Prepare to be assessed

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ONE important event has not been cancelled as a consequence of the current pandemic: Jersey’s upcoming assessment by MONEYVAL in 2021/22. Although its precise timing may be impacted, this assessment will happen and coronavirus is not likely to be viewed as a mitigating circumstance.

MONEYVAL is the Council of Europe-backed committee of experts on the evaluation of anti-money-laundering measures and the financing of terrorism (AML/CFT). Jersey was last assessed in 2015 against the previous recommendations of FATF, the Financial Action Task Force. The results were positive.

The upcoming assessment will be made against much tougher requirements. Jersey itself needs to demonstrate it understands its own particular AML/CFT risks and ensure it has the legal framework in place to match them and, moreover, the effectiveness of that framework. Have the relevant authorities been able to use it to reduce the risk of money laundering and terrorist financing?

If Jersey is not assessed positively, it may ultimately end up on a FATF ‘blacklist’. It would then be very difficult for international customers to do business in Jersey – hugely damaging for Jersey’s economy.

Unsurprisingly, Jersey’s authorities have increased attention on AML/CFT effectiveness through:

• Enhancements to the powers of Jersey’s Financial Services Commission (JFSC) and to the AML/CFT legislation.

• The Court fined the Jersey branch of the Abu Dhabi Commercial Bank £475,000 for breaching the Proceeds of Crime (Jersey) Law 1999 (Article 37(4)) by failing to maintain appropriate and consistent policies and procedures relating to customer due diligence measures and risk assessment and management in order to prevent and detect money laundering.

• The JFSC has also started its AML/CFT-focused visits, following the creation of a specialist unit.

It is likely that civil penalties specifically targeting AML/CFT breaches will follow the JFSC’s programme of visits. Further, that any culpable conduct will lead to civil penalties being imposed upon not just the entities, but also the culpable individuals (Principal Persons).

This JFSC-led approach may well address one potential deficiency in Jersey’s armoury, namely the apparent difficulty in securing criminal convictions under the AML/CFT legislative framework. The Abu Dhabi Bank criminal conviction was the first such successful prosecution since 2005 (AG v Caversham & Bell). This may stem partly from a difficulty in meeting the high, criminal standard of proof when prosecuting against the ‘risk-based’ assessment required of entities when dealing with clients and transacting. Moving away from a ‘risk-based’ approach does not seem likely.

Civil penalties imposed by the JFSC do not necessarily result from a contested process: an early, negotiated settlement will lead to a substantial discount on the penalty (up to 50%).

When business costs are increasing and liquidity and human resources are limited, the opportunity for an early settlement may seem very attractive. It will avoid the time, cost and distraction to business caused by a full-blown investigation and contested process, and the substantial risk that a large financial sanction will result in any event.

However, the key message is that prevention is better than cure. Nobody should be surprised that Jersey’s authorities are now keenly seeking to demonstrate the effectiveness of its AML/CFT framework – the stakes for Jersey are too high.

Regulated entities and Principal Persons should satisfy themselves that they have the appropriate policies and procedures, that they are being properly implemented, that compliance departments are adequately and appropriately resourced, and that they are properly prepared to meet the challenges they will face when their practices come to the attention of the JFSC, whether in a formal visit, or indirectly in a way which is outside of their knowledge or control.

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