National Risk Assessment

Definitions of bribery and corruption vary. The UK’s Bribery Act 2010 (“the Bribery Act”) explains that an individual is guilty of an offence if they “offer, promise or give an advantage, directly or indirectly, to another person, intending that a person is rewarded for, or induced to, perform a relevant function or activity improperly.”

The United Nations Secretariat has previously outlined that corruption “encompasses any act or omission that misuses official authority or seeks to influence the misuse of official authority in order to obtain an undue benefit for oneself or a third party.”

Indicators of bribery and corruption include, but are not limited to:

• any complex, unusual, or large transactions or unusual patterns of transactions that have no apparent or viable economic or lawful purpose;
• charitable or political donations or sponsorships; and
• payments to unknown third parties.

Management of a firm’s bribery and corruption risk is pertinent to ensure that firms comply with the Prevention of Corruption (Bailiwick of Guernsey) Law, 2003. Firms must also not risk contravening bribery and corruption legislation of other jurisdictions, or which apply to firms in other ways, for example, the Bribery Act which has extraterritorial reach.  

The extra-territorial reach of the Bribery Act means that a foreign company, including a Guernsey company, which carries on any “part of a business” in the UK could be prosecuted under the Bribery Act for failing to prevent bribery committed by any of its employees, agents or other representatives, even if the bribery takes place outside the UK and involves non-UK persons. The Bribery Act also applies to British citizens working anywhere in the world, even if the company for which they work does not carry out business anywhere in the UK.

The use of Guernsey to launder the proceeds of corruption is most likely to arise from:

1. Business relationships that are linked to sensitive industries (e.g., pharmaceuticals or mining)
2. Business relationships that are linked to countries with poor economic situations where there is a lack of opportunity to earn money legitimately and an absence of effective anti-corruption mechanisms. Even where such countries have established anti-corruption bodies, these bodies are themselves often affected by corruption.

The FATF has provided guidance on combatting corruption as a predicate crime and crime within itself:

FATF: The use of the FATF Recommendations to Combat Corruption

FATF: Laundering the proceeds of corruption

The United Nations Secretariat has described that fraud “encompasses any act or omission whereby an individual or entity knowingly misrepresents or conceals a material fact in order to obtain an undue benefit or advantage for himself, herself, itself, or a third party, or to cause another to act to his or her detriment.” Fraud offences refer to those under the Fraud (Bailiwick of Guernsey) Law, 2009 or similar legislation elsewhere.

Examples of commonplace fraud cases include identity theft, which involves stealing personal information in order to impersonate another to further personal aims and phishing, which entails the sending of suspicious emails, sometimes even purporting to be from banks or building societies, with the aim of deceiving people into give out personal information or clicking on malicious links. The latter is an example of cybercrime, a prevalent type of fraud which refers to the act of obtaining financial gain through criminal acts which target or use computer devices or networks.

Tax evasion is also a type of fraud. The Organisation for Economic Co-operation and Development ("OECD") defines tax evasion as “illegal arrangements where liability to tax is hidden or ignored, i.e., the taxpayer pays less tax than he is legally obligated to pay by hiding income or information from the tax authorities.” 

The NRA considers that Guernsey may be used for foreign tax evasion in two situations:

1. Where parties desire to move assets out of their legal ownership or home jurisdiction to mislead tax authorities in that jurisdiction about the extent of their tax liabilities; and
2. Where parties who have previously committed tax evasion in their home jurisdiction use Guernsey to hold or administer property that comprises, or represents, the additional tax that would have been paid if tax evasion had not occurred.

Other examples of fraud include:

• Insurance fraud
• Lending fraud (e.g., mortgage fraud)
• Embezzlement/misappropriation of funds
• Payment instrument fraud (e.g., credit card, cheque fraud)
• VAT/GST fraud
• Benefit fraud
• Investment fraud (e.g., Ponzi and pyramid schemes)

The FATF’s report on the laundering of VAT carousel provides an overview of fraud as a predicate crime:

FATF: Laundering the Proceeds of VAT Carousel Fraud Report

The United Nations Office on Drugs and Crime ("UNODC") defines drug trafficking as a “global illicit trade involving the cultivation, manufacture, distribution and sale of substances which are subject to drug prohibition laws.”

The money laundering threats from domestic criminality principally relate to drug trafficking and fraud (including tax evasion), which are the most significant domestic proceeds-generating crimes. These offences usually involve small-scale activity that is carried out entirely within the jurisdiction and generates low levels of proceeds. However, there have been a small number of drug trafficking cases involving organised criminal groups and these cases typically generate higher levels of proceeds. The laundering of the proceeds of these crimes is most likely to involve the retail banking sector and the use of cash, a typical pattern for laundering being “smurfing”, i.e., making several low value cash payments in order to avoid arousing suspicion.

Guernsey’s geographical location requires the purchase, transportation and onward supply of illicit drugs to be planned and coordinated, either by domestic or international organised crime groups.  The threat of foreign proceeds of crime is low and is much higher on the domestic front.

The following FATF reports provide case studies on drug trafficking’s impact on financial flows:

FATF: Financial Flows Linked to the Production and Trafficking of Afghan Opiates

FATF: Money Laundering from Fentanyl and Synthetic Opioids

FATF describes insider dealing as involving “situations where the person who buys and sells securities, whether a company insider or not, does so in violation of a fiduciary duty or other relationship of trust and confidence, while in possession of material, non-public information about the security.”

Potential indicators of insider trading include:

• when a customer makes a large purchase or sale of a security just before news that affects the price of that security is released
• if a customer is known to have family and friends who work for the securities issuer

Insider dealing offences are criminalised under the Company Securities (Insider Dealing) (Bailiwick of Guernsey) Law 1996.

FATF states that market manipulation refers to “the conduct that is intended to deceive investors by controlling or artificially affecting the market for a security. In particular, the manipulator’s purpose is to drive the price of a security up or down in order to profit from price differentials.”

Potential indicators of Market Manipulation include:

• a customer engaging in large or repeated trading in securities that are illiquid, low priced, or difficult to price
• the officers or insiders of the issuing company are associated with other low priced, illiquid, or low volume companies
• the issuing company has no apparent business, revenues or products

The most pervasive market manipulation involves what is colloquially referred to as a 'pump-and-dump' scheme. This involves advertising a company’s stock with false or misleading statements, often in conjunction with securities trades that raise the price of the security or make it appear as if the securities trading volume is higher than it actually is. The security price is artificially raised and then sold for profit. Often the underlying security is low priced, illiquid and trades with little volume.

Other examples of potential insider trading and market manipulation are anti-trust/cartel or anti-competition violations and boiler room scams.

The FATF provides a report on vulnerabilities within the securities sector which illustrates the impact of insider dealing and market manipulation:

FATF: Money Laundering and Terrorist Financing in the Securities Sector