An exercise in understanding risk and upholding standards

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Following the Island’s recent Moneyval inspection, David Lewis, managing director and global head of antimoney-laundering advisory at Kroll, discusses the role of the compliance body and offshore jurisdictions

  • How have the Moneyval inspections changed the compliance landscape for offshore jurisdictions?

The approach by Moneyval and other assessment organisations is standard across all regional bodies within the FATF global network, and based on a peer review process and regular follow-up reports. Its focus is on how effectively a country is implementing global standards, and not only whether a country is compliant.

These evaluations have increased awareness and understanding of risk and vulnerabilities related to money laundering and terrorist financing in offshore jurisdictions.

On-site visits are used to gather evidence through interviews with stakeholders in the public and private sector and assess the impact.

Of course, these evaluations do not take place in a vacuum, and assessors are fully aware of the current risks facing offshore jurisdictions. Their focus will be in the context of known risks. Recent additions to evaluations include whether jurisdictions understand their risks from virtual assets and proliferation financing, and the actions they are taking to mitigate these risks.

  • Are these inspections proving effective in differentiating between the quality of different locations and the standards to which they adhere?

Everyone is judged against the same set of standards using the same methodology. However, the assessment of these standards is based on the risk and context of each jurisdiction.

This means that judgments on the extent of effectiveness should be based on whether, and to what extent, a country understands its own risks, and whether the response across the whole of government and regulated businesses is proportionate to that risk.

Many experts don’t believe enough consideration is given to the differences between countries, the nature and size of their financial and other regulated sectors and the different risks and challenges they face in practice.

  • What are the most important qualities that a jurisdiction needs to demonstrate if it is to obtain a positive report from Moneyval?

The jurisdiction must demonstrate that it understands the risks it faces and prove the effectiveness of its response. It is not sufficient to show that the right laws and regulations are place; supervisors need to prove that their enforcement activity is proportionate and dissuasive.

Law-enforcement agencies need to evidence that they are adequately investigating not only self-laundering, but also complex professional or third-party money laundering.

It is not just about the number of suspicious activity reports, but about the quality and the use made of the reports by the authorities to support investigations.

In addition, other factors like the number of prosecutions and convictions and value of asset recovery play an important role. Further, there is a focus on the extent and quality of international co-operation and, of course, on terrorist financing and applying a risk-based approach to the misuse of non-profit organisations.

  • Following a Moneyval visit, what are the timescales for receiving a report and does a jurisdiction such as Jersey have the opportunity to respond to any initial findings?

Jurisdictions have an opportunity to respond to findings, but the assessors can only consider legal or regulatory action taken as of the end of the visit. In practice, the assessment team will present its initial findings at the end of the visit and then in a draft report following the visit. The report is updated prior to a final version that is shared with the country and also with every other country in the world, for review and comment ahead of the plenary discussion of the report. The plenary is normally around six to nine months following the visit.

This means jurisdictions can provide further explanations, address misunderstandings with the assessment team and also with other countries that will be involved in the final review and discussion of the report.

The report can be changed by consensus of the plenary, or by other jurisdictions or international bodies in the quality and consistency process that follows the plenary. Reports are normally published six to eight weeks after the plenary.

  • What role can Kroll play in supporting clients in jurisdictions which now face increasing international scrutiny?

Kroll helps clients understand what to expect, how to prepare for these evaluations and to respond to issues identified in mutual evaluation reports.

Kroll works with governments, financial intelligence units and regulators as well as regulated firms. Uniquely, Kroll draws on practical experience leading complex investigations, often involving offshore jurisdictions.

Many evaluations identify the need for better understanding of risk, better supervision and preventive measures, increased transparency and accuracy of beneficial ownership information, better use of financial intelligence and more investigations, prosecutions and asset recovery.

Kroll helps its clients in all areas and enables jurisdictions to demonstrate effective action to avoid or more quickly exit the so-called FATF “grey list”.

  • From your time as executive secretary of the Financial Action Task Force, how did you think Jersey was regarded by the international bodies and global standard setters?

It is fair to say that Jersey may still suffer from a sometimes negative and outdated view of offshore jurisdictions as facilitators of money laundering and tax evasion.

However, this perception is slowly changing.

Today there is a much better understanding of the risks Jersey faces and the positive action it takes to mitigate these risks.

This has been helped by Jersey officials taking the lead in many international bodies and being regarded as some of the best experts globally.

Jersey experts are involved in the evaluation of other countries, the development of global standards and work in close partnership with international partners.

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