct within the Proceeds of Crime Law.

The Corruption (Jersey) Law 2006 (“the Corruption Law”) enables Jersey to become party to the 1999 Council of Europe Convention on Corruption and the 1997 OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions. The Corruption Law contains the following key offences, summarised below:

• Article 5 makes it an offence for any person corruptly to solicit, receive or agree to receive, or give or promise to give, any advantage as an inducement or reward to a member, officer or employee of a public body in respect of any matter concerning that public body.

• Article 6 makes it an offence for an agent to corruptly receive or give any advantage as an inducement or reward (or to show or not show favour or disfavour) in relation to the affairs or business of the agent’s principal.

• Article 7 makes it an offence for a public official to do or not do any act in relation to the official’s employment for the purpose of corruptly obtaining any advantage.

Previous to this, Jersey has had corruption specific provisions in common law (although

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this did not extend to persons engaged in private business) and statute law.

In addition to the specific provisions, a financial services business should also be aware that actions connected with corruption may also contain elements that will satisfy other types of offence that are recognised under Jersey law, including the common law offence of theft, fraud or false accounting, and obtaining services by false pretences.

The risk of handling the proceeds of corruption or becoming engaged in an arrangement that is designed to facilitate corruption is greatly enhanced where the arrangement involves a politically exposed person (“PEP”). Guidance on the handling of a PEP relationship is provided in Section 3.4 of Part I.

2.8.7 Trade prohibition sanctions

International sanctions are imposed in Jersey in two ways. In the case of UN sanctions, the Security Council of the UN determines when and against whom sanctions are to be applied. The Security Council will, by resolution, call upon member countries to apply whatever steps are necessary to give effect to its decision to impose sanctions. The UK effects such decisions by Orders in Council under the United Nations Act 1946. The same Act allows the Privy Council, with the agreement of the Island’s authorities, to make orders giving effect to such a decision in Jersey. In the case of EU sanctions, the Council of the European Union adopts Regulations that are binding on all Member States. In line with Jersey’s “good neighbour” policy, the Island implements such sanctions through the European Communities Legislation (Implementation) (Jersey) Law 1996.

The majority of sanctions prohibit general or specific trade and the facilitation of such trade. A number also place restrictions on the financial assets of specified individuals, entities, and government agencies. Occasionally, restrictions will be placed on the financial assets of all nationals or residents of a country.

The risk of handling the proceeds of prohibited trade is greatly enhanced where a financial services business maintains relationships with countries that are subject to international sanctions.

2.8.8 Electronic records

The Electronic Communications (Jersey) Law 2000 (“the Electronic Communications Law”) clarifies the status of electronic communications. Currently, the Electronic Communications Law:

• Provides legal recognition for electronic communications and documentation.

• States that electronic communications and documentation will be an admissible

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form of evidence in legal proceedings, if subject to acceptable safeguards ensuring its integrity.

By Order, the Electronic Communications Law might also be extended to:

• Allow information to be submitted electronically where it is required or permitted to be given in writing.

• Allow information to be recorded in electronic form where it is required to be recorded in writing.

• Allow documents and information to be retained in electronic form.

• Allow information that is held electronically to be produced where information or documents are required or permitted to be produced, recorded, inspected or retained.

The Money Laundering Order expressly permits financial services businesses to collect and retain information and documentation required by the Order in electronic form.

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3 REPORTING KNOWLEDGE AND SUSPICION

3.1 REPORTING KNOWLEDGE OR SUSPICION OF MONEY LAUNDERING AND TERRORIST FINANCING ON BUSINESS CONDUCTED IN JERSEY

Under the Proceeds of Crime Law, Drug Trafficking Offences Law, and Terrorism Law, where any person conducting financial services business in or from within Jersey (including Jersey-based branches or offices of companies incorporated outside Jersey) forms a knowledge or suspicion of money laundering or terrorist financing activity on business that is conducted in Jersey (or has reasonable grounds for suspicion under some circumstances), then it must report its knowledge or suspicion to the JFCU, whether or not it also reports (directly or through group) knowledge or suspicion to a financial intelligence unit outside Jersey, in order to avoid the commission of an offence or to satisfy an obligation to make a report.

Under the Money Laundering Order, where any person conducts financial services business in or from within Jersey (including Jersey-based branches or offices of companies incorporated outside Jersey), then it must have procedures in place for reporting knowledge or reasonable grounds for suspicion of money laundering or terrorist financing activity to the JFCU on business that is conducted in Jersey.

3.2 REPORTING KNOWLEDGE OR SUSPICION OF MONEY LAUNDERING AND TERRORIST FINANCING ACTIVITY ON BUSINESS CONDUCTED OUTSIDE JERSEY

Under the Proceeds of Crimes Law, Drug Trafficking Offences Law, and Terrorism Law, where a Jersey company or Jersey limited liability partnership conducts business outside Jersey, for example through a permanent branch or office in another jurisdiction, through business trips to another jurisdiction or where functions are outsourced to another jurisdiction, and knowledge or suspicion of money laundering or terrorist financing activity on business that is conducted outside Jersey arises (or where there are reasonable grounds for suspicion under some circumstances), then it must report its knowledge or suspicion (or reasonable grounds for suspicion) to the JFCU, in the same way that it would report knowledge or suspicion (or reasonable rounds for suspicion) of money laundering and terrorist financing activity on business conducted in Jersey.

Under the Money Laundering Order, where a Jersey company or Jersey limited liability partnership conducts financial services business outside Jersey, for example through a branch or office in another jurisdiction, then it must have procedures in place for

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reporting knowledge or reasonable grounds for suspicion of money laundering or terrorist financing activity to the JFCU on business that is conducted outside Jersey. In addition, the Money Laundering Order requires a financial services business (whether incorporated or not) that conducts financial services business outside Jersey, for example through a branch or office in another jurisdiction, or through functions outsourced to another jurisdiction, to have procedures in place for reporting knowledge or reasonable grounds for suspicion of money laundering and terrorist financing activity to the JFCU on that business conducted outside Jersey.

It is likely that there will also be a requirement to report knowledge or suspicion of money laundering and terrorist financing activity on business that is conducted outside Jersey to an overseas financial intelligence unit (so called dual reporting).

3.3 WHAT CONSTITUTES KNOWLEDGE OR SUSPICION?

Generally speaking, knowledge is likely to include:

• Actual knowledge.

• Shutting one’s mind to the obvious.

• Deliberately refraining from making inquiries, the results of which one might not care to have.

• Deliberately deterring a person from making disclosures, the content of which one might not care to have.

• Knowledge of circumstances which would indicate the facts to an honest and reasonable person.

• Knowledge of circumstances which would put an honest and reasonable person on inquiry and failing to make the reasonable inquiries which such a person would have made.

Suspicion is not defined in existing legislation. Case law and other sources indicate that suspicion is more than speculation but it falls short of proof or knowledge. Suspicion is personal and subjective but will generally be built on some objective foundation.

For a person to have knowledge, or be suspicious, he does not need to know the exact nature of the criminal activity underlying the money laundering, or that the funds themselves were definitely those arising from the criminal offence.

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3.4 THE OBJECTIVE TEST OF KNOWLEDGE OR SUSPICION

Article 34 of the Proceeds of Crime Law, Article 30 of the Drug Trafficking Offences Law and Articles 15-18 and Article 23 of the Terrorism Law provide for an offence to be committed where there is reasonable grounds to know or suspect that property represents the proceeds of crime or terrorist property. That is, a person would commit an offence even if he did not know or suspect that a money laundering offence was being committed, if he had reasonable grounds for knowing or suspecting that it was. In other words, if another person in the same position would have been suspicious and made a report, a person who does not make a report may have committed an offence.

Effective staff training programmes and adherence to effective customer due diligence systems and controls will assist in the avoidance of the commission of such offences.

3.5 THE OFFENCE OF FAILURE TO REPORT

Offences arise under Article 40 of the Drug Trafficking Offences Law and Article 23 of the Terrorism Law where an employee of a financial services business fails to make a suspicious activity report to the JFCU (or to the MLRO in line with his employer’s procedures). Under Article 40 of the Drug Trafficking Offences Law it is an offence to fail to report knowledge or suspicion of another person’s involvement in drug money laundering, and under Article 23 of the Terrorism Law, it is an offence to fail to report knowledge or suspicion, or where there are reasonable grounds to be suspicious, of another person’s involvement in either terrorist money laundering or terrorist financing.

Similar obligations are placed on other persons in the course of any other trade, profession, business or employment under Article 40 of the Drug Trafficking Offences Law and Article 20 of the Terrorism Law.

3.6 TIMING OF REPORTING

A suspicious activity report must be made as soon as it is reasonably practicable to do so once knowledge or reasonable grounds for suspicion has been formulated. As such it must be made either before a transaction occurs, or afterwards, if knowledge or suspicion is formulated with the benefit of hindsight after a transaction occurs.

The reporting of knowledge or reasonable grounds for suspicion does not remove the need to report any subsequent activity, whether of the same or a different nature.

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3.7 REFUSED BUSINESS AND TRANSACTIONS

Reporting must also cover situations where the business or transaction has not proceeded because the circumstances surrounding the application or proposal gave rise to knowledge or reasonable grounds for suspicion of money laundering or terrorist financing activity.

3.8 LIAISING WITH LAW ENFORCEMENT

3.8.1 Contacting the JFCU

The reception point for disclosure of knowledge or suspicion (or reasonable grounds for suspicion) of money laundering or terrorist financing activity is the JFCU. The JFCU can be contacted:

• by post, at PO Box 789, Police Headquarters, Rouge Bouillon, St Helier, Jersey JE4 8ZD;

• by telephone, on 01534 612250; or

• by facsimile, on 01534 870537.

3.8.2 Consent to activity and acknowledgement of suspicious activity reports by JFCU

Where a suspicious activity report is made to avoid committing an offence under Articles 32 or 33 of the Proceeds of Crime Law, Articles 37 and 38 of the Drug Trafficking Offences Law, or Article 18 of the Terrorism Law, and the report is made before a suspected transaction or event takes place, JFCU consent must be obtained before the transaction or event occurs.

The receipt of a suspicious activity report concerning a transaction or event that has already occurred will be acknowledged by the JFCU, and in the absence of any instruction to the contrary from the JFCU, a financial services business will be free to maintain the customer relationship under normal commercial circumstances. However, receipt of an acknowledgment from the JFCU in these circumstances does not indicate that the knowledge or suspicion is with or without foundation, and future transactions or activity should continue to be monitored and reported, as appropriate.

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3.8.3 Current JFCU practice

In the vast majority of instances in which a suspicious activity report is made to the JFCU, consent to continue an activity or to process a suspected transaction will be provided by the JFCU within seven days of receipt of a report. Whilst this is what generally occurs in practice, it should be noted that the JFCU is not obligated to provide consent within a particular time frame, or at all.

Consent may be delayed where information is required by the JFCU from an overseas financial intelligence unit.

Where the financial services business is refused consent it should contact the JFCU for guidance on what, if any, information can be provided to the customer. It should be noted that the JFCU is not obligated to provide such guidance. In circumstances where consent is withheld, the JFCU may expressly allow the financial services business to notify the customer of the fact that they are the subject of a police investigation without the risk of committing a tipping off offence. Such notification will not be sanctioned by the JFCU where it might prejudice a domestic or overseas investigation.

There may be circumstances in which the JFCU advises a disclosing financial services business to find a means of exiting a reported relationship. In such circumstances the act of exiting such a relationship will not of itself constitute a tipping off offence.

3.8.4 Investigation and the use of court orders

Following the receipt of a disclosure and initial enquiries by the JFCU, reports are allocated to financial investigation officers for further investigation. Intelligence from reports submitted to the JFCU is then disseminated by the JFCU to other intelligence agencies, as appropriate.

Where additional information is required from a reporting institution following a suspicious activity report, it will generally be obtained pursuant to a production order issued by the Royal Court under the Proceeds of Crime Law, Drug Trafficking Offences Law, Terrorism Law, Investigation of Fraud (Jersey) Law 1991 (“the Investigation of Fraud Law”) and the Criminal Justice (International Co-operation) (Jersey) Law 2001 (“the International Co-operation Law”), or a customer monitoring order under the Terrorism Law. The Royal Court will require a financial services business to comply with the terms of any order.

During the course of an investigation, a financial services business may be served with an order, designed to restrain particular funds or property pending the outcome of an investigation. It should be noted that the restraint order may not apply to all funds or assets involved within a particular business relationship and a financial services business should consider what, if any, property may be utilised subject to having obtained the appropriate consent from the JFCU. An order to freeze funds may be

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made one a decision to prosecute a person has been made.

Upon the conviction of a defendant, a court may order the confiscation of his criminal proceeds or the confiscation of assets to a value representing the benefit of his criminal conduct, which may require the realisation of legitimately obtained assets. A financial services business may be served with a confiscation order in relation to any funds or property belonging to that defendant. For example, if a person is found to have benefited from drug dealing to a value of £100,000, then the court may order the confiscation of any assets belonging to that person to a value of £100,000. Confiscation of the proceeds of criminal conduct is becoming common place within many jurisdictions, and legislation in place in Jersey provides a mechanism by which overseas criminal confiscation orders may be recognised. Overseas civil confiscation orders may also be recognised in Jersey.

Property may also be forfeited in Jersey utilising civil proceedings under the Terrorism Law.

From time to time, with a view to obtaining additional intelligence, the JFCU will issue general liaison notices to all financial services businesses, or to a particular category of business. The JFCU will ensure that the requests contained within such notices are proportionate and reasonable in the circumstances. Financial services businesses are requested to respond with any relevant information as soon as is reasonably practicable.

The JFCU also issues periodic newsletters.

3.8.5 Feedback from the JFCU

Because a significant proportion of suspicious activity reports received by the JFCU relate to the accounts or transactions of non-Jersey residents, it is not possible for JFCU to provide regular feedback on individual disclosures. However, on a regular basis, the JFCU will provide statistics, trends and advice to enhance the quality of disclosures. In addition the States of Jersey Police Annual Report contains some information on disclosures, prosecutions and confiscations.

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4 SUPERVISION OF COMPLIANCE WITH THE HANDBOOK

4.1 RISK-BASED APPROACH

An important consideration underlying the Handbook is the degree of risk of money laundering or terrorist financing for particular types of customer products or services, and the Handbook requires a financial services business to conduct a risk-based approach to customer due diligence.

The Commission’s approach to the supervision of compliance with the Handbook focuses on the quality of a financial services business’ risk management arrangements, the business’ assessment of its money laundering and terrorist financing risks, and the action taken to minimise these risks. At the same time, the Commission will continue to expect high operational standards of a financial services business, such as compliance with obligations and their own policies and procedures.

4.2 DEMONSTRATING COMPLIANCE WITH THE STATUTORY AND REGULATORY REQUIREMENTS

As set out in Section 1 of Part I of the Handbook, the soundly reasoned application of provisions contained within the Guidance Notes will provide a good indication that a financial services business is in compliance with Statutory and Regulatory Requirements.

Where the Commission is not satisfied that a financial services business has complied with Statutory and Regulatory Requirements, despite having applied the Guidance Notes, then the Commission will set out why it believes the measures applied to be inadequate, and provide a financial services business with an opportunity to demonstrate otherwise.

A financial services business may also adopt other appropriate measures to those set out in the Guidance Notes, so long as it can demonstrate to the Commission that such measures achieve compliance with the Statutory and Regulatory Requirements.

Where the Commission is not satisfied that a financial services business has justified its assessment that the measures are appropriate, then the Commission will set out why it believes these measures to be inadequate, and provide a financial services business with an opportunity to demonstrate otherwise.

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4.3 REFERRAL OF NON-COMPLIANCE WITH THE STATUTORY REQUIREMENTS TO THE ATTORNEY GENERAL

On 27 January 2006, the Court of Appeal upheld the decision made by the Royal Court to convict persons for failing to comply with Article 2(1)(a) of the Money Laundering Order. The obligation under Article 2(1)(a), to maintain procedures for the purposes prescribed in the Money Laundering Order, is an absolute one and the ruling makes it clear that even a single breach is enough to constitute an offence.

In the Jersey Financial Services Commission’s (“the Commission”) view, this case emphasises the importance for financial services businesses to maintain adequate procedures to combat money laundering on an ongoing basis. Equally, the Commission is aware that there may be concern in the financial community that the judgement means that any breach of the Money Laundering Order identified by the Commission, no matter how small, could give rise to a criminal prosecution and possible conviction.

The present policy of the Commission is that if it should come across an apparent breach of the Money Laundering Order in the course of its supervision, including as a result of an onsite examination, the Commission will refer it to the Attorney General if the breach is considered to be sufficiently serious. It should be stressed, however, that a decision on whether to prosecute a breach of the Money Laundering Order will be a matter solely for the Attorney General.

The Commission will generally regard a breach of the Money Laundering Order as sufficiently serious to the extent that it poses a threat to clients or potential clients or to the reputation of the Island and/or where it casts doubt on the integrity, competence or financial standing of the person concerned. It will also be relevant if the breach was deliberate or premeditated rather than accidental, or if the person (individual or body corporate) has failed to report a material breach to the Commission.

Failure, inability or refusal to cooperate with the Commission to rectify a breach, and a history of past breaches or poor regulatory compliance (which may give grounds to believe that the breach is likely to be repeated and/or is part of a systemic failure), will also be taken into account.

The above list of relevant factors is not intended to be exhaustive. But it should be enough to indicate that referrals to the Attorney General by the Commission will be judged on their merits on a case-by-case basis and will not be made on every occasion a breach of the Money Laundering Order is identified.

Supervised financial services businesses and their directors should however be in no doubt that they put themselves at potential risk if they do not take adequate steps to ensure that they are compliant with the Money Laundering Order. In assessing their compliance they should pay close attention to the Handbook issued by the Commission.

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