It is a process whereby countries assess their risk of being used by criminals to launder money obtained from criminal activity.
The Jersey NRA was published last Wednesday and not many participants were surprised at the results of the risk ratings assigned to the Island as a whole, or for individual sectors operating within it. Although we summarise the results at a high level in this article, the more fundamental question for Jersey institutions is what the NRA results mean for them.
In summary, although the NRA stresses that the risk heat map of business sectors in Jersey should not be compared to other jurisdictions, it highlights that the results are similar to that of other international finance centres. For example, trust and corporate services providers, the funds and investment management sectors are rated as medium-high for money-laundering vulnerability, with banking and the legal sectors rated as medium risk.
Given that Jersey, as well as other IFCs, mainly provides services to clients who are residents elsewhere and that these industries offer products and services that could be used for layering proceeds of crime by criminals, these ratings are not surprising.
A key clue to the reasons for the overall ratings lies in the NRA’s list of ten residual risks. Although not all of the risks are summarised in this article, we deal with some of them below, some of the associated actions recommended to address the ten residuals risks and what these may mean for firms in Jersey.
One of the ten risks listed is the law enforcement agencies’ co-operation with jurisdictions where crimes, or ‘common predicate offences’, occur requires improvement in order for Jersey agencies to pursue effective money laundering investigations and prosecutions locally. The ability to successfully prosecute for money-laundering failures, whether they are in relation to firms failing to have adequate policies and procedures or in relation to pursuing cases of money laundering, is a common area for improvement for many IFCs.
Linked to this is also the risk listed in the NRA that the quality of intelligence made available to the financial intelligence unit, together with resource constraints suffered there. This means that it is challenging for Jersey to identify, investigate and prosecute money-laundering cases, especially those which present the greatest threat to Jersey, namely cross-border money laundering. Generally speaking, money laundering in IFCs is often a cross-border activity, but laws to combat it are locally implemented. This makes it very difficult for one country to combat money-laundering cases by itself and collaboration across borders is vital, so the risk listed in regard to the financial intelligent unit is therefore not wholly surprising.
The risks summarised above point to development needs in the way in which authorities operate, and this is as much of a global risk as it is a local one, as recently highlighted by the FinCEN leaks of suspicious activity reports.
Other key risks highlighted by the NRA are that policy development is not sufficiently agile in relation to emerging threats faced by Jersey, that the authorities do not have a sufficiently granular understanding of money-laundering risks in key market sectors in Jersey and that the understanding of the risks specific jurisdictions pose to the Island in relation to cross-border money-laundering risk is not sufficiently developed by either authorities or industry.
These risks are interesting not only as they point to the need for improvements at both authorities as well as industry, but also because we might expect action points to update and/or improve the legislative framework to improve policy development in Jersey. This is indeed the case, as highlighted by examples provided below.
The action points put forward to deal with the above (and other) risks are the most meaningful indicator to firms as to what they need to prepare for in terms of future developments. In particular, it is recommended that improved guidance and communication is provided to industry by, for instance, increasing the feedback to industry on the outcomes of suspicious activity reports. In our view, this will be welcomed by industry as although such reports are routinely submitted by firms to the financial intelligence unit, firms often require feedback about the quality of information reported and it is clear that this requires improvement, as indicated by the risk that the unit does not receive prosecution-standard intelligence.
It is also interesting that intelligence is often received from outside Jersey that may, at times, warrant investigation of local wrongdoers. The action recommended for law enforcement agencies to work actively to ‘encourage collaboration with other jurisdictions to facilitate increased exchange of information’ should act to assist in this regard. Hence, it is likely we will see more guidance and communication from authorities and regulators to industry (as recommended in the action points), and hopefully better intelligence from industry going the other way as a result, thereby improving the ability for local authorities to prosecute money-laundering cases.
As also recommended by the action points, public statements by authorities will also provide more detail on the type of behaviours that led to a sanction so that those behaviours are discouraged. It is also recommended that the Money Laundering (Jersey) Order 2008 will be updated to ‘allow for criminal and civil sanctions to be effectively taken’. This may mean that we will see more civil and criminal prosecutions in years to come.
In conclusion, although we have not covered all risks and action points stemming from the NRA in this article, it is clear that the risks identified and action points recommended apply to both authorities, regulators and firms alike. While the results may not have been surprising, it is perhaps a comfort to industry that all institutions in Jersey, be they the authorities or the industry participants they oversee, have been assigned areas for improvement and that these are not just confined to industry alone. When it comes to protecting the Island from money-laundering threats and vulnerabilities, it appears to be a case of all for one and one for all.