The Commission has today updated the Handbook on Countering Financial Crime (AML/CFT/CPF) (the “Handbook”) to amend Iraq and Bosnia & Herzegovina’s entry on the Appendix I list of higher risk jurisdictions. This is following the Financial Action Task Force’s (“FATF”) decision to include them in its list of jurisdictions under increased monitoring.

The Handbook has also been updated to remove Namibia from the Appendix I list of higher risk jurisdictions. This is following the Financial Action Task Force’s (“FATF”) decision to remove it from its list of jurisdictions under increased monitoring. FATF has also removed Algeria from its list of jurisdictions under increased monitoring, however this remains on Appendix I due to being listed by other relevant external sources.

The clean and tracked version of the Handbook (including Appendix I) can be accessed via the Handbook page, with Appendix I available on the Notices, Instructions & Warnings page.

The FATF page on High-Risk and Other Monitored Jurisdictions can be found here.

The Financial Services Business (Enforcement Powers) (Bailiwick of Guernsey) Law, 2020 ("the Enforcement Powers Law")

The Regulation of Fiduciaries, Administration Business and Company Directors, etc. (Bailiwick of Guernsey) Law, 2020 ("the Fiduciaries Law")

The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 ("the Proceeds of Crime Law")

The Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007 ("the Regulations")

The Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing ("the Handbook")

The Finance Sector Code of Corporate Governance ("the Code of CG") Code of Practice - Trust Service Providers ("the TSP Code")

The Principles of Conduct of Finance Business ("the Principles")

Artemis Trustees Limited ("the Licensee")

On 24 June 2022, the Guernsey Financial Services Commission ("the Commission") decided:

• To impose a financial penalty of £450,000 under section 39 of the Enforcement Powers Law on the Licensee.

• To make this public statement under section 38 of the Enforcement Powers Law.

The financial penalties issued in this case were imposed under Section 39 of The Enforcement Powers law in accordance with The Financial Services Commission (Bailiwick of Guernsey) (Amendment) Law, 2016, which increased the maximum level of financial penalties available to the Commission.

BACKGROUND

The Licensee is a Guernsey company that was incorporated on 16 March 2001. It received a full fiduciary licence in August 2002.

The Licensee is a licensed fiduciary company, and its primary business is the establishment and administration of trust and corporate structures. Through its joint licensees, the Licensee provides directorship, trustee, administration, secretarial and nominee shareholder services.

FINDINGS

The Commission's investigation commenced following a full risk assessment of the Licensee conducted in December 2018. This full risk assessment found that, inter alia:

• the Licensee failed to identify "red flags" on potentially suspicious client activities;

• the Licensee failed to identify, manage and mitigate conflicts of interest; and

• there were a significant amount of outstanding action points arising from its periodic file reviews (a repeat failing from a full risk assessment conducted in 2016).

The Commission's investigation found serious and systemic failings whereby the Licensee had failed to monitor and manage the financial crime risks associated with its customers as required by the Regulations and the rules within the Handbook ("the Rules"). The investigation also found that the Licensee fundamentally failed to adhere to the Code of CG, the TSP Code and the Principles.

In particular, the Commission's investigation found:

• The Licensee facilitated/ enabled a client from a high-risk jurisdiction to move funds between trust structures and ultimately distribute them in a manner intended to obfuscate the origin of the funds. The position was exacerbated by the fact that a family associate of the client held a senior position in an EU sanctioned, government owned organisation of the high-risk jurisdiction, who was also under investigation for alleged misappropriation of Government funds. The family associate was also the subject of an Interpol Red Notice at the relevant time. (See Example 1)

• The Licensee maintained a business relationship with a politically exposed person ("PEP") from a high-risk jurisdiction with alleged links to organised crime in that high-risk jurisdiction. Furthermore, over a significant period of time, the Licensee was unaware that the beneficial ownership of the structures it administered had significantly changed in an attempt to disguise true ownership by a high-profile PEP. The Licensee de-classified the entity to standard risk, which showed a fundamental lack of even a basic understanding of the client, or the risks associated with it. (See Example 2)

The Licensee failed to carry out ongoing and effective monitoring of clients

Regulation 11 (and subsequently paragraph 11 of Schedule 3 to the Proceeds of Crime Law) details the requirements to perform ongoing and effective monitoring of existing business relationships, including scrutiny of any transactions or other activity. Regulation 5 (and subsequently paragraph 5 of Schedule 3 to the Proceeds of Crime Law) also details that for high-risk clients there must be more frequent and more extensive monitoring.

Example 1

In 2002, the Licensee established a business relationship with Mr A, a Libyan national. Throughout the business relationship, Libya remained a high-risk country known for its high levels of bribery and corruption. Mr A was involved in high-risk business activities often working with the Libyan government.

The Licensee acted as Trustee for Trust 1 which was settled by Mr A and as directors and secretary of companies held under Trust 1.

Following the death of Colonel Gaddafi, Mr A requested the Licensee change the name of Trust 1 and to replace him as a beneficiary of the trust with a family member. A director of the Licensee noted that Mr A would still be shown as the settlor and the trust would always have a history of being named "Trust l". To achieve the closest result to Mr A's wishes, a director of the Licensee suggested to Mr A the setting up a new trust by a declaration of trust ("Trust 2"), which would achieve the following:

• Mr A would not be named as settlor;

• the beneficiaries could be named as a class and exclude Mr A;

• there would be no link to Trust 1; and

• the new trust could be called anything.

Mr A also wanted the name of an associated foreign company changed. The rationale behind the change of name for this entity was to remove any perception it was linked to Mr A' s trading company in Libya. These changes were all effected for Mr A by a director of the Licensee.

Considering that Mr A had requested these changes shortly after the death of Colonel Gaddafi, and that Mr A worked with the Libyan government, which - taken together - amounted to a serious indicator of potential impropriety, the Licensee should have scrutinised this activity closely and considered the potentially nefarious risks associated with it. Instead, a director of the Licensee suggested a method by which Mr A could deliberately disassociate himself from and obscure his connections to Trust 1 and the associated company.

The Licensee was later informed that Mr A had a brother who worked for a government organisation in Libya which had entered into contracts with Mr A's businesses. The Licensee was informed that Mr A' s brother and a group of foreign companies he used were being investigated and had been accused of misappropriating funds from the Libyan government. This government organisation had been the subject of EU sanctions, enforceable in Guernsey, due to being an entity acting on behalf of Colonel Gaddafi. Mr A was concerned that he may be subject to investigation. According to a file note of a conversation between a director of the Licensee and Mr A's adviser, Mr A and his brother were confident that the investigation would be closed. However, the Licensee and a director of the Licensee took this explanation at face value and took no further steps to verify the relevant details. The Licensee did not consider that Mr A may have wanted to disguise his links to Trust 1 and the associated foreign company in case he was investigated and to avoid any sanctions attaching to him or the trust or company's assets.

The Licensee became aware of adverse media regarding Mr A and his brother, including that the government organisation with which Mr A's brother was associated was alleged to have given contracts to companies related to Mr A. Despite being aware of this, the Licensee took no effective action. During the same period of time, Interpol had published a Red Notice seeking Mr A's brother for embezzlement, money laundering and corruption, however, the Licensee was unaware of this at the time of its publication.

Shortly after the adverse media began to appear, Mr A contacted the Licensee from an unknown e-mail address, informing them of a change of e-mail address and requested distributions to be made from Trust 2 to bank accounts in another high-risk jurisdiction. The Licensee did not consider that this change of e-mail address could have been effected to hinder investigations by other parties. Over the next few months, a significant proportion of Trust 2's assets were transferred to bank accounts in Turkey in the name of Mr A who had, as described above, deliberately been removed as a beneficiary of the trust. The distributions were allegedly for and on behalf of a family member (named as the beneficiary) who apparently did not have a bank account, however, the Licensee was unable to provide definitive evidence to support this.

The Licensee failed to effectively scrutinise the transfer of millions of pounds, dollars and euros worth of funds, which could be linked to financial crime, and consider whether they were disguised distributions to Mr A, in the knowledge that the changes to the structure that had been requested by Mr A had been to remove Mr A as the settlor/beneficiary. Furthermore, there was contemporaneous adverse media surrounding Mr A and his business/family associates. A director of the Licensee failed to react appropriately to the troubling and adverse media reports.

In addition, the payment of funds from Trust 2 to Mr A, who was no longer a beneficiary, without any rationale demonstrates that the Licensee was not treating the interests of the beneficiaries as paramount, as required by paragraph 4 of the TSP Code.

The Licensee did not have a complete and clear understanding of Mr A and the business relationship from the beginning and in reality, there was no effective monitoring by the Licensee of this high-risk client relationship.

Example 2

The Licensee established a business relationship with Company 1, a foreign registered company, in 2006, which at the time was ultimately owned by Mr B. Mr B was a high net worth individual from Russia, a high-risk country and was also a PEP. During the course of the business relationship, adverse media was identified by the Licensee, stating that Mr B had alleged links to organised crime in Russia.

Between 2006 and 2013, the legal ownership of Company 1 changed from Mr B to Mrs C, a family member of Mr B. The Licensee was unaware of the change in ownership until 2013 and is still unaware of when the change took place or the rationale behind the change.

In 2016, the Licensee was made aware that the ownership structure had changed again in 2014. Ownership of Company 1 was split between 11 people/foundations/funds, with 80.2% of the shareholding being held in declarations of trust in favour of Mrs C. Some of the additional people/foundations/funds that became shareholders were related to Mr B, and one of them was a PEP. Mr B, via various vehicles, indirectly held a significant shareholding of Company 1, and this framework could be considered as a way of disguising Mr B's position. This was a further change of ownership of which the Licensee was unaware, and it added another ownership layer to the structure. Furthermore, the Licensee was only made aware of this change because of a request from a bank, not from its own ongoing monitoring of the business relationship as required by the Handbook.

In early 2018, Mr B was subject to U.S. sanctions, however, no action was taken by the Licensee despite knowledge of the sanctions, which was unacceptable to the Commission. Later in 2018 the Licensee became aware of adverse media which reported that Mr B had made Mrs C the owner of a multitude of other companies and assets that had belonged to him. This adverse media suggested that these changes of ownership may be an attempt by Mr B to hide his assets, however, no action was taken by the Licensee in response to it.

The Licensee also failed to appropriately monitor and record a loan that Company 1 had received. In or around 2008, Company 1 received a loan from an associated company, however, the Licensee did not have the corresponding loan Agreement. In 2018 the Licensee contacted a representative of the associated company in an attempt to determine the rationale behind this loan and also requested a copy of the Agreement. The Licensee was informed that the loan had been waived in 2017, and it was not provided with a copy of the Agreement. For 10 years the Licensee failed to monitor this transaction and have the necessary documentation, oversight and understanding of it as required by the Handbook.

The thread that ran consistently through the whole history of the Licensee dealing with Mr B is a lack of ongoing and effective monitoring.

Example 3

The Licensee was the trustee of Charitable Trust 3. The purpose of this entity was to promote the education, health, culture and spiritual development of communities in Africa, India and Europe. Donations were made by the trustees on a recommendation from Mr D, the settlor of Charitable Trust 3.

In 2017, the Licensee contacted an individual (who was not a beneficiary of Charitable Trust 3) about a donation to be made towards a school project. However, before payment was made, Mr D interjected and corrected the Licensee that the payment was in fact a birthday gift to the individual, a friend of Mr D. The Licensee continued and made the payment despite the fact that it was made to a non-beneficiary outside the purpose of Charitable Trust 3.

In another instance, Charitable Trust 3 paid the university fees of an individual whose father was a senior manager in a natural resource company part owned by Mr D. The individual's father was also the Vice-Chairman of a subsidiary of the natural resource company which operated a mine in Guinea, a high-risk country. The mine was part-owned by the government of Guinea.

A director of the Licensee correctly identified that the direct payment of university fees could be considered disguised remuneration to the father of this individual and a breach of the trust deed. However, a director of the Licensee then suggested an alternative method of paying the university fees to Mr D personally who could settle the fees himself. The Licensee and a director of the Licensee failed to effectively scrutinise the bribery and corruption risks of facilitating payment in deliberate circumvention of the provisions of the trust deed. The Licensee also failed to consider whether these payments breached The Prevention of Corruption (Bailiwick of Guernsey) Law, 2003.

In addition, the payment of funds from Charitable Trust 3 outside of the provisions of the trust deed demonstrates that the Licensee was not treating the interests of the beneficiaries as paramount, as required by paragraph 4 of the TSP Code.

The Licensee did not appear to comprehend the nature of a discretionary trust and allowed Mr D to influence them without exercising its functions as discretionary trustee.

The Licensee failed to take reasonable measures to establish source of funds and source of wealth for high-risk customers

Regulation 5(1) (and subsequently paragraph 5 of Schedule 3 to the Proceeds of Crime Law) required a financial services business to carry out enhanced customer due diligence ("EDD") where the customer, beneficial owner or underlying principal is a PEP or where a business relationship that has been assessed as high-risk. EDD includes taking reasonable measures to establish the source of any funds and of the wealth of the customer and beneficial owner and underlying principal.

Example 4

In relation to Mr A and Trust I (see Example 1), during a period of eight years, a substantial amount of funds was received into Trust l. Of this amount, a significant portion (almost 40%) was received via money exchange companies, which act as third parties and are well known as potential vehicles for the transmission of illicit funds. As money exchange companies did not maintain records of who has deposited the funds to finance transactions the Licensee was unable to ascertain whether it was Mr A who was the source of funds.

Whilst the Licensee was provided with translated contracts and invoices from Mr A as evidence of the amounts received, the use of money exchange companies still concealed where the funds came from and therefore the Licensee could never establish that the funds received through the money exchange companies was the same as those detailed on the contracts and invoices. There was also a lack of correlation between the amounts specified on the contracts and the amounts received from the exchange companies with the Licensee simply accepting the highly suspect justification provided by Mr A.

Example 5

The Licensee provided director, administration, secretarial and nominee services for a Guernsey registered company, Company 2, which was owned by Mr E, a PEP in Poland. Between 2006-2007, Company 2 received substantial loans from a foreign registered entity with which the Licensee had no business relationship. The Licensee has confirmed that at the time of receiving these loans it had not ascertained the ultimate beneficial owner, the source of funds or the source of wealth in relation to these loans.

When the Licensee contacted the administrator of the foreign entity in 2018 (some 11 years after the receipt of the funds) to establish the source of the funds for the loans, the Licensee was told that the owner could have changed several times and that the administrator had no information on where the money had come from.

The Licensee contacted the administrator of the foreign entity again in 2021 and was told the source of funds was an employee of the administrator and that the funds came from an investment in an entity which was involved in providing infrastructure projects in Poland. The administrator eventually confirmed that the funds loaned to Company 2 actually originated from Mr E.

The Licensee has since discovered that Mr E was a director of the infrastructure company, that had been the subject of a number of investigations, including allegations of bribery and corruption, thereby creating the potential that the source of the loans was linked to the proceeds of crime.

The Licensee failed to regularly review its customer risk assessments and ensure all relevant risk factors were considered

Paragraph 3(4)(b) of Schedule 3 to the Proceeds of Crime Law (and previously Regulation 3(2)(b)), requires a financial services business to regularly review, and where necessary update, its customer risk assessments. Rule 55 of the Handbook requires a financial services business to ensure that all relevant risk factors are considered before determining the overall assessed risk.

Example 6

The Licensee's policy for conducting periodic reviews on its clients was as follows:

• for high activity high-risk clients to be reviewed annually;

• lower activity high-risk clients every other year; and

• standard risk clients every three to five years.

During the period March 2014 and September 2019, there was a constant backlog of periodic reviews, including in 2016 where 85% of total files had outstanding reviews, comprising 93% of high-risk clients and 82% of standard risk. At another point later that year, 93% high risk reviews remained outstanding, totalling 208 reviews of which 159 had been outstanding for more than 12 months. It was noted that some entities had not been reviewed since they were established, going as far back as 2002. It remains extremely concerning that, in March 2021, 20% of the client base had overdue reviews. The Licensee did not adhere to paragraph 3(4)(b) of Schedule 3 to the Proceeds of Crime Law (and previously Regulation 3(2)(b)) or to its own internal policy regarding the same.

Example 7

With regards to Mr B and Company 1 (see Example 2), the Licensee had initially risk rated this relationship as high-risk.

The risk assessment for Company 1 was reviewed in 2016 (prior to the Licensee being made aware of the second change in ownership) and the Licensee re-classified it from high-risk to standard risk due to Mrs C being formally recognised by the Licensee as the ultimate beneficial owner, and a person who was not considered a PEP or PEP by association to Mr B. However, the Licensee failed to consider a number of risk indicators, as required by Rule 55 of the Handbook:

• The Licensee was not informed of the change in ownership from Mr B to Mrs C (between 2006 and 2013);

• The potential that the new ownership structure obfuscated the true ownership by Mr B;

• The previous adverse media that Mr B was linked to organised crime in Russia; and

• The fact that the business relationship was still associated with Mr B, who was still considered a PEP.

The Licensee then failed to review this risk assessment when it became aware of the second change of ownership. This failure resulted in the structure remaining classified as standard risk notwithstanding that there was an additional PEP and an additional ownership layer in the structure.

Company 1 remained rated as standard risk until late 2018 when the Licensee re-classified it as high-risk again, having identified that there were more PEPs involved. However, this was 6 months after Mr B had been sanctioned by the U.S. and 3 months after the adverse media surrounding Mr Band Mrs C was published, which the Licensee was aware of but did not give due consideration to relative to how it affected the risks associated with Company 1.

Example 8

Company 3, a Guernsey registered company, was incorporated by the Licensee in September 2011 as a special purpose vehicle to purchase a high value asset. The initial risk assessment rated Company 3 as high-risk due to the ultimate beneficial owner being a PEP, Mr E.

A review of Company 3 in 2018 identified that the risk assessment had not been reviewed and updated since 2011, some 7 years after the onboarding of this client. According to the Licensee's policy this should have been done annually. The Handbook also required this to have been done regularly and to keep the assessment up to date.

The Licensee failed to take measures to understand the ownership and control of customers

Regulation 4(1) (subsequently paragraph 4 of Schedule 3 to the Proceeds of Crime Law) required a financial services business to ensure that the steps outlined in Regulation 4(3) were carried out. Regulation 4(3)(c) required a financial services business to take measures to understand the ownership and control structure.

Example 9

As noted above (see Example 2), the beneficial ownership of Company 1 changed from Mr B to Mrs C sometime between 2006 and 2013, without the Licensee's knowledge. Even though the Licensee became aware of the change in ownership in 2013, there was no documentation on the file that explained the rationale or the date of the change.

Similarly, in 2016 when the Licensee became aware of the second change in ownership that had taken place in 2014 and whereby Mr B indirectly held a significant shareholding, the Licensee should have considered if measures had been taken to disguise the true ownership.

The Licensee should have taken steps to understand the ownership and control of Company 1, however, the Licensee failed to take measures to understand or consider whether Mr B continued to be the true ultimate beneficial owner of Company 1 given the risk factors outlined above.

The Licensee failed to establish and maintain appropriate and effective procedures and controls to ensure compliance with requirements to make disclosures

Regulation 12(f) required a financial services business to establish and maintain such other appropriate and effective procedures and controls as are necessary to ensure compliance with requirements to make disclosures under the Disclosure (Bailiwick of Guernsey) Law, 2007 and the Terrorism and Crime (Bailiwick of Guernsey) Law, 2002.

Example 10

Whilst the Licensee did eventually comply with its disclosure obligations in relation to Mr A (see Example 1), the Commission has noted that the Licensee had missed a number of earlier opportunities to fulfil its disclosure obligations. In particular, this is the case with regard to the following red flags:

• the establishment of a new trust for Mr A to disassociate him from Trust 1 and an associated entity shortly after the death of Colonel Gaddafi;

• the allegations against Mr A's brother and the potential impact this could have on Mr A, his structures and assets;

• the adverse media concerning Mr A and his brother; and

• the transfer of trust assets directly to Mr A via a high-risk jurisdiction despite the fact he was not a beneficiary of Trust 2.

The Commission has concluded that there was serious potential danger to the reputation of the Bailiwick as an international finance centre and the Licensee's procedures in relation to regulation 12(f) were not appropriate or effective to ensure that it made timely and full disclosures of suspicious activity to the Financial Intelligence Service.

The Licensee failed to ensure that its existing business was fully understood

Chapter 8 of the Handbook and Rule 246 (of the December 2007 Handbook) required the Licensee to ensure that its policies, procedures, and controls in place for its existing business were appropriate and effective. In particular to ensure that the Licensee understood the business relationship and held all of the required due diligence commensurate with the risk attributed to the relationship.

Example 11

The Licensee's business relationships with Mr A (see Example I) and Mr B (see Example 2) were established prior to the introduction of the Handbook. However, the Licensee failed to ensure that it had a complete understanding of these existing business relationships as required by Chapter 8 and Rule 246 of the Handbook, accordingly, the Licensee failed to identify appropriate red flags and take necessary action at the appropriate time.

The Licensee failed to avoid, manage or minimise conflicts of interest

Paragraph 3.2 of the Code of CG states that Directors have a duty to avoid, manage or minimise conflicts of interest and should, wherever possible, arrange their personal and business affairs so as to avoid direct and indirect conflicts of interest.

Example 12

The Licensee provided administration services to Company 4, a Guernsey registered company involved in natural resource extraction in Burundi, a high-risk country. Mr D founded this company, and another director of the Licensee (Director A) was a director and shareholder of it in their personal capacity.

Mr D gifted shares in Company 4 to Director A, Mr Clarke, and also to a Trust Administrator at the Licensee, conditional on a successful initial public offering on a recognised Stock Exchange. These gifts were described in the Licensee's gift register as gifts to family and friends which failed to acknowledge that the recipients were, as a result of the gifts, in a position of conflict. Following the subsequent initial public offering, the shares held by Director A, a fellow director of the Licensee, and the Trust Administrator, were worth a significant sum of money.

According to the Licensee's relevant gift policy applicable at the time: (i) staff must not accept any gift if it is likely to conflict in any material way with any duty that the company owes to its clients or is likely to induce someone to breach a duty that they owe to any third party or to influence a public official, (ii) any gifts of cash or cash equivalent required the prior written approval of the Compliance Manager, and (iii) any gift over £500 required the prior approval of the Managing Director. The Commission has seen no evidence of prior written approval by the Compliance Manager in relation to the gift of shares. A director of the Licensee and the Trust Administrator's shares were approved by the Managing Director. The Board of the Licensee were notified of the gifts only retrospectively some six weeks after they had been received.

The receipt of such significant gifts was in breach of the Licensee's own policy and created a risk that Mr D could influence Director A, A director of the Licensee and the Trust Administrator. However, the risks associated with this potential conflict of interest were only identified by the Licensee after the gifted shares had been transferred and thus were not effectively managed or minimised at the appropriate time.

The Licensee failed to have effective suitable oversight of the management and control of the potential risk of Director A, a director of the Licensee and the Trust Administrator committing an offence under The Prevention of Corruption (Bailiwick of Guernsey) Law, 2003, as required by Principle 5 of the Code of CG.

The Licensee failed to have internal controls to safeguard its assets and to manage risk

Paragraph 4.4 of the Code of CG states that a company should maintain a sound system of internal control to safeguard the company's assets and to manage risk, and the Board should regularly review such controls.

Example 13

As detailed in Example 12, Company 4 was a client of the Licensee and Director A (who was also a director of Company 4), A director of the Licensee and the Trust Administrator were gifted shares in that entity. In addition, the Licensee received shares in Company 4 in lieu of fees for administration services provided over a period of time. Consequently, a director of the Licensee (who although he was not individually gifted shares) became a direct shareholder of Company 4 by virtue of his shareholding in the Licensee.

Whilst providing services to Company 4, Director A, two fellow directors of the Licensee and the Trust Administrator were in a position to have access to sensitive, non-public information and documents relating to Company 4. The Licensee had no policies, procedures or controls in place in relation to staff dealing in stocks or securities, and more importantly, did not have an appropriate policy for dealing or acquiring shares of client companies.

Example 14

The Licensee provided director and administration services to Company 5 which was another company linked to Mr D. Company 5 is a Guernsey company which had two foreign subsidiaries involved in building data centres for the purpose of being rented out for mining cryptocurrency.

Company 5 entered into an Agreement with a third-party investor in which it was agreed to receive an investment subscription by way of Bitcoin. At the time in question, the Licensee understood that Company 5's bank had a policy of not accepting funds derived from cryptocurrencies. Despite this, Company 5's bank account received three tranches of investment from a company that was involved in over-the-counter trading of cryptocurrencies in respect of the third-party's investment by way of Bitcoin.

The Licensee did not have an effective policy and had no controls in place to adequately monitor and manage the risk that funds received were derived from cryptocurrencies.

The Licensee failed to deal with the Commission in an open and co-operative manner

Principle 10 of the Principles of Conduct of Finance Business states that a financial institution should deal with the Commission in an open and co-operative manner and keep the Commission promptly informed of anything concerning the financial institution which might reasonably be expected to be disclosed to it.

Example 15

In 2016 the Commission conducted a full risk assessment of the Licensee which found that there were a significant number of outstanding action points, a number of which related to anti-money laundering ("AML") and Countering the Financing of Terrorism ("CFT") issues.

Following this risk assessment, the Commission implemented a Risk Mitigation Programme which required the Licensee to provide a plan to the Commission detailing how it would reduce the number of outstanding action points to a manageable level and to regularly update the Commission accordingly.

In October 2017, Director A informed the Commission that outstanding action points had been reduced to a manageable level. Based on this information, the Commission concluded that there was no longer an ongoing requirement to keep it updated on the issue of outstanding action points.

Subsequently, the Commission conducted another full risk assessment in December 2018 during which it discovered that Director A had failed to explain the full extent of the issues faced by the Licensee and there remained a serious issue with the level of outstanding action points. The Commission reviewed the compliance reports to the Board of the Licensee for the period March 2016 to September 2017 which showed that in fact there were still a significant number of action points outstanding.

Director A reported to the Commission the number of outstanding action points which were aged one month or older, rather than the total number of outstanding action points which was significantly greater.

As a result, the Licensee did not deal with the Commission in an open and co-operative manner, as required by Principle 10.

The number of action points and the amount of time taken to reduce the number was extremely concerning and amounts to a repeat failing from a previous full risk assessment.

Aggravating Factors

The Licensees' clients included high-risk clients, some of whom were PEPs, based in high-risk jurisdictions, and some of whom, the Licensee was aware had adverse media reports related to them.

The breaches were of an extremely serious and systemic nature and exposed the Licensee and the Bailiwick to the very real risk of being used to facilitate financial crime and thereby damaging the reputation of the Bailiwick as a finance centre.

The Licensee had a previously poor compliance history, in particular in relation to outstanding action points.

The Licensee allowed the acceptance of substantial gifts and the settlement of a considerable debt via the payment of shares, without appropriate and effective policies, procedures and controls in place to manage the associated risks.

Mitigating Factors

Following an on-site visit to the Licensee by the Commission in 2018, the Licensee completed a further risk mitigation programme. This included appointing a third-party to review the effectiveness of its new procedures.

The Licensee has appointed four additional directors, including creating a new role of a Chief Executive Officer and appointed a person who is independent of the ownership of the Licensee in that role. The Licensee also appointed a non-executive director, a role which the Licensee previously did not have. The Licensee has also expanded its compliance resources, including hiring a separate MLRO and MLCO.

The Licensee has appointed a third-party to assist with compliance and undertake a programme of internal audit.

The Licensee self-reported the number of outstanding periodic reviews in March 2021 and the issues regarding Company 2 to the Commission.

The Financial Services Business (Enforcement Powers) (Bailiwick of Guernsey) Law, 2020 ("the Enforcement Powers Law")

The Regulation of Fiduciaries, Administration Business and Company Directors, etc. (Bailiwick of Guernsey) Law, 2020 ("the Fiduciaries Law")

The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 ("the Proceeds of Crime Law")

The Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007 ("the Regulations")

The Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing ("the Handbook")

The Finance Sector Code of Corporate Governance ("the Code of CG")

Code of Practice - Trust Service Providers ("the TSP Code")

The Principles of Conduct of Finance Business ("the Principles")

Mr Robert Archibald Gilchrist Sinclair ("Mr Sinclair")

On 20 January 2022, the Guernsey Financial Services Commission ("the Commission") decided:

• To impose a financial penalty of £196,000 under section 39 of the Enforcement Powers Law on Mr Sinclair.
• To make an order under section 33 of the Enforcement Powers Law prohibiting Mr Sinclair from holding the position of controller, director, partner, manager, money laundering reporting officer and money laundering compliance officer for a period of 5.6 years.
• To issue a Notice under section 32 of the Enforcement Powers Law disapplying the exemption set out in section 3(1)(g) of the Fiduciaries Law in respect of Mr Sinclair for a period of 5.6 years.
• To make this public statement under section 38 of the Enforcement Powers Law.

The financial penalties issued in this case were imposed under The Financial Services Commission (Bailiwick of Guernsey) (Amendment) Law, 2016, which increased the maximum level of financial penalties available to the Commission.

BACKGROUND

Mr Sinclair was the managing director of a licensed Guernsey company that was incorporated in 2001 ("the Licensee") and remained in this position until June 2019. He was the minority (49.27%) shareholder of the Licensee during the period under review. Mr Sinclair also held the positions of Money Laundering Reporting Officer ("MLRO") from October 2008 to June 2019, Money Laundering Compliance Officer ("MLCO") from March 2019 to May 2019 and Compliance Director until June 2019.

The Licensee is a licensed fiduciary company, and its primary business is the establishment and administration of trust and corporate structures. Through its joint licensees the Licensee provides directorship, trustee, administration, secretarial and nominee shareholder services.

FINDINGS

The Commission's investigation (the "Investigation") commenced following a full risk assessment of the Licensee conducted in December 2018.

The Investigation found serious and systemic failings whereby Mr Sinclair failed to ensure the Licensee monitored and managed the financial crime risks associated with its customers as required by the Regulations and the rules within the Handbook ("the Rules"). The Investigation also found that Mr Sinclair failed to adhere to the Code of CG, the TSP Code and the Principles.

The Investigation identified that Mr Sinclair failed to demonstrate that he acted with probity, competence, experience, soundness of judgement, diligence, and knowledge and understanding of the legal and professional obligations to be undertaken. The Commission concludes that Mr Sinclair is not a fit and proper person due to his actions.

In particular, the Investigation found:

• The Licensee facilitated / enabled a client of a high-risk jurisdiction to move funds between trust structures and ultimately distribute them in a manner designed to obfuscate the origin of the funds. The position was exacerbated by the fact that a family associate of the client held a senior position in an EU sanctioned, government owned organisation of the high-risk jurisdiction, who was also under investigation for alleged misappropriation of government funds. The family associate was also the subject of an Interpol Red Notice at the relevant time. (See Example 1)
• The Licensee maintained a business relationship with a politically exposed person ("PEP") from a high-risk jurisdiction and with alleged links to organised crime in that high-risk jurisdiction. Furthermore, over a significant period of time, the Licensee was unaware that the underlying ownership of the structures it administered had significantly changed with a strong suggestion that this was done to distance the client from the structures. (See Example 2)

The Licensee failed to carry out ongoing and effective monitoring of clients

Regulation 11 (and subsequently paragraph 11 of Schedule 3 to the Proceeds of Crime Law) details the requirements to perform ongoing and effective monitoring of existing business relationships, including scrutiny of any transactions or other activity. Regulation 5 (and subsequently paragraph 5 of Schedule 3 to the Proceeds of Crime Law) also details that for high-risk clients there must be more frequent and more extensive monitoring.

Example 1

In 2002, the Licensee established a business relationship with Mr A, a national of Country A, which is a high-risk country known for its high level of bribery and corruption. Mr A was involved in high-risk business activities often working with the government in Country A.

The Licensee acted as trustee for Trust 1 which was settled by Mr A and as directors and secretary of companies held under Trust 1.

Following the death of the leader of Country A, Mr A requested that the Licensee change the name of Trust 1 and to replace him as a beneficiary of the trust with a family member. A Fellow Director/Shareholder of the Licensee noted that Mr A would still be shown as the settlor and that the trust would always have a history of being named "Trust 1". To achieve the closest result to Mr A's wishes, the Fellow Director/Shareholder suggested to Mr A the setting up a new trust ("Trust 2"), which would achieve the following:

• Mr A would not be named as settlor;
• the beneficiaries could be named as a class and exclude Mr A;
• there would be no link to Trust 1; and
• the Trust 2 could be called anything.

Mr A also wanted the name of an associated foreign company changed. This change was also effected for Mr A by the Fellow Director/Shareholder. The rationale behind the change of name for this entity was to remove any perception it was linked to Mr A's trading company in Country A.

Considering that Mr A had requested these changes shortly after the death of the leader of Country A, and that Mr A worked with the government of Country A, the Licensee should have scrutinised this activity closely. Instead, the Fellow Director/Shareholder suggested a method by which Mr A could deliberately disassociate himself from and obscure his connections to Trust 1 and the associated trading company.

The Licensee was later informed that Mr A had a brother who worked for a government organisation in Country A which organisation had entered contracts with Mr A's businesses.

The Licensee was informed that Mr A's brother and a group of companies he used were being investigated and had been accused of misappropriating funds from the government of Country A. This government organisation had been the subject of EU sanctions, enforceable in Guernsey, due to being an entity acting on behalf of the leader of Country A. Mr A was concerned that he may be subject to investigation. According to a file note of a conversation between a manager of the Licensee and Mr A's adviser, Mr A and his brother were confident that the investigation would be closed, however, the Licensee took this explanation at face value and took no further action to verify the relevant details. The Licensee did not consider that Mr A may have wanted to disguise his links to Trust 1 and the associated foreign company in case he was investigated and to avoid any sanctions attaching to him or the trust or company's assets.

The Licensee became aware of adverse media regarding Mr A and his brother, including that the government organisation with which Mr A's brother was associated was alleged to have given contracts to companies related to Mr A. During the same period of time, Interpol had published a Red Notice seeking Mr A's brother, however, the Licensee was unaware of the Red Notice at the time of its publication.

Shortly after the adverse media began to appear, Mr A contacted the Licensee from an unknown e-mail address, informing them of the change of e-mail address and requested distributions to be made from Trust 2 to bank accounts in another high-risk jurisdiction. Over the next few months, a significant proportion of Trust 2' s assets were transferred to bank accounts in this alternative high-risk jurisdiction in the name of Mr A who had, as described above, deliberately been removed as a beneficiary of the trust. The distributions were allegedly for and on behalf of a family member (named as the beneficiary) who apparently did not have a bank account, however, the Licensee was unable to provide definitive evidence to support this.

The Licensee failed to effectively scrutinise these transactions and consider whether they were disguised distributions to Mr A, in the knowledge that the changes to the structure that had been requested by Mr A had been made to remove Mr A as the settlor/beneficiary. Furthermore, there was contemporaneous adverse media surrounding Mr A and his business/family associates.

In addition, the payment of funds from Trust 2 to Mr A, who was not a beneficiary, without any rationale demonstrates that the Licensee was not treating the interests of the beneficiaries as paramount, as required by paragraph 4 of the TSP Code.

Example 2

The Licensee established a business relationship with Company I, a foreign registered company, in 2006, which at the time was ultimately owned by Mr B. Mr B was a high net worth individual from Country B, a high-risk country and was also a PEP. During the course of the business relationship, adverse media was identified by the Licensee, stating that Mr B had alleged links to organised crime in Country B.

Between 2006 and 2013, the legal ownership of Company 1 changed from Mr B to Mrs C, Mr B's mother. The Licensee was unaware of the change in ownership until 2013 and is still unaware of when the change took place or the rationale behind the change.

In 2016, the Licensee was made aware that the ownership structure had changed again in 2014. Ownership of Company 1 was split between 11 people/foundations/funds, with 80.2% of the shareholding being held in declarations of trust in favour of Mrs C. Some of the additional people/entities that became shareholders were related to Mr B, and one of them was an additional PEP in the structure. This was a further change of ownership of which the Licensee was unaware, and it added another ownership layer to the structure. Furthermore, the Licensee was only made aware of this change because of a request from a bank, not from its own ongoing monitoring of the business relationship as required by the Handbook.

In 2018, adverse media began to appear which reported that Mr B had made his mother the owner on a multitude of other companies and assets that had belonged to him, and the adverse media suggested that this may be an attempt by Mr B to hide his assets. Mr B was also subject to U.S. sanctions in 2018.

The Licensee also failed to appropriately monitor and record a loan that Company 1 had received. In or around 2008, Company 1 received a loan from an associated company, however, the Licensee did not have the corresponding loan agreement. In 2018 the Licensee contacted a representative of the associated company in an attempt to determine the rationale behind this loan and also requested a copy of the agreement. The Licensee was informed that the loan had been waived in 2017, and it was not provided with a copy of the agreement. For 10 years the Licensee failed to monitor this transaction and have the necessary documentation, oversight and understanding of it as required by the Handbook.

Example 3

The Licensee was the trustee of Charitable Trust 3. The purpose of this entity was to promote the education, health, culture and spiritual development of communities in Africa, India and Europe. Donations were made by the trustees on a recommendation from Mr D, the settlor of Charitable Trust 3.

In 2017, the Licensee contacted an individual about a donation to be made towards a school project. However, before payment was made, Mr D interjected and corrected the Licensee that the payment was in fact a birthday gift to an individual, a friend of Mr D. The Licensee continued and made the payment despite the fact that it was outside the purpose of Charitable Trust 3.

In addition, Charitable Trust 3 paid the university fees of an individual whose father was a senior manager in a natural resource company part owned by Mr D. The individual's father was also the Vice-Chairman of a subsidiary of the natural resource company which operated a mine in a high-risk country, part-owned by the government of that country.

A Fellow Director correctly identified that the direct payment of university fees could be considered to be disguised remuneration to the father of this individual and a breach of the trust deed. However, the Fellow Director then suggested an alternative method of paying the university fees to Mr D personally who could settle the fees himself. The Licensee and the Fellow Director failed to effectively scrutinise the risks of facilitating the payment of the university fees in this way. The Licensee also failed to consider whether these payments breached The Prevention of Corruption (Bailiwick of Guernsey) Law, 2003.

In addition, the payment of funds from Charitable Trust 3 outside of the trust deed demonstrates that the Licensee was not treating the interests of the beneficiaries as paramount, as required by paragraph 4 of the TSP Code.

The Licensee failed to take reasonable measures to establish source of funds and source of wealth for high-risk customers

Regulation 5(1) (and subsequently paragraph 5 of Schedule 3 to the Proceeds of Crime Law) required a financial services business to carry out enhanced customer due diligence ("EDD") where the customer, beneficial owner or underlying principal is a PEP or where a business relationship that has been assessed as high risk. EDD includes taking reasonable measures to establish the source of any funds and of the wealth of the customer and beneficial owner and underlying principal.

Example 4

In relation to Mr A and Trust 1 (see Example 1), during a period of eight years, a substantial amount of funds was received into Trust 1. Of this amount, a significant portion (almost 40%) was received via money exchange companies. These money exchange companies did not maintain records of who deposited the funds to finance transactions and so the Licensee was unable to ascertain whether it was Mr A who was the source of funds.

Whilst the Licensee was provided with translated contracts and invoices from Mr A as evidence of the amounts received, the Licensee could never establish that the funds received through the money exchange companies were the same as those detailed on the contracts and invoices.

Example 5

The Licensee provided director, administration, secretarial and nominee services for a Guernsey registered company, Company 2, which was owned by Mr E, a PEP in Country C. Between 2006 and 2007, Company 2 received substantial loans from a foreign registered entity with which the Licensee had no business relationship. The Licensee has confirmed that at the time of making these loans it had not ascertained the source of funds or the source of wealth in relation to these loans.

When the Licensee contacted the administrator of the foreign entity in 2018 (some 11 years after the receipt of the funds) to establish the source of the funds for the loans, the Licensee was told that the owner could have changed several times and that it had no information on where the money had originally come from.

The Licensee eventually established (after Mr Sinclair's departure) that the funds loaned to Company 2 originated from Mr E.

The Licensee has since discovered that Mr E was a director of an infrastructure company, that had been the subject of a number of investigations, including allegations of bribery and corruption, thereby creating the potential that the source of the loans was linked to the proceeds of crime.

The Licensee failed to regularly review its customer risk assessments and ensure all relevant risk factors were considered

Paragraph 3(4)(6) of Schedule 3 to the Proceeds of Crime Law (and previously Regulation 3(2)(6)), requires a financial services business to regularly review, and where necessary update, its customer risk assessments. Rule 55 of the Handbook required a financial services business to ensure that all relevant risk factors are considered before determining the overall assessed risk.

Example 6

The Licensee's policy for conducting periodic reviews on its clients was as follows:

• for high activity high risk clients to be reviewed annually;
• lower activity high risk clients every other year; and
• standard risk clients every three to five years.

During the period between March 2014 and September 2019, there was a constant backlog of periodic reviews, including a time where 85% of the client base (which at the time was around 750 clients), had an outstanding periodic review. This resulted in the Licensee not adhering to paragraph 3(4)(6) of Schedule 3 to the Proceeds of Crime Law (and previously Regulation 3(2)(6)) or to its own internal policy regarding the same.

Example 7

With regards to Mr B and Company 1 (see Example 2), the Licensee had initially risk rated this relationship as high risk.

The risk assessment for Company 1 was reviewed in 2016 and the Licensee re-classified its risk-rating from high risk to standard risk due to Mrs C being formally recognised by the Licensee as the ultimate beneficial owner, and a person who was not considered a PEP or PEP by association to her son. However, the Licensee failed to consider a number of risk indicators, as required by Rule 55 of the Handbook:

• The Licensee was not informed of the change in ownership from Mr B to Mrs C (between 2006 and 2013);
• The potential that the new ownership structure obfuscated the true ownership by Mr B;
• The previous adverse media that Mr B was linked to organised crime in Country B; and
• The fact that the business relationship was still associated with Mr B, who was still considered a PEP.

The Licensee then failed to review this risk assessment when it became aware of the second change of ownership. This failure resulted in the structure remaining classified as standard risk notwithstanding that there was an additional PEP and an additional ownership layer in the structure.

Company 1 remained rated as standard risk until late 2018 when the Licensee re-classified it as high-risk, having identified that there were more PEPs involved. However, this was 6 months after Mr B had been sanctioned by the U.S. and 3 months after the adverse media surrounding Mr B and Mrs C was published, which adverse media the Licensee was aware of but did not give due consideration to relative to how it affected the risks associated with Company 1.

Example 8

Company 3, a Guernsey registered company, was incorporated by the Licensee in September 2011 as a special purpose vehicle to purchase a high value asset. The initial risk assessment rated Company 3 as high-risk due to the ultimate beneficial owner being a PEP, Mr E.

A review of Company 3 in 2018 identified that the risk assessment had not been reviewed and updated since 2011, some 7 years after the onboarding of this client. According to the Licensee's policy this should have been done annually. The Handbook also required this to have been done regularly and to keep the assessments up to date.

The Licensee failed to take measures to understand the ownership and control of customers

Regulation 4(1) (subsequently paragraph 4 of Schedule 3 to the Proceeds of Crime Law) required a financial services business to ensure that the steps outlined in Regulation 4(3) were carried out. Regulation 4(3)(c) required a financial services business to take measures to understand the ownership and control structure.

Example 9

As noted above (see Example 2), the beneficial ownership of Company 1 changed from Mr B to Mrs Cat a time between 2006 and 2013, without the Licensee's knowledge. Even though the Licensee became aware of this change in ownership in 2013, there was no documentation on the file that explained the rationale or the date of the change.

The Licensee failed to take measures to understand or consider whether Mr B continued to be the true ultimate beneficial owner of Company 1 via his mother, given the risk factors outlined above.

The Licensee failed to establish and maintain appropriate and effective procedures and controls to ensure compliance with requirements to make disclosures

Regulation 12(f) required a financial services business to establish and maintain such other appropriate and effective procedures and controls as are necessary to ensure compliance with requirements to make disclosures under the Disclosure (Bailiwick of Guernsey) Law, 2007 and the Terrorism and Crime (Bailiwick of Guernsey) Law, 2002.

Example 10

Whilst the Licensee did eventually comply with its disclosure obligations in relation to Mr A (see Example 1), the Commission has noted that the Licensee had missed a number of earlier opportunities to fulfil its disclosure obligations. In particular, this is the case with regard to the following red flags:

• the establishment of a new trust for Mr A to disassociate him from Trust 1 and an associated entity shortly after the death of the leader of Country Z;
• the allegations against Mr A's brother and the potential impact this could have on Mr A, his structures and assets;
• the adverse media concerning Mr A and his brother; and
• the transfer of trust assets directly to Mr A via a high-risk jurisdiction despite the fact that he had not been made a beneficiary of Trust 2.

The Commission has concluded that the Licensee's procedures in relation to regulation 12(f) were not appropriate or effective to ensure that it made timely and full disclosures of suspicious activity to the Financial Intelligence Service.

The Licensee failed to ensure that its existing business was fully understood

Chapter 8 of the Handbook and Rule 246 (of the December 2007 Handbook) required the Licensee to ensure that its policies, procedures and controls in place for its existing business were appropriate and effective. In particular to ensure that the Licensee understood the business relationship and held all of the required due diligence commensurate with the risk attributed to the relationship.

Example 11

The Licensee's business relationships with Mr A (see Example 1) and Mr B (see Example 2) were established prior to the introduction of the Handbook. However, the Licensee failed to ensure that it had a complete understanding of these existing business relationships as required by Chapter 8 and Rule 246 of the Handbook, accordingly, the Licensee failed to identify appropriate red flags and take necessary action at the appropriate times.

The Licensee failed to avoid, manage or minimise conflicts of interest

Paragraph 3.2 of the Code of CG states that Directors have a duty to avoid, manage or minimise conflicts of interest and should, wherever possible, arrange their personal and business affairs so as to avoid direct and indirect conflicts of interest.

Example 12

The Licensee provided administration services to Company 4 a Guernsey registered company involved in natural resource extraction in a high-risk country. Mr D founded this company and Mr Sinclair was a director of it in his personal capacity.

Mr D gifted shares in Company 4 to Mr Sinclair, a Fellow Director and a Trust Administrator at the Licensee, conditional on a successful Initial Public Offering on a recognised Stock Exchange. These gifts were described in the Licensee's gift register as gifts to family and friends. Following the subsequent initial public offering, the shares held by Mr Sinclair, the Fellow Director and the Trust Administrator, were worth a significant sum of money.

According to the Licensee's relevant policy applicable at the time: (i) staff must not accept any gift if it is likely to conflict in any material way with any duty that the company owes to its clients or is likely to induce someone to breach a duty that they owe to any third party or to influence a public official, (ii) any gifts of cash or cash equivalent required the prior written approval of the Compliance Manager, and (iii) any gift over £500 required the prior approval of the Managing Director (which at the time was Mr Sinclair). The Commission has seen no evidence of prior written approval by the Compliance Manager in relation to the gift of shares. The Fellow Director's and the Trust Administrator's shares were approved by Mr Sinclair, however, Mr Sinclair approved his own gift of the shares without obtaining any written third-party consent. The Board of the Licensee were notified of the gifts six weeks after they had been received.

The receipt of such significant gifts was in breach of the Licensee's own policy and created a risk that Mr D could influence Mr Sinclair, the Fellow Director and the Trust Administrator. However, the risks associated with this potential conflict of interest were only identified by the Licensee after the gifted shares had been transferred and thus were not effectively managed or minimised.

The Licensee failed to have effective suitable oversight of the management and control of the potential risk of Mr Sinclair, the Fellow Director and the Trust Administrator committing an offence under The Prevention of Corruption (Bailiwick of Guernsey) Law, 2003, as required by Principle 5 of the Code of CO.

The Licensee failed to have internal controls to safeguard its assets and to manage risk

Paragraph 4.4 of the Code of CO states that a company should maintain a sound system of internal controls to safeguard the company's assets and to manage risk, and that the Board should regularly review such controls.

Example 13

As detailed in Example 12, Company 4 was a client of the Licensee and Mr Sinclair, a Fellow Director and the Trust Administrator were gifted shares in that entity. In addition to this the Licensee received shares in Company 4 in lieu of administration services provided over a period of time. Consequently, a Fellow Director/Shareholder (who was not individually gifted shares) became a direct shareholder of Company 4 by virtue of his shareholding in the Licensee.

Whilst providing services to Company 4, Mr Sinclair, the Fellow Director/Shareholder, the Fellow Director and the Trust Administrator were in a position to have access to sensitive, non-public information and documents relating to Company 4. The Licensee had no policies, procedures, or controls in place in relation to staff dealing in stocks / securities, and more importantly an appropriate policy for dealing in or acquiring the shares of client companies that they administered.

Example 14

The Licensee provided director and administration services to Company 5 which was another company linked to Mr D. Company 5 had two subsidiaries involved in building data centres for the purpose of being rented out for mining cryptocurrency.

Company 5 entered into an agreement with a third-party investor in which it was agreed to receive an investment subscription by way of bitcoin. At the time in question, the Licensee understood that Company 5's bank had a policy of not accepting funds derived from cryptocurrencies. Despite this, Company 5's bank account received three tranches of investment from a company that was involved in over-the-counter trading of cryptocurrencies in respect of the third-party investor's investment by way of bitcoin.

The Licensee had no controls in place to adequately monitor and manage the risk that funds received were derived from cryptocurrencies.

The Licensee failed to deal with the Commission in an open and co-operative manner

Principle 10 of the Principles of Conduct of Finance Business states that a financial institution should deal with the Commission in an open and co-operative manner and keep the Commission promptly informed of anything concerning the financial institution which might reasonably be expected to be disclosed to it.

Example 15

In 2016 the Commission conducted a full risk assessment of the Licensee which found that there were a significant number of outstanding action points, a number of which related to anti-money laundering ("AML") and Countering the Financing of Terrorism ("CFT") issues.

Following this risk assessment, the Commission implemented a Risk Mitigation Programme in which the Licensee was required to provide a plan to the Commission detailing how it would reduce the number of outstanding action points to a manageable level and regularly update the Commission accordingly.

In October 2017, Mr Sinclair informed the Commission that outstanding action points had been reduced to a manageable level. However, the Commission conducted a further full risk assessment in December 2018 during which the Commission discovered that Mr Sinclair had failed to explain the full extent of the issues faced by the Licensee and that there remained a serious issue with the level of outstanding action points. The Commission reviewed the compliance reports to the board of the Licensee for the period March 2016 to September 2017 which showed that there were still a significant number of action points outstanding.

Mr Sinclair replied to the Commission the number of outstanding action points which were aged one month or older, rather than the total number of outstanding action points which was significantly greater.

As a result, the Commission concluded that the Licensee and Mr Sinclair did not deal with the Commission in an open and co-operative manner, as required by Principle 10.

Aggravating Factors

The Licensees' clients included high-risk clients, some of whom were PEPs, based in high-risk jurisdictions, and some of whom, the Licensee was aware had adverse media reports related to them.

The breaches were extremely serious and exposed the Licensee and the Bailiwick to the very real risk of being used to facilitate financial crime and thereby to the risk of damaging the reputation of the Bailiwick as a leading and well-regulated international finance centre.

The Licensee had a previously poor compliance history, in particular in relation to outstanding action points.

Mr Sinclair was willing to override the Licensee's internal policies, procedures and controls at the request of a client.

Mitigating Factors

Mr Sinclair has co-operated with the Commission and agreed to settle at an early stage of the process. This has been taken into account and an early settlement discount to the proposed financial penalty and prohibitions has accordingly been applied.

On 4 June 2026, the Guernsey Financial Services Commission (“the Commission”) decided:

• To impose a financial penalty of £125,000 under section 39 of the Enforcement Powers Law on Mr Domaille.
• To impose a financial penalty of £40,000 under section 39 of the Enforcement Powers Law on Mr Clarke.
• To impose a financial penalty of £22,500 under section 39 of the Enforcement Powers Law on Mrs Hannis.
• To make this public statement under section 38 of the Enforcement Powers Law.

The financial penalties issued in this case were imposed under Section 39 of the Enforcement Powers Law in accordance with The Financial Services Commission (Bailiwick of Guernsey) (Amendment) Law, 2016, which increased the maximum level of financial penalties available to the Commission.

The Commission considered it reasonable and necessary to make these decisions having concluded that the Individuals failed to ensure compliance with the regulatory requirements and failed to meet the Minimum Criteria for Licensing (“the MCL”) pursuant to Schedule 1 of the Fiduciaries Law.

BACKGROUND

Mr Domaille has been the majority shareholder of a licensed Guernsey company (“the Licensee”) during the period under review. He was a director from incorporation until June 2019 at which point, he became managing director and has remained in this role.

Mr Clarke was an associate director of the Licensee from January 2011 until November 2015 when he became a director. He ceased to be a director in October 2022.

Mrs Hannis was a manager of the Licensee from March 2011 to November 2016, and again from June 2022 to date, an associate director from December 2016 to June 2019 and a director from June 2019 June to June 2022.

The Licensee is a licensed fiduciary company and its primary business is the establishment and administration of trust and corporate structures. Through its secondary licensees, the Licensee provides directorship, trustee, administration, secretarial and nominee shareholder services.

FINDINGS

The Commission’s investigation commenced following a full risk assessment of the Licensee conducted in December 2018. This full risk assessment found that, amongst other matters:

• the Licensee failed to take adequate steps to establish the identity of beneficial owners of client companies or the source of funds;
• the Licensee failed to identify, manage and mitigate conflicts of interest; and
• there were a significant amount of outstanding action points arising from its periodic file reviews (a repeat failing from a full risk assessment conducted in 2016.)

The most significant failings found in the course of the Commission’s investigation arose from failure by the Individuals to ensure that the Licensee complied with the Regulations, the rules of the Handbook (“the Rules”), the Code of CG and the TSP Code.

Brief examples of some of the failings are set out below.

Failure to ensure that the Licensee carried out ongoing monitoring of clients

Regulation 11 details the requirements to perform ongoing and effective monitoring of existing business relationships, including scrutiny of any transactions or other activity. Regulation 5 also details that for high-risk clients there must be more frequent and more extensive monitoring.

Example 1

In 2002, the Licensee established a business relationship with Mr A, a national of Country A. Throughout the business relationship, Country A remained a high-risk country known for its high levels of bribery and corruption. Mr A was involved in high-risk business activities often working with the government of Country A.

The Licensee acted as Trustee for Trust 1 which was settled by Mr A and as directors and secretary of companies held under Trust 1.

From the inception of the relationship substantial monies were transferred to the Licensee as trustee through money exchange companies which made the source of the funds difficult to establish despite substantial amounts also being transferred through banks in respect of which the source of funds was more readily established. The Licensee failed to take reasonable steps to ascertain a credible explanation for the use of money exchange companies or to take reasonable steps to establish the source of funds paid through the money exchange companies.

Following the death of the leader of Country A, Mr A requested the Licensee change the name of Trust 1 and to replace him as a beneficiary of the trust with a family member. Mr Domaille noted that Mr A would still be shown as the settlor and the trust would always have a history of being named “Trust 1”. To achieve the closest result to Mr A’s wishes, Mr Domaille suggested to Mr A the setting up of a new trust by a declaration of trust (“Trust 2”), which would achieve the following:

• Mr A would not be named as settlor;
• the beneficiaries could be named as a class and exclude Mr A;
• there would be no link to Trust 1; and
• the new trust could be called anything.

Mr A also wanted the name of an associated foreign company changed. The explanation given by Mr A to Mr Domaille was that he wished to protect the trust assets from illegitimate claims. These changes were all effected for Mr A by Mr Domaille. As the Licensee was aware that it had not established the source of funds transferred through the money exchange companies the Licensee should have considered terminating the relationship with Mr A rather than implementing the request.

The Licensee was later informed that Mr A had a brother who worked for a government organisation in Country A which had entered into contracts with Mr A’s businesses. The Licensee was informed that Mr A’s brother and a group of foreign companies he used were being investigated and had been accused of misappropriating funds from the government of Country A. This government organisation had previously been (but was not then currently) the subject of EU sanctions, enforceable in Guernsey, due to being an entity acting on behalf of the leader of Country A. Mr A was concerned that he might be subject to investigation. According to a file note of a conversation between Mrs Hannis and Mr A’s adviser, Mr A and his brother were confident that the investigation would be closed. However, the Licensee and Mrs Hannis took this explanation at face value and took no further steps to verify the relevant details.

The Licensee became aware of adverse media regarding Mr A and his brother, including that the government organisation with which Mr A’s brother was associated was alleged to have given contracts to companies related to Mr A.

Shortly after the adverse media began to appear, Mr A contacted the Licensee from an unknown email address, informing them of a change of email address and requested distributions to be made from Trust 2 to bank accounts in another high-risk jurisdiction. Over the next few months, a significant proportion of Trust 2’s assets were transferred to bank accounts in another high-risk jurisdiction in the name of Mr A who had, as described above, been removed as a beneficiary of the trust. The distributions were allegedly for and on behalf of Mr A’s wife (named as the beneficiary) who apparently did not have a bank account.

The Licensee effected the transfer of monies putting the funds out of its control despite the fact that it had not ascertained the source of funds and in spite of is knowledge of the matters described above. Mr A’s wife subsequently gave her consent to the distributions.

In addition, the payment of funds from Trust 2 to Mr A, who was no longer a beneficiary, without any rationale demonstrates that the Licensee was not treating the interests of the beneficiaries as paramount, as required by paragraph 4 of the TSP Code.

The Licensee did not have a complete and clear understanding of Mr A and the business relationship from the beginning. At all material times, Mr Domaille and Mrs Hannis were responsible for the relationship between Mr A, the Trust and the Licensee.

Example 2

The Licensee established a business relationship with Company 1, a foreign registered company, in 2006, which at the time was ultimately owned by Mr B. Mr B was a high-net worth individual from a high-risk country and was also a politically exposed person (“PEP”). Company 1’s function was to hold a property. The Licensee initially rated Company 1 as high-risk.

Between 2006 and 2013, the legal ownership of Company 1 changed from Mr B to Mrs C, a family member of Mr B. The Licensee was unaware of the change in ownership until 2013 and was unaware of when the change took place or the rationale behind the change.

In 2016, the Licensee was made aware that the ownership structure had changed again in 2014. Ownership of Company 1 was split between 11 people/foundations/funds, with 80.2% of the shareholding being held in declarations of trust in favour of Mrs C. Some of the additional people/foundations/funds that became shareholders were related to Mr B, and one of them was a PEP. Mr B, via various vehicles, indirectly held a significant shareholding of Company 1, and this framework could be considered as a way of disguising Mr B’s position.

In early 2018, Mr B was subject to U.S. sanctions, however, no action was taken by the Licensee despite knowledge of the sanctions. Later in 2018, the Licensee became aware of adverse media which reported that Mr B had made Mrs C the ostensible owner of a multitude of other companies and assets that had belonged to him. This adverse media suggested that these changes of ownership might have been an attempt by Mr B to hide his assets in the light of stricter sanctions, however, Mr Domaille and Mrs Hannis did not ensure that the Licensee took steps to ascertain the reason for the ostensible change in ownership, whether the ostensible owner was in truth the beneficial owner and as a result failed to act with the appropriate professional skill and soundness of judgement in accordance with requirements of the MCL.

The Licensee also failed to appropriately monitor and record a loan that Company 1 had received. In or around 2008, Company 1 received a loan from an associated company, however, the Licensee did not have the corresponding loan agreement. In 2018, the Licensee contacted a representative of the associated company in an attempt to determine the rationale behind this loan and also requested a copy of the agreement. The Licensee was informed that the purpose of the loan was to fund the cost of maintaining the property but repayment had been waived in 2017, and it was not provided with a copy of the agreement. For 10 years, the Licensee failed to monitor this transaction and have the necessary documentation, oversight and understanding of it as required by the Handbook. Mr Domaille and Mrs Hannis should have ensured that the Licensee took steps to understand the provenance of the funds and in failing to do so failed to act with the appropriate professional skill and soundness of judgement in accordance with requirements of the MCL.

Failure to ensure that the licensee complied with Regulation 11 and the TSP Code

Example 3

The Licensee was the trustee of a Charitable Trust. The purpose of this entity was to promote the education, health, cultural and spiritual development of communities in Africa, India and Europe. Donations were made by the trustees on a recommendation from Mr D, the settlor of the Charitable Trust.

In 2017, the Licensee contacted an individual (who was not a beneficiary of the Charitable Trust) about a donation to be made towards a school project. However, before payment was made, Mr D interjected and corrected the Licensee that the payment was in fact a birthday gift to the individual, a friend of Mr D. The Licensee continued and made the payment despite the fact that it was made to a non-beneficiary outside the purpose of the Charitable Trust. The Licensee and Mr Clarke failed to effectively scrutinise the risks of facilitating payment in this way.

In another instance, the Charitable Trust paid the university fees of an individual whose father was a senior manager in a natural resource company part owned by Mr D. The individual’s father was also the Vice-Chairman of a subsidiary of the natural resource company which operated a mine in a high-risk country. The mine was part-owned by the government of that country.

Mr Clarke identified that the direct payment of university fees could be considered disguised remuneration to the father of this individual and a breach of the trust deed. However, Mr Clarke then suggested an alternative method of paying the university fees to Mr D personally who could settle the fees himself.

In addition, the payment of funds from Charitable Trust outside of the provisions of the trust deed demonstrates that Mr Clarke was not treating the interests of the beneficiaries as paramount, as required by paragraph 4 of the TSP Code.

Mr Clarke should have ensured that the Licensee complied with Regulation 11 and paragraph 4 of the TSP Code and demonstrated a lack of soundness of judgement and professional skill and thereby failed to meet the requirements of the MCL.

A failure to procure that the Licensee took reasonable measures to establish source of funds and source of wealth for high-risk customers

Regulation 5(1) and 11 and paragraph 5 of Schedule 3 to the Proceeds of Crime Law require a financial services business to carry out enhanced customer due diligence (“EDD”) where the customer, beneficial owner or underlying principal is a PEP or where a business relationship that has been assessed as high-risk. EDD includes taking reasonable measures to establish the source of any funds and of the wealth of the customer and beneficial owner and underlying principal.

Example 4

The Licensee provided director, administration, secretarial and nominee services for a Guernsey registered company, Company 2, which was owned by Mr E, a PEP in Country B. Between 2006 and 2007, Company 2 received substantial loans in the period 2007 to 2008 from a foreign registered entity with which the Licensee had no business relationship. The Licensee has confirmed that at the time of receiving these loans it had not ascertained the ultimate beneficial owner, the source of funds or the source of wealth in relation to these loans.

When the Licensee contacted the administrator of the foreign entity in 2018 (some 11 years after the receipt of the funds) to establish the source of the funds for the loans, the Licensee was told that the owner could have changed several times and that the administrator had no information on where the money had come from.

The Licensee contacted the administrator of the foreign entity again in 2021 and was told the source of funds was an employee of the administrator and that the funds came from an investment in an entity which was involved in providing infrastructure projects in Country B. The administrator eventually confirmed that the funds loaned to Company 2 originated from Mr E.

The Licensee has since discovered that Mr E was a director of the infrastructure company, that had been the subject of a number of investigations, including allegations of bribery and corruption, thereby creating the potential that the source of the loans was linked to the proceeds of crime.

In relation to Company 2, Mr Domaille acted with a lack of competence and professional skill and thus failed to meet the MCL in not ensuring that the Licensee complied with Regulations 5 and 11.

A failure to ensure that the Licensee regularly reviewed its customer risk assessments and ensure all relevant risk factors were considered

Paragraph 3(4)(b) of Schedule 3 to the Proceeds of Crime Law (and previously Regulation 3(2)(b)), requires a financial services business to regularly review, and where necessary update, its customer risk assessments. Rule 55 of the Handbook requires a financial services business to ensure that all relevant risk factors are considered before determining the overall assessed risk.

Example 5

The Licensee’s policy for conducting periodic reviews on its clients was as follows:

• for high activity high-risk clients to be reviewed annually;
• lower activity high-risk clients every other year; and
• standard risk clients every three to five years.

During the period March 2014 and September 2019, there was a constant backlog of periodic reviews relating to a significant proportion of the Licensee’s clients. As a result, the Licensee was in breach of Regulations 3, 11 and 15. Mr Domaille and Mr Clarke were directors of the Licensee during the period referred to above and acted with a lack of competence and professional skill and so failed to meet the MCL in failing to procure that the Licensee carried out reviews in accordance with the Regulations and the Licensee’s policy.

Example 6

With regards to Mr B and Company 1 (see Example 2), the Licensee had initially rated this relationship as high-risk.

The risk assessment for Company 1 was reviewed in 2016 and the Licensee re-classified it from high-risk to standard risk due to Mrs C being recognised by the Licensee as the ultimate beneficial owner, and a person who was not considered a PEP or PEP by association to Mr B. However, the Licensee failed to consider a number of risk indicators, as required by Rule 55 of the Handbook:

• the Licensee was not informed of the change in ownership from Mr B to Mrs C (between 2006 and 2013);
• the potential that the new ownership structure obfuscated the true ownership by Mr B; and
• the fact that the business relationship was still associated with Mr B, who was still considered a PEP.

There was a failure by Mr Domaille and Mrs Hannis to procure the Licensee to review this risk assessment when it became aware of the second change of ownership. This failure resulted in the structure remaining classified as standard risk notwithstanding that there was an additional PEP and an additional ownership layer in the structure.

Company 1 remained rated as standard risk until late 2018 when the Licensee re-classified it as high-risk again, having identified that there were more PEPs involved. However, this was six months after Mr B had been sanctioned by the U.S. and three months after the adverse media surrounding Mr B and Mrs C was published, which the Licensee was aware of but did not give due consideration as to how this affected the risks associated with Company 1. Mr Domaille and Mrs Hannis acted with a lack of professional skill and soundness of judgement in breach of the MCL in not procuring the Licensee to take more steps to consider the appropriate risk category applying to Company 1.

A failure to procure that the Licensee took measures to understand the ownership and control of customers

Regulation 4(1) (subsequently paragraph 4 of Schedule 3 to the Proceeds of Crime Law) required a financial services business to ensure that the steps outlined in Regulation 4(3) were carried out. Regulation 4(3)(c) required a financial services business to take measures to understand the ownership and control structure of customers.

Example 7

As noted above (see Example 2), the beneficial ownership of Company 1 changed from Mr B to Mrs C sometime between 2006 and 2013, without the Licensee’s knowledge. Even though the Licensee became aware of the change in ownership in 2013, there was no documentation on the file that explained the rationale or the date of the change.

The Licensee should have taken steps to understand the ownership and control of Company 1, however, the Licensee failed to take measures to understand or consider whether Mr B continued to be the true ultimate beneficial owner of Company 1 given the risk factors outlined above. Mr Domaille and Mrs Hannis acted with a lack of professional skill and soundness of judgement in breach of the MCL in not procuring the Licensee to take more steps to ascertain the beneficial ownership of Company 1.

Mr Domaille and Mr Clarke failed to manage or minimise conflicts of interest

Paragraph 3.2 of the Code of CG states that Directors have a duty to avoid, manage or minimise conflicts of interest and should, wherever possible, arrange their personal and business affairs so as to avoid direct and indirect conflicts of interest.

Example 8

The Licensee provided administration services to Company 3, a Guernsey registered company, involved in natural resource extraction in a high-risk country. Mr D founded this company and another director of the Licensee (Director A) was a director and shareholder of it in his personal capacity.

Mr D gifted shares in Company 3 to Director A, Mr Clarke, and also to a Trust Administrator at the Licensee, conditional on a successful initial public offering on a recognised Stock Exchange. These gifts were described in the Licensee’s gift register as gifts to family and friends which failed to acknowledge that the recipients were, as a result of the gifts, in a position of conflict. Following the subsequent initial public offering, the shares held by Director A, Mr Clarke, and the Trust Administrator were worth a significant sum of money.

According to the Licensee’s policy applicable at the time: (i) staff should not accept any gift if it is likely to conflict in any material way or was likely to induce someone to breach a duty,

(ii) any gifts of cash or cash equivalent required the prior written approval of the Compliance Manager, and (iii) any gift over £500 required the prior approval of the Managing Director. The Commission saw no evidence of prior written approval by the Compliance Manager in relation to the gift of shares. Mr Clarke’s and the Trust Administrator’s shares were approved by Director A, the Managing Director.

The receipt of such significant gifts was in breach of the Licensee’s own policy and created a risk that Mr D could influence Director A, Mr Clarke and the Trust Administrator. However, the risks associated with this potential conflict of interest were only partially identified by the Licensee after the gifted shares had been transferred and thus were not effectively managed or minimised at the appropriate time. Mr Clarke and the Trust Administrator returned the shares to Mr D some three years later in the light of the apparent conflicts in the course of the investigation by the Commission.

The Licensee failed to have effective suitable oversight of the management and control of the potential risk of Director A, Mr Clarke and the Trust Administrator committing an offence under The Prevention of Corruption (Bailiwick of Guernsey) Law, 2003, as required by Principle 5 of the Code of CG.

Mr Domaille and Mr Clarke acted with a lack of professional skill and soundness of judgement and so failed to meet the MCL in failing to ensure that the Licensee had appropriate procedures in place to deal with the acceptance of shares.

Mr Clarke failed to ensure that the Licensee had adequate controls to manage risk

Paragraph 4.4 of the Code of CG states that a company should maintain a sound system of internal control to safeguard the company’s assets and to manage risk, and the Board should regularly review such controls.

Example 9

The Licensee provided director and administration services to Company 4 which was another company linked to Mr D. Company 4 is a Guernsey company which had two foreign subsidiaries involved in building data centres for the purpose of being rented out for mining cryptocurrency.

Company 4 entered into an agreement with a third-party investor in which it was agreed to receive an investment subscription by way of Bitcoin. At the time in question, the Licensee understood that Company 4’s bank had a policy of not accepting funds derived from cryptocurrencies. Despite this, Company 4’s bank account received three tranches of investment from a company that was involved in over-the-counter trading of cryptocurrencies in respect of the third-party’s investment by way of Bitcoin.

Mr Clarke should have ensured that the Licensee had adequate controls in place to monitor and manage the risk that funds received might be derived from cryptocurrency.

Mr Domaille

The Commission’s investigation identified that Mr Domaille failed to demonstrate that he acted with competence, soundness of judgement and professional skill in accordance with the minimum criteria for licensing.

For example, Mr Domaille:

• was the overseeing client director of Mr B and failed to consider all the risk factors involved in the client relationship and approved it being re-classified as standard risk, despite Company 1 being linked to a PEP;
• failed to avoid, manage or minimise conflicts of interest, in particular in relation to Company 3; and
• as a controlling director of the Licensee, failed to ensure its compliance with the Regulations and Handbook.

Mr Clarke

The Commission’s investigation identified that Mr Clarke failed to demonstrate that he acted with soundness of judgement and professional skill in accordance with the minimum criteria for licensing.

For example, Mr Clarke:

• failed to ensure that the Licensee had effective controls in place to ensure that it did not breach what it considered at the time the policy of Company 4’s bank of not accepting funds derived from cryptocurrencies;
• provided the means to Mr D to make a payment from the Charitable Trust after having identified that this could be characterised as disguised remuneration;
• failed to avoid, manage or minimise conflicts of interest, in particular in relation to Company 3; and
• as a director of the Licensee, failed to ensure its compliance with the Regulations and Handbook.

Mrs Hannis

The Commission’s investigation identified that Mrs Hannis failed to demonstrate that she acted with, soundness of judgement and professional skill. The Commission concludes that Mrs Hannis is not a fit and proper person due to her actions.

For example, Mrs Hannis:

• was the responsible manager for the entities related to Mr B and failed to identify to assess the risks adequately; and
• did not manage the situation in an effective way.

Mitigating Factors

Following an on-site visit to the Licensee by the Commission in 2018 , the Licensee completed a risk mitigation programme under the guidance and instigation of Mr Domaille. This included appointing a third-party to review the effectiveness of its new procedures.

Mr Domaille and Mr Clarke procured the appointment of four additional directors, including creating a new role of a Chief Executive Officer and appointed a person who is independent of the ownership of the Licensee in that role. The Licensee also appointed a non-executive director, a role which the Licensee previously did not have. The Licensee has also expanded its compliance resources, including hiring a separate MLRO and MLCO.

The Financial Services Business (Enforcement Powers) (Bailiwick of Guernsey) Law, 2020 (“the Enforcement Powers Law”)

The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2020 (“the 2020 Fiduciaries Law”)

The Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007 (“the Regulations”)

The Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing, 15 December 2007 (“the Handbook”)

Mr William Stephen Cairns (“Mr Cairns”)

Mr Du Preez Gert Vermeulen (“Mr Vermeulen”)

 (together “the Former Directors”)

On 2 February 2023, the Guernsey Financial Services Commission (“the Commission”) decided:

1. To impose a financial penalty of £133,000 on Mr Cairns under section 39 of the Enforcement Powers Law;

2. To impose a financial penalty of £35,000 on Mr Vermeulen under section 39 of the Enforcement Powers Law;

3. To make an order under section 33 of the Enforcement Powers Law prohibiting Mr Cairns from holding the position of controller, shareholder, director, manager, money laundering reporting officer and money laundering compliance officer of a licensee for a period of ten years and six months;

4. To issue a Notice under section 32 of the Enforcement Powers Law disapplying the exemption set out in section 3(1)(g) of the 2020 Fiduciaries Law in respect of Mr Cairns for a period of ten years and six months;

5. To make an order under section 33 of the Enforcement Powers Law prohibiting Mr Vermeulen from acting as a director for a period of two years and one month;

6. To issue a Notice under section 32 of the Enforcement Powers Law disapplying the exemption set out in section 3(1)(g) of the 2020 Fiduciaries Law in respect of Mr Vermeulen for a period of two years and one month; and

7. To make this public statement under section 38 of the Enforcement Powers Law.

The Commission considered it reasonable and necessary to make these decisions having concluded that the Former Directors had failed to ensure compliance with the regulatory requirements, and the minimum criteria set out in Schedule 1 of the Fiduciaries Law.

The findings in this case were serious, spanned a significant period of time (predominantly pre-2018) and had the potential to jeopardise the reputation of the Bailiwick as an international finance centre.

Discretionary financial penalties were applied in this case using the levels of penalties in force pre 13 November 2017.

BACKGROUND

The Licensee was established in Guernsey in June 1978 and has held a full licence under the 2020 Fiduciaries Law[1] since April 2001.  The Licensee provides trust services, including acting as corporate trustee and the formation, management, and administration of trusts; the formation, management and administration of companies to hold assets on behalf of clients; and the provision of nominee services, including acting as or providing nominee shareholders and acting as corporate secretary.

Mr Cairns was an Executive Director between 1978 and October 2017; and was a shareholder controller of the Licensee from 1978 to May 2020.

Mr Vermeulen was an Executive Director between July 2014 and March 2018.

The Commission’s investigation commenced in March 2018 following the on-site visit to the Licensee in July 2017.

FINDINGS

The Commission’s investigation found that the Licensee had failed to monitor and manage the financial crime risks of its customers, which had resulted in serious and systemic findings being identified following two on-site visits in 2015 and 2017.  The fact that the Licensee failed to adequately address the findings between the two on-sites, despite being issued a series of Risk Mitigation Programmes by the Commission to rectify the findings, was seen by the Commission to be an aggravating factor in this case.

The Commission’s investigation also identified a specific group of trusts that had been with the Licensee for a significant period of time.  The breaches identified in relation to these trusts were viewed by the Commission as serious as the Licensee failed to, at all times, record accurately who were the settlors and beneficiaries of these trusts. 

This was particularly concerning to the Commission as tens of millions of pounds was identified flowing through these trusts (including a series of payments, over a five year period of circa sixteen million pounds to a foreign bank account for which the Licensee was unclear who the actual account holder was); and which due to the inaccurate, and at times misleading nature of the company and trust records, led to delays in statutory reporting to relevant authorities.

In particular, the Commission found:

Failure to act with integrity and probity

Principle 1 of the Principles of Conduct of Finance Business requires that “a financial institution should observe high standards of integrity and fair dealing in the conduct of its business.”

Principle 2 of the Code of Practice – Trust Service Providers, 2009; and Principle 2 of the Code of Practice – Corporate Service Providers, 2009, both require that “TSPs should conduct their business with integrity and should not attempt to avoid or contract out of responsibilities under this Code.”

Paragraph 1 of the Minimum Criteria for licensing (the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law, 2000;[2] stipulates that the business of a licensed fiduciary must be carried out with integrity; and in relation to persons such as directors, they must act with probity.

Example 1

The Commission identified that in relation to Trust A, Trust B and Trust C, client agreements and written statements were signed by the Licensee which omitted any mention of third parties, despite there being clear knowledge that these third parties had benefited, either directly or indirectly from these trusts, often to the sum of millions of pounds over a protracted period of time.

The Commission viewed the client agreements and written statements as deliberately misleading.

Example 2

Following the issuance by the Commission in August 2014 of an Instruction for Licensees to, inter alia, review their compliance arrangements; the Licensee responded and confirmed in August 2014 that they had complied with the Instruction.

In November 2014, the Licensee self-reported to the Commission that 56% of its periodic reviews were outstanding.

The original confirmation by the Licensee misled the Commission as to the actual appropriateness and effectiveness of the Licensee’s compliance arrangements.

Failure to act in accordance with a fiduciary duty, to observe the utmost good faith and to act in the interest of the beneficiaries of trusts

Principle 4 of the Code of Practice – Trust Service Providers, 2009, requires a TSP to “treat the interests of beneficiaries as paramount subject to their legal obligations to other persons or bodies.”

Example 3

In relation to Trust C, the Licensee, acting as trustee, utilised the trust’s funds to purchase, via a holding company, circa $28,000,000 worth of shares, without undertaking the necessary due diligence. Two years later, these shares would be valued at nil value.

The Commission was unable to identify any independent appraisal conducted by the Licensee to satisfy themselves that the share purchase was a sound and credible investment for Trust C.

Example 4

In relation to Trust D, the Commission’s investigation identified that Person 1, over a period of time, had settled and received funds from the trust.  The main asset in Trust D were shares in a listed company where Person 1 held a senior position.

Separately, Trust E was established nine years later, with Person 2 detailed as the beneficiary.  Person 2 was linked to Person 1 via common directorship of a specific company.

Following this, some six years later, a deed of settlement resulted in Trust E being added as the beneficiary of Trust D, and all the assets from Trust D were transferred to Trust E.

Three days after this, Person 2 was removed as the beneficiary of Trust E and replaced with Person 3.  Person 3 was linked to Person 1 and 2 via common directorship of a specific company.

One year later the assets of Trust E (the shares in a listed company where Person 1held a senior role) were sold at a substantial profit.  The proceeds were ultimately lent to a subsidiary of Trust E and used to purchase a property.  This property was resided in by Person 1.

The Commission’s investigation did not identify any records that detailed the rationale for the following:

• Why the assets were transferred from Trust D to Trust E; or
• Why Person 2 and Person 3 were added as beneficiaries of Trust E.

The Commission’s investigation would identify that after the above re-structuring had taken place, Person 1 would inform the Licensee that they had come to agreement with Person 3 to receive the benefit from Trust E, as Person 1 was under investigation by authorities in another jurisdiction.

The Commission believes that regardless of the fact that it uncovered no evidence to suggest that the Licensee was aware of Person 1’s actual motives, there were numerous contemporaneous red flags in relation to the above restructuring, which should have alerted the Licensee to the need to investigate more fully these events – in particular, as the Licensee was the trustee of Trust D and Trust E at the relevant time.

Failure to monitor activity and transactions

Regulation 11(1)[3] requires a financial services business to perform ongoing and effective monitoring of any existing business relationship, which includes the scrutiny of any transactions or other activity, paying particular attention to all complex transactions, transactions which are both large and unusual; and unusual patterns of transactions, which have no apparent economic purpose or no apparent lawful purpose.

Rule 121 of the Handbook (2010 updated version) required a licensee to “understand the nature of the trust structure and the nature and purpose of activities undertaken by the structure sufficient to monitor such activities and to fully understand the business relationship.”

Principle 2 of the Principles of Conduct of Finance Business states that a financial institution should act with due skill, care, and diligence towards its customers.

Example 5

Over a period of five years, circa £16 million flowed out of the funds of Trust B and thereafter via subsidiary trusts to a bank account in another jurisdiction.

The Commission’s investigation identified that the Licensee had failed to perform ongoing and effective monitoring of Trust B, exemplified by the inability of the Licensee to definitively explain (i) why funds were flowing from Trust B to the foreign bank account; and more importantly, (ii) who the foreign bank account related to.

Example 6 

In relation to the investment activities of Trust A, Trust B and Trust C, the lack of monitoring was virtually absolute and was exacerbated by a lack of adequate records.  This resulted, on one occasion, a retrospective review undertaken by the Licensee in respect of Trust B, some 28 years after its creation.  The review detailed that there was an unknown opening balance of circa £4 million pounds.

Failure to keep proper books and records

Regulation 14(1) of the Regulations requires a licensee to keep copies of transaction documents.

Principle 5 – Code of Practice, Trust Service Providers, 2009; requires a TSP to, inter alia, “keep and preserve (as far as appropriate for the TSP’s functions and for at least the periods required by any applicable law) appropriate records of trusts business including accounts, tax records and minutes of meetings.”

Principle 5 of the Code of Practice – Corporate Service Providers, 2009; requires a CSP to keep a written record of the terms of the agreement with each client, including evidence of the client’s agreement to those terms.

In relation to Trust A, Trust B and Trust C, the Commission noted that the Licensee failed, for 26 years, to obtain client agreements, despite tens of millions of pounds of funds moving through these trusts via a web of subsidiary trusts and companies, with incomplete and vague details being recorded during this time regarding additional settlors and additional beneficiaries.

The Licensee failed to keep updated financial accounts for its clients, culminating in January 2017 with 800 sets of financial accounts spread across 325 client entities being outstanding.

Failure to ensure appropriate and effective AML/CFT procedures

Regulation 15(1)(b) of the Regulations requires a licensee to: “establish and maintain an effective policy, for which responsibility must be taken by the board, for the review of its compliance with the requirements of these Regulations.”

The Commission conducted an on-site visit to the Licensee in November 2015 and identified, inter alia, the following widespread and systemic failings:

• The Licensee had not established a compliance monitoring programme;
• The Licensee’s business risk assessment (“BRA”) did not adequately address the specific risks of the products, services and activities undertaken by the Licensee;
• The Licensee had inadequate client risk assessments;
• The Licensee had deficiencies in relation to customer due diligence (“CDD”); and
• The Licensee had failed to monitor its clients and undertake regular risk reviews.

The Commission issued a set of Risk Mitigation Programmes (“RMPs”), designed to rectify the identified failings.

The Commission conducted a further on-site visit to the Licensee in July 2017 and noted the following:

• The Risk Mitigation Programmes issued by the Commission had not been adequately completed; and
• Serious and significant failings were again identified in relation to, inter alia, client risk assessments and the monitoring of clients.

The Commission therefore has viewed the Licensee as a repeat offender.

Failure to manage conflicts of interest

Principle 3.2 of the Finance Sector Code of Corporate Governance states that directors have a duty to avoid, manage or minimise conflicts of interest and should, wherever possible, arrange their personal and business affairs so as to avoid direct and indirect conflicts of interest.

During his tenure as a director, and latterly as managing director, Mr Vermeulen was loaned a large sum of money by Mr Cairns.  The Commission considered the potential that the financial obligation owed by Mr Vermeulen to Mr Cairns created a direct or indirect conflict of interest, that should have been recorded and managed appropriately.

This conflict of interest was not recorded on the Licensee’s conflict of interest register until some two and half years after the loan was made, nor was all of the board of the Licensee made aware of this loan at the time.

Mr Cairns

The Commission’s investigation identified that Mr Cairns failed to demonstrate that he acted with probity, competence, soundness of judgement and diligence.

For example, Mr Cairns:

• Was directly involved in the creation of client agreements and written statements in relation to Trust A, Trust B and Trust C, which the Commission noted omitted any mention of key third parties and was thus misleading;
• Failed to ensure the transaction in relation to the purchase of circa $28,000,000 worth of shares using funds from Trust C was properly monitored, a transaction that resulted in a total loss to the trust when the shares were subsequently found to have nil value;
• Failed to monitor the flow of circa £16,000,000 of funds from Trust B to a foreign bank account over a five year period; and who, when asked by the Commission who the foreign bank account related to, replied: “I don’t know;”
• Failed to adequately manage the conflict of interest created by his personal loan to Mr Vermeulen; and
• Failed to ensure the compliance function at the Licensee was adequate, and failed to ensure the remediation of the issues identified during the 2015 Commission on-site visit were effectively addressed.

Mr Vermeulen

The Commission’s investigation identified that Mr Vermeulen failed to demonstrate that he acted with probity, competence, soundness of judgement and diligence.

For example, Mr Vermeulen:

• Failed to ensure the transaction in relation to purchase of circa $28,000,000 worth of shares using funds from Trust C was properly monitored, a transaction that resulted in a total loss to the trust when the shares were subsequently found to have nil value;
• Failed to adequately manage the conflict of interest created by the personal loan he received from Mr Cairns; and
• Failed as Managing Director to ensure that that the failings identified during the Commission’s 2015 on-site visit were remediated, as can be seen from the failings identified during the Commission’s 2017 on-site visit.

Aggravating Factors

The Commission views the Licensee as a repeat offender, having had failings identified during both on-site visits in 2015 and 2017.  The Commission also noted that some failings identified in the 2015 on-site visit had not been adequately remediated by the time of the 2017 on-site visit, despite specific remediation plans being issued to the Licensee, by the Commission, in 2015.

The Licensee’s failure to accurately record at all times the settlors and beneficiaries of specific trusts was viewed as serious by the Commission, as these trusts were noted to have had substantial transfers of funds both in and out of them, often involving millions of pounds: transfers that appeared to the Commission to be not only be overly complex, but also lacking in documented rationales regarding their purpose.

The Commission believes that the Licensee’s failings in relation to the monitoring of these specific trusts and the failings in relation to record keeping in relation to these trusts, resulted in the risk that statutory reporting to relevant authorities would have been delayed and thus undermining those relevant authorities’ ability to discharge their functions.

Mitigating Factors

At all times the Former Directors have co-operated fully with the Commission.  The Former Directors agreed to settle at an early stage of the process, and this has been taken into account by applying a discount in setting the prohibitions and financial penalties.

The Licensee was established in Guernsey in June 1978 and has held a full licence under the 2020 Fiduciaries Law¹ since April 2001. The Licensee provides trust services, including acting as corporate trustee and the formation, management and administration of trusts; the formation, management and administration of companies to hold assets on behalf of clients; and the provision of nominee services, including acting as or providing nominee shareholders and acting as corporate secretary.

Mrs Dowding

The Commission’s investigation identified that Mrs Dowding failed to demonstrate that she acted with probity, competence, soundness of judgement and diligence.

For example, Mrs Dowding:

• Failed during her tenure to ensure that the compliance function at the Licensee was adequate and failed to ensure the remediation of issues identified during the Commission’s 2015 onsite visit were effectively addressed before her resignation as a director in June 2016;
• Failed as an Executive Director, together with other Former Directors of the Licensee, for ten years to manage and address the serious issues that arose in relation to both the Licensee’s general compliance function, and the specific and serious issues that arose in relation to the Trust A, Trust B, Trust C, Trust D and Trust E; and
• Failed to adequately manage the conflict of interest created by the personal loan from Director A to Director B.

It is acknowledged that Mrs. Dowding resigned as a director in June 2016, and so was not responsible for the failings of the Licensee after this date.

Aggravating Factors

The Commission considered the Licensee to be a repeat offender, having had failings identified during both on-site visits in 2015 and 2017. The Commission also noted that some failings identified in the 2015 onsite visit had not been adequately remediated by the time of the 2017 onsite visit, despite specific remediation plans being issued to the Licensee, by the Commission, in 2015.

The Licensee’s failure to accurately record at all times the settlors and beneficiaries of specific trusts was viewed as serious by the Commission, as these trusts were noted to have had substantial transfers of funds both in and out of them, often involving millions of pounds: transfers that appeared to the Commission to be not only be overly complex, but also lacking in documented rationales regarding their purpose.

The Commission believes that the Licensee’s failings in relation to the monitoring of these specific trusts and the failings in relation to record keeping in relation to these trusts, resulted in the risk that statutory reporting to relevant authorities would have been delayed and thus undermining those relevant authorities’ ability to discharge their functions.

Mitigating Factors

The new board of the Licensee took control of the Licensee after the period in which the contraventions set out above took place. The new board identified a number of the failings at the firm and have proactively and successfully sought to address these failings through a remediation programme. At all times the Licensee has co-operated fully with the Commission.

At all times Mr Conway and Mrs Dowding have also co-operated fully with the Commission.

¹ Which replaced The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2000 (“the 2000 Fiduciaries Law”) with effect from 1 November 2021 conduct their business with integrity and should not attempt to avoid or contract out of responsibilities under this Code.”

² The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2020 replaced The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2000 with effect from 1 November 2021.

³ From 31 March 2019, Regulation 11 was replaced by paragraph 11 of Schedule 3 of the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999.

Further to last Tuesday’s publication of the updated Handbook on Countering Financial Crime, we identified that not all the updated sections of the Handbook were loaded. Tuesday's upload omitted revised chapters 7, 9, 10, 16 and Appendix F which have now been included.  The revised Handbook may be accessed through this link. The link in the press release issued on Tuesday 5 May 2026 has also been updated.

The clean and tracked version of the Handbook can be accessed via the Handbook page.

The FATF page on High-Risk and Other Monitored Jurisdictions can be found here.

The Financial Services Business (Enforcement Powers) (Bailiwick of Guernsey) Law, 2020 (the “Enforcement Powers Law”)

The Insurance Business (Bailiwick of Guernsey) Law, 2002

The Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law 2002

The Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007 (the “Regulations”)

Schedule 3 to Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 (“Schedule 3”)

The Disclosure (Bailiwick of Guernsey) Law, 2007

The Handbook on Countering Financial Crime and Terrorist Financing (the “Handbook”)

The Principles of Conduct of Finance Business (the “Principles of Conduct”)

Utmost Worldwide Limited (the “Licensee”)

Mr Leon Steyn (“Mr Steyn”)

Mr James Alexander Watchorn (“Mr Watchorn”)

On 9 March 2026, the Guernsey Financial Services Commission (“the Commission”) decided:

To impose a financial penalty of £1,960,000 on the Licensee under section 39 of the Enforcement Powers Law;

To impose a financial penalty of £35,000 on Mr Steyn under section 39 of the Enforcement Powers Law;

To impose a financial penalty of £10,500 on Mr Watchorn under section 39 of the Enforcement Powers Law;

To make an order under section 33 of the Enforcement Powers Law prohibiting Mr Watchorn from holding the roles of Money Laundering Reporting Officer and Money Laundering Compliance Officer for a period of one year and five months; and

To make this public statement under section 38 of the Enforcement Powers Law.

The Commission considered it reasonable and necessary to make these decisions having concluded that the Licensee, Mr Steyn and Mr Watchorn failed to ensure compliance with the regulatory requirements; and failed to meet the Minimum Criteria for Licensing (the “MCL”), pursuant to Schedule 7 of  The Insurance Business (Bailiwick of Guernsey) Law, 2002; and Schedule 4 of The Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002.

EXECUTIVE SUMMARY

The findings in this case were serious, systemic and spanned a significant period - 2015 to 2025.

The Commission’s investigation considered the fundamental issue to be that the Licensee underestimated the degree of financial crime risk related to its life insurance business.

This risk of financial crime was increased by the Licensee’s historic business model – namely the use of brokers unregulated for international business, operating in developing countries often with a weak financial crime infrastructure, a client base open not just to mobile international executives but also to local people and a business stretching back over decades when financial crime requirements were less rigorous than they are today.  Whilst the Licensee changed its business model to cease writing business through unregulated brokers in 2016, many of the policies written prior to this date remain in force.

Multiple controls, albeit proportionately applied, are required to mitigate these risks. 

Instead, the Licensee regarded its business model as low-risk (despite nominally rating a large volume of its clients as high-risk), and made little effort to contact or monitor its clients until a pay-out was required.  At that point, any potential “dirty money” was in the system and the likelihood of catching it was limited to a trigger-event review process, which was not always applied rigorously by the Licensee.

This approach to the mitigation of financial crime risks ran through the Licensee and is the cause of the several control failures identified below.

The Licensee has proactively brought about operational changes across its business to address the issues identified and is taking substantial steps to remediate.

BACKGROUND

The Licensee was incorporated in Guernsey in August 1993, under the name of Generali Worldwide Insurance Company Limited. It was licensed to conduct general and long-term insurance business, but predominantly wrote regular premium unit linked savings business.

The Licensee was acquired by Utmost Group in February 2019 and changed its name to Utmost Worldwide Limited.  Utmost Group’s business model is primarily focused on writing single premium policies to high net worth and ultra-high net worth individuals.  As a result very little new business has been written by the Licensee since it was acquired by Utmost Group and the company has effectively been in run-off

The Licensee had a worldwide client base that declined from more than 80,000 to less than 40,000 clients during the period reviewed by the Commission; including clients in jurisdictions within South and Central America, many of which are internationally regarded as presenting a higher money laundering risk.

The Licensee had engagements with the Commission in 2016, 2019, 2021 and 2022; all of which had resulted in some specific failings being identified. 

Mr Steyn was the Chief Financial Officer of the firm from September 2012 to April 2020, a Director from 28 February 2019, and the Chief Executive Officer from 21 April 2020 to-date.

Mr Watchorn was the Nominated Officer / Deputy Money Laundering Reporting Officer from 16 August 2018 until 2025.

The Commission’s investigation commenced in April 2023.

FINDINGS

The Commission identified that the Licensee had had at one point approximately 22,500 high-risk clients, but based on its methodology would review less than 3.50% of those on an annual basis.

The Licensee placed a significant reliance on a trigger-event, risk review process for the remainder of its clients (either high-risk, standard or low); a process that proved to be ineffective due to the ad-hoc frequency of the reviews, the quality of some of the reviews when actually undertaken, and the inadequacy of the Licensee’s monitoring and screening processes.

The very small number of high-risk clients that were subject to regular review, represented the Licensee’s highest risk cohort of clients, including Politically Exposed Persons. The Commission identified that these reviews were also ineffective due to the lack of customer contact, and the fact that CDD deficiencies identified during these reviews were not always remediated at the time, but deferred until a future review.

The Licensee was therefore unable to demonstrate a meaningful and up-to-date understanding of the financial crime risks of its clients, in particular, its high-risk clients.  This led to widespread failings and systemic breaches of the regulatory requirements of the Bailiwick in relation to risk assessments, monitoring, and the source of wealth and source of funds of its high-risk client base.

The Licensee also became aware in 2014, that one of its third-party brokers operating in South and Central America had identified that some of its employees had been fraudulently altering client due diligence documents for approximately 1,900 of the Licensee’s clients.  The Licensee recognised the potential money laundering risks posed by this fraud.

However, the Licensee failed to remediate this serious matter expeditiously, choosing instead to rely on its trigger-event risk review process to rectify deficiencies.  This meant that 10 years after having identified the fraudulent behaviour, the Licensee had still been unable to remediate approximately 200 clients.

Mr Watchorn demonstrated views in relation to money laundering risks that did not accord with the standards the Commission believed appropriate for the specific nature of his role, particularly given the Licensee’s large volume of high-risk clients.

The Disclosure (Bailiwick of Guernsey) Law, 2007, makes it clear at Section 1(2)(b) that a suspicion of money laundering is not solely confined to the identification of criminal proceeds, but also to whether a “person is engaged in money laundering.”

The Commission’s investigation identified that Mr Watchorn often downplayed money laundering red flags (including adverse media) identified by employees of the Licensee.

The Licensee was required by the transitional provisions of the new Handbook, introduced in 2019, to review all its business relationships by 31 December 2021; but failed to comply with this statutory requirement.

In more detail, the Commission found:

The Licensee failed to properly conduct relationship risk assessments, taking into account relevant high-risk factors and to regularly review relationship risk assessments.

Schedule 3 and the related rules in the Handbook require that in order for a financial service business to consider the extent of its potential exposure to the risk of money laundering and terrorist financing it must assess the risk of any proposed business relationship, and regularly review such a risk assessment so as to keep it up-to-date.

The Licensee operated a process in relation to risk assessments whereby it categorised its high-risk clients into two-tiers of high risk.  The first category involved those clients who had been rated high-risk only due to the jurisdiction risk of their residence or nationality.

This first category (equating to approximately 96% of the Licensee’s high-risk clients), would not be subject to annual reviews, but would be reviewed on a trigger-event basis adopted by the Licensee.  These trigger-events included such things as full or partial policy surrenders,  or single / regular premium increases.

The ad-hoc nature of trigger-events meant that clients categorised as high-risk could often go for long periods without review, with the Licensee therefore unable to demonstrate an ongoing understanding of any changes to the client’s risk assessment.

The Commission’s investigation reviewed a sample of trigger-event reviews and noted the following: (i) not all reviews contained updated information on such things as source of funds or source of wealth; (ii) adverse media had not always been identified by the Licensee’s screening system; and (iii) deficiencies identified during review were not always remediated, but were detailed to be remediated at the next trigger-event.

For example:

Client 1

A high-risk client taken on in 2007 was not reviewed until a trigger-event in 2021. During this review it was identified that adverse media had linked the client to tax evasion offences in 2012, an event the Licensee was unaware of until 2021.  Whilst the client was subsequently cleared of these offences, the Licensee nevertheless failed to demonstrate it had maintained an up to-date understanding of its client.

Client 2

A high-risk client taken on in 2007, became a PEP in 2008.  This was not identified by the Licensee until a trigger-event review in 2021, some 13 years after the client became a PEP.

The Commission’s investigation identified that in relation to its first category of high-risk clients, the Licensee effectively treated them no differently to its standard and low-risk clients.

The Licensee’s reliance on its trigger-event process was flawed, as it rarely resulted in a contemporaneous understanding of the financial crime risks of its clients.

The second category of high-risk clients consisted of those identified as either PEPs, CEPs (commercially exposed persons), or subject to adverse media.  This equated, at most times, to only approximately 4% of its high-risk clients.

This second category of high-risk clients were reviewed on an annual basis.

The Commission’s investigation identified that despite the relatively small number of reviews in this second category, the Licensee failed to consistently update source of wealth or source of funds information, or confirm its continuing relevance, or always rectify deficiencies when identified, with little effort made to establish whether the client had moved location or changed occupation.

In conclusion, the Licensee on numerous occasions failed to conduct effective and adequate risk assessments of its high-risk clients, thus exposing itself and the Bailiwick to an unacceptable level of risk of money laundering and terrorist financing.

For example:

Client 3

A high-risk client was taken on in 2014 and classified as a PEP by the Licensee.  During a review in 2023, the client’s source of funds information was not updated, with reliance instead being placed on information collected some nine years previously. 

Client 4

A high-risk client taken on in 2001 and classified as a PEP. During a review in 2023, it was noted by the reviewer that the ID for the PEP was a very poor-quality scan and out of date.  The remediation section on the review form simply noted “CDD to be refreshed at next trigger.”

In addition, the Commission identified that the Licensee did not have a current address for the client and seemed to be unaware of this.

The Licensee failed to ensure it conducted its business with prudence and professional skill in relation to one of its third-party brokers.

The Licensee became aware in 2014, that some of the employees of one of its third-party brokers, operating in high-risk jurisdictions throughout South and Central America, had provided fraudulent client due diligence documents (verification of address) to the Licensee for certain Central American clients.

The Licensee recognised the seriousness of the situation, referring to it as “a significant money laundering risk.”

After an initial investigation by the Licensee, it identified that c.1,900 deficient files were affected and required remediation.

The Licensee immediately suspended any new business with the specific broker and stated its intention to have all client due diligence from the affected broker refreshed and independently notarised.

The suspension of new business was lifted after the broker conducted an investigation and removed staff involved in the fraudulent activities.  In any event, no new clients were accepted from the broker after 2016.

However, the Commission noted that in 2024 (ten years after the serious issue was identified), the Licensee still had approximately 200 clients, whose proof of address was suspected to have been potentially fraudulently altered and who had not responded to repeated attempts at remediation.

The Licensee therefore failed to act with: (i) prudence; (ii) with the professional skill appropriate to the nature and scale of its activities; and (iii) in a manner which would not damage the reputation of the Bailiwick as an international financial centre.

The Licensee failed to ensure it established and maintained effective procedures and controls to forestall, prevent and detect money laundering and terrorist financing; as necessary to report suspicion.

Schedule 3 and the Regulations stipulate that licensees must ensure compliance with the requirements to make disclosures under Part 1 of the Disclosure (Bailiwick of Guernsey) Law, 2007; and sections 15 and 15A of the Terrorism and Crime (Bailiwick of Guernsey) Law, 2002.

One of the people responsible for making disclosures during the relevant periods of the Commission’s investigation was Mr Watchorn.

The Commission’s investigation identified that the Licensees money laundering controls failed on a number of occasions, and the significance of money laundering red flags were not always adequately appreciated by Mr Watchorn, leading on a number of occasions, to the Licensee’s responsibilities not being properly discharged.

For example:

Client 5

Two high-risk clients were onboarded in 2012, and operated a manufacturing business in Asia. 

During the client relationship, the Licensee had various addresses for the clients in Asia, Holland and Spain; as well as a number of variations for the spelling of the client’s surname.  None of these inconsistencies were adequately investigated by the Licensee.

The insurance product purchased by the clients required a monthly premium of approximately USD1,500.

In 2021, the clients made eight unsolicited payments in just over one month, totalling approximately USD250,000.  Whilst these payments were never applied to the policy, it took the Licensee nearly a year before it began to investigate the circumstances surrounding the payments.

The Licensee requested the clients complete an updated source of funds questionnaire to help explain the dramatic rise in payments – a request that was never complied with. 

However, the client did request the return of the unsolicited payments, but to a different bank account from which they originated.  This unusual request raised concerns with an employee of the Licensee.

Mr Watchorn dismissed these concerns without any evidence of any form of investigation, simply opining that it was a case of “poor admin by the client and poor communication between the clients and their brokers.”

The Commission believes that Mr Watchorn failed to consider sufficiently the three potential money laundering red flags in this scenario: (i) the large and unsolicited inward payments; (ii) a refusal by the clients to provide evidence of the source of funds for these payments; and (iii) the client’s request for their funds to be returned to a different bank account.

Client 6

A high-risk client onboarded in 2014, located in a jurisdiction with a heightened risk for money laundering; a risk driven by significant levels of organised crime, drug trafficking and corruption in the jurisdiction.

The premiums paid by this client rose from an initial USD10,000 per month, to USD20,000 per month in 2018.

The Commission’s investigation identified that the Licensee had been unable to corroborate the income of the client, as no online presence for the client’s company could be identified.  The client claimed that the lack of an online presence was due to concerns regarding the security situation in the client’s jurisdiction.

An employee of the Licensee raised concerns regarding the lack of online presence, and the lack of corroboration as to how the client had amassed sufficient wealth to fund annual premiums of USD240,000.

These concerns were not adequately followed up.

In the following eighteen months, employees again raised concerns regarding the fact that the client had made five partial surrenders of their policy – totalling approximately USD1,000,000.  It was noted that the client had claimed to also have a number of other insurance products with different providers.

These concerns were put to Mr Watchorn, who dismissed them based on the fact that the client was continuing to pay his premium and that checks had not revealed anything adverse.

The Commission believes that the Licensee and in part, Mr Watchorn, failed to consider sufficiently the four potential money laundering red flags in this scenario: (i) a client from a high-risk jurisdiction, notable for its levels of organised crime, making USD20,000 monthly payments, with no suitably corroborated source of funds; (ii) the indication that the client may have further insurance products, which would again call into question the source of funds needed to service further products; (iii) the fact that the product held with the Licensee had been set up as a twenty-five year long term savings plan, but which the client had made five substantial partial surrenders from in less than eighteen months; and (iv) the fact that the client’s purported company had no online presence and the Licensee could not corroborate the client’s source of funds.

The Licensee failed to take reasonable measures to establish the Source of Wealth (SOW) and Source of Funds (SOF) of its high-risk business relationships.

The Commission sampled 72 high-risk client files, and identified that 71 of the files were deficient in some respects with regards to source of wealth and source of funds.

This sample was identified by the Commission to be indicative of systemic issues with the Licensee’s application of the reasonable measures needed to establish both source of wealth and source of funds.

These failings originated from the point of onboarding (where not all source of funds information was corroborated despite a number of higher risk factors present within a relationship indicating that more substantive enquiries should be made), and throughout the life cycle of a client; with source of funds information not always being refreshed or re-confirmed, either during periodic reviews, or at trigger-events. 

This meant that the Licensee was often not aware as to whether the provenance of the funds being received by the Licensee for premium payments had changed.

The Handbook requires licensees to regularly review their clients, and during these reviews, in particular regarding high-risk clients, a review should be conducted of the source of funds being used to make, in the Licensee’s case, premium payments.  This is an essential anti-money laundering measure, as a licensee must ensure that it does not receive any funds which may represent the proceeds of crime.

The Licensee failed to perform ongoing and effective monitoring of its business relationships.

The Licensee failed to perform ongoing and effective monitoring of its business relationships, as required by Schedule 3, paragraph 11(1) and 5(3)(a)(iv) in relation to high-risk clients, for an extended period of time.

Concerns were raised by the Commission in 2016, 2019, 2021 and 2022 following Commission onsite engagements, which identified failings in the Licensee’s screening systems used to monitor its clients.

These failures were in respect of PEP identification, adverse media and sanctions screening.

For example:

Client 7

A client onboarded in August 2011, became a PEP in 2018.  The Licensee’s screening systems failed to identify this important change in the client’s profile at the time, and this change went undetected by the Licensee until 2023, when the Commission conducted its own screening check.

Client 2

As noted above a client onboarded in December 2007 became a PEP in 2008 but was not identified as such by the Licensee’s screening systems until a trigger-event review in 2021. 

These type of failings were exacerbated by the fact that despite concerns being raised with the Licensee by the Commission regarding the suitability of its screening systems, the Licensee admitted in 2021 that: (i) the client database against which the screening systems cross-referenced, had not been checked for two years; and (ii) there was no annual compliance monitoring test in place to check the screening systems.

The Commission’s investigation identified that whilst the Licensee was not conducting regular periodic reviews of its clients in line with their assigned risk ratings, the Licensee relied heavily on its screening systems to identify key changes in client relationships.

The Commission identified repeat failings and long-standing issues in relation to the Licensee’s monitoring of its clients, which were exacerbated by the Licensee inadequate screening processes.

The Licensee failed to fully comply with The Transitional Provisions, as detailed in the 2019 new Handbook

In 2019, the Bailiwick of Guernsey made significant amendments to the Criminal Justice (Proceeds of Crime) Law, 1999, in order to align it with international standards for combating money laundering and terrorist financing, particularly those set by the Financial Action Task Force (FATF) and address recommendations made by MONEYVAL in its 2015 evaluation.

As part of this update, the Commission released, as detailed in Chapter 17, the Transitional Provisions.

These transitional provisions required, inter alia, Licensees to review all its business relationships by 31 December 2021.

The Licensee acknowledged that it failed to comply with this recommendation in the Handbook.

Mr Leon Steyn

The Commission investigation identified that Mr Steyn failed to consistently act with competence, soundness of judgement and diligence by (for his part as CEO):

• Failing to ensure that the Licensee had appropriate and effective policies and procedures in relation to its risk assessment of clients, leading to less than 4% of high-risk clients being reviewed on an annual basis;
• Failing to ensure that the Licensee had the appropriate oversight necessary for effective SAR procedures and controls;
• Failing to ensure that the Licensee had appropriate oversight and control over one of its largest brokers, which had supplied approximately 1,900 forged proof of address documents; and
• Failing to ensure full compliance with the transitional provisions detailed in the 2019 Handbook. 

Mr James Watchorn

The Commission investigation identified that Mr Watchorn failed to consistently act with competence, soundness of judgement and diligence by:

• Failing to, at all times, consider the implications of money laundering red flags and act in accordance with the competence and diligence expected of a Nominated Officer / Deputy Money Laundering Reporting Officer.

Aggravating Factors

The regulatory failings in this case were serious and systemic, spanning a minimum of ten years.  This reflected poorly on the effectiveness of the Licensee’s corporate governance.

The Licensee failed to put in place measures to fully understand the risks posed by its clients, either at the start, during, or end of the client lifecycle.  This was of particular concern due to the large volume of high-risk clients.

Mitigating Factors

The Commission notes that in late 2023, the Licensee (led by Mr Steyn) embarked on a substantial remediation programme which includes implementation of a new risk assessment methodology and a significant change in the way it conducts regular reviews of its client risk assessments. The Licensee has re-rated all its clients and will now review them on a 1,3 and 5 year cycle according to the allocated risk rating (high, standard and low respectively).

The Commission anticipates that the level of remediation required by the Licensee may take a considerable period of time to complete.

The Licensee, Mr Steyn and Mr Watchorn assisted the Commission fully during the investigation and settled at the earliest opportunity.

End

The Commission has today updated the Handbook on Countering Financial Crime (AML/CFT/CPF) (the “Handbook”) to add Kuwait and amend Papua New Guinea’s entry on the Appendix I list of higher risk jurisdictions. This is following the Financial Action Task Force’s (“FATF”) decision to include them in its list of jurisdictions under increased monitoring.

The Commission wishes to remind all licensees that a jurisdiction’s inclusion on Appendix I does not automatically make business relationships with a connection to that jurisdiction high risk.  Licensees should consider the nature and materiality of that jurisdictional link in their risk assessment, particularly where the change in the jurisdictional risk has little or no impact on other relevant risk factors within the business relationship, such as the type of customer, the customer or beneficial owner’s risk profile, activities, source of wealth and funds, or to the product or service offered by the licensee.

The clean and tracked version of the Handbook (including Appendix I) can be accessed via the Handbook page, with Appendix I available on the Notices, Instructions & Warnings page.

The FATF page on High-Risk and Other Monitored Jurisdictions can be found here.