What is Money Laudering/Terrorist Financing? What are the proceeds of crime? At its most basic level money laundering is deception by attempting to make illegitimate funds appear to have been obtained through legal means – but what do we mean by illegitimate funds? In other words, what type of crime constitutes a predicate offence, i.e. the offence that has to be undertaken in order for the funds obtained by committing that offence to be considered as the proceeds of crime?
Under section 1(1) of the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 all offences that are indictable under the law of the Bailiwick are considered to be predicate offences and therefore funds obtained by committing a predicate offence are considered to be the proceeds of crime.
Under Bailiwick law all offences are indictable except for some minor offences, which mainly concern public order and road traffic. Therefore, the range of predicate offences is extremely wide and includes the following:
- participation in an organised criminal group and racketeering;
- terrorism, including terrorist financing;
- trafficking in human beings and migrant smuggling;
- sexual exploitation, including sexual exploitation of children;
- illicit trafficking in narcotic drugs and psychotropic substances;
- illicit arms trafficking;
- illicit trafficking in stolen and other goods;
- corruption and bribery;
- fraud and tax evasion;
- counterfeiting and piracy of products;
- environmental crime;
- murder, grievous bodily injury;
- kidnapping, illegal restraint and hostage taking;
- robbery or theft;
- smuggling;
- extortion;
- forgery;
- piracy; and
- insider trading and market manipulation.
What is a financial services business? What is a prescribed business? What AML/CFT requirements must be met by financial services businesses? What AML/CFT requirements must be met by prescribed businesses? I understand that, if a business carries out non-regulated financial services business or prescribed business on an occasional or very limited basis, it is exempt from complying with the AML/CFT regulations. What does this mean? Businesses undertaking financial services business as defined in Schedule 1 to the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 (“the Law”) on an incidental or occasional basis may not be required to register with the Commission or to meet the AML/CFT regulations and rules in the handbook. To be excluded, your business must meet all of the criteria below (which appear in Paragraph 29 of Schedule 1 to the Law):
the total turnover of that business, plus that of any other financial services business carried on by the same person, does not exceed £50,000 per annum, no occasional transactions are carried out in the course of such business, that is to say, any transaction involving more than £10,000, where no business relationship has been proposed or established, including such transactions carried out in a single operation or two or more operations that appear to be linked, the turnover of such business does not exceed 5% of the total turnover of the person carrying on such business, the business is ancillary, and directly related, to the main activity of the person carrying on the business, in the course of such business, money or value is not transmitted or such transmission is not facilitated by any means, the main activity of the person carrying on the business is not that of a financial services business, the business is provided only to customers of the main activity of the person carrying on the business and is not offered to the public, and the business is not carried on by a person who also carries on a business falling within paragraphs 20 to 23A of Part I of Schedule 1 to the Law.
Businesses undertaking prescribed business as defined in Schedule 2 to the Law on an incidental or occasional basis may not be required to register with the Commission or to meet the AML/CFT regulations and rules in the handbook. To be excluded, your business must meet all of the criteria below (which appear in regulation 16(5) of the Criminal Justice (Proceeds of Crime) (Legal Professionals, Accountants and Estate Agents) (Bailiwick of Guernsey) Regulations, 2008):
the total turnover of the person carrying on the prescribed business in respect of the prescribed business does not exceed £50,000 per annum, the prescribed business –
if it is an estate agent, does not hold deposits, or if it is a prescribed business other than an estate agent, does not carry out occasional transactions, that is to say any transactions involving more than £10,000 carried out by the prescribed business in question in the course of that business, where no business relationship has been proposed or established, including such transactions carried out in a single operation or two or more operations that appear to be linked,
the services of the prescribed business are provided only to customers resident in the Bailiwick, and the funds received by the prescribed business are drawn on a bank operating from or within the Bailiwick.
If your business satisfies all of the above criteria you do not need to register with the Commission and you are not subject to the requirements of the AML/CFT regulations. Does a person who wishes to conduct non-regulated financial service business or prescribed business in or from within the Bailiwick need the Commission’s prior approval? Unless a person who wishes to carry on financial services business or prescribed business can benefit from the exemption provisions in the law (see the FAQ on exemptions) they must register with the Commission and meet the requirements of the AML/CFT Regulations and the rules in the Handbooks. What powers does the Commission have over non-regulated financial services businesses and prescribed businesses? In common with the regulatory laws under which the Commission regulates other financial services businesses, the Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008 and the Prescribed Businesses (Bailiwick of Guernsey) Law, 2009 provide the Commission with a range of powers and sanctions that it can use - in appropriate circumstances - in connection with the AML/CFT supervision of persons that carry on non-regulated financial services business and prescribed business. What is the penalty for breaching the Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007 or the Criminal Justice (Proceeds of Crime) (Legal Professionals, Accountants and Estate Agents) (Bailiwic There are both civil and criminal penalties for failing to comply with the requirements of the AML/CFT regulations. What is ‘money service business’? Operating a money service business includes the following activities:
- providing money or value transmission services, currency exchange (bureau de change) and cheque cashing services;
- facilitating or transmitting money or value through an informal money or value transfer system or network;
- money broking;
- money changing.
What does "safe custody services" mean? The Commission regards this term to have the following meaning:
"A safe custody service offers safety deposit boxes or other secure storage suitable for high-value physical items like bullion, jewellery or documents of title."
For the sake of clarity, a business solely offering the following services would not be considered by the Commission to be a safe custody service:
- the storage of goods such as luggage, household items or motor vehicles;
- the storage of non-physical property like computer data;
- the secure transportation of high value items;
- offering safe custody on an occasional or very limited basis, such as hotels providing a safe for use by guests.
How can I report my suspicions about money laundering or terrorist financing to the authorities? Suspicious transaction reports (STRs) should be filed with the Financial Intelligence Service (FIS). You must complete the prescribed STR form which is available on the Disclosure Reports section of the FIS website at www.guernseyfiu.gov.gg. For advice on completing STRs, please contact the FIS. What is a Business Risk Assessment? A risk-based approach is the adoption of a risk management process for dealing with money laundering and terrorist financing. This process encompasses recognising the existence of the risk(s), undertaking an assessment of the risk(s) and developing policies, procedures and controls to manage and mitigate the identified risks.
The Board and senior management of any business are responsible for managing the business effectively. They are in the best position to evaluate all potential risks including those of ML/FT. The rules in chapter 2 of the Handbook in relation to corporate governance make it clear that the Board has effective responsibility for compliance with the Regulations and the Handbook and therefore it must take ownership of and responsibility for the Business Risk Assessment (“BRA”).
Guidance on identifying and assessing the risks of how a financial services business might be involved in ML/FT taking into account its customers, products and services and the ways in which it provides those services is provided in section 3.3 of the AML/CFT Handbook.
What should it contain?
At a minimum, a BRA should reflect that appropriate steps have been taken in order to identify and assess the risk of the entity being used to launder the proceeds of crime or to finance terrorism (for customers; jurisdictions or geographic areas; and products/services/transactions/delivery channels). In addition, the BRA should reflect the identification and assessment of other relevant risks. For example, in some cases this might include outsourcing. These assessments should be documented in order to demonstrate their basis and be kept up to date.
In addition to identifying the particular areas of vulnerability to the risk of ML/FT, a BRA should contain references as to how the entity manages or mitigates the risks which it has identified. For example including a reference in the BRA that the higher risks associated with relationships with high risk jurisdictions are addressed by having suitable enhanced due diligence procedures and corresponding review and monitoring processes.
Industry sectors will have inherent and/or generic risk factors and these will need to be referenced. Additionally, individual entities will also have risk factors particular to that entity which will need to be referenced in their BRA.
What should it not contain?
The BRA should not simply be a cut and paste version of the relevant sections of the Handbook as this does not demonstrate that the Board has given serious consideration to the vulnerabilities particular to the entity.
It should not be a generic document which has simply been populated with general information as this, once again, does not demonstrate that the Board has given serious consideration to the vulnerabilities particular to the entity.
It should not contain unsubstantiated, highly generalised references to risk faced by the business. For example, a reference to all business being low risk would not be acceptable unless it was backed up with sufficient information as to how this assessment had been made.
It should not be a mix of ML/FT and prudential risk. If the firm wishes to combine the assessment of ML/FT and prudential risk in one document there needs to be a clear division between the two assessments.
Although, as identified previously, a BRA should contain references as to how the entity manages or mitigates the risks which it has identified it does not necessarily have to include the detail of how the identified risks are managed and mitigated as this may be fully addressed in the procedures and controls document(s).
Should all companies who provide lending facilities to Bailiwick residents to fund their insurance premiums be registered as Non-Regulated Financial Services Businesses?
Following receipt of several enquiries regarding lending companies providing finance to residents of the Bailiwick of Guernsey to fund their insurance premiums, the Commission has issued the following response:-
Where a company, which is not registered in the Bailiwick, provides finance facilities to customers of locally licensed insurance companies/intermediaries, the Commission may issue a direction to that company under section 44 of the Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008 (“the Law”) that it is not to be treated for the purposes of the Law, as carrying on business in or from within the Bailiwick and so is not required to register with the Commission as a Non-Regulated Financial Services Business.
All prospective applicants will be considered on a case by case basis.
In order for the Commission to issue such a direction it must first be satisfied that due consideration has been given by the applicant to each of the provisions of section 44 of the Law and must have received sufficient explanation as to why the applicant does not believe it is seen to be carrying on business in or from within the Bailiwick.
The Commission may at any time either generally or in any particular case revoke this derogation, or impose conditions for it to be operative.
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