At its annual general meeting in September 2000 the Offshore Group of Banking Supervisors approved an in-depth evaluation which endorses the Bailiwick's anti-money laundering systems.
The evaluation reviewed Guernsey's compliance with the 40 Recommendations issued by the Financial Action Task Force on Money Laundering ("FATF") and was carried out in 1999 by independent experts from France, Malta, the United Kingdom and the United States of America.
The following text is a transcript of the report's summary.
"The Bailiwick of Guernsey, encompassing Guernsey, Alderney and Sark, now has in place a robust arsenal of legislation, regulations and administrative practices to counter money laundering. The introduction of "all-crimes" money laundering legislation and regulations (subsequent to the evaluation visit) at the beginning of the year 2000 marked a major step forward. In the steps they have taken to deter and detect money laundering the authorities have demonstrated the political will to ensure that their off-shore financial institutions and the associated professionals, maximise their defences against criminal funds. The authorities are also determined to cooperate effectively in international investigations into criminal funds. Although the standards set by Guernsey are close to complete adherence with the FATF's 40 Recommendations, there are a number of important areas where appropriate changes would allow these standards to be met unambiguously.
The all-crimes anti-money laundering system is still very new, and to some extent Guernsey is a jurisdiction in transition. The money laundering offences are broad, and cover all indictable offences - including tax evasion. The suspicious transaction reporting system is backed up with effective measures to prevent tipping off, and to provide the necessary protections to those who submit reports. There is no banking secrecy legislation, and the requirement for confidentiality is overridden by the anti-money laundering legislation and other relevant laws. The Evaluation Team noted that the new legislation includes an obligation to report suspicious transactions, rather than a direct obligation to report. This provides a defence from the money laundering offences in circumstances where a report has been made. The evaluation report recommends that the authorities impose a direct and unambiguous mandatory reporting obligation in all cases involving criminal activity.
Recent legislative developments have removed the most significant constraints on cooperation between Guernsey and other jurisdictions, and the Guernsey authorities have a positive record of cooperation with overseas requests for assistance, on both regulatory and criminal matters. The wide range of predicate offences in Guernsey law prevents the requirement for "dual criminality" from hindering cooperation, even in cases involving tax crimes. However, Guernsey is not yet able to ratify the Vienna Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, or the Council of Europe Convention on Laundering, Seizure and Confiscation of the Proceeds of Crime. The evaluators endorse Guernsey's proposals to plug the remaining gaps which prevent them from ratifying these important conventions. Guernsey should also consider enhancing its powers to confiscate suspicious cash imports.
To ensure that intelligence can be passed more readily to overseas authorities, this report recommends removal of the provision in the 1999 legislation which requires the Attorney General to authorise the passage of financial intelligence overseas. The law enforcement authorities are also encouraged to develop a wider range of international contacts, and to sign more memoranda of understanding with their most important partners.
Although Guernsey responds effectively in cases instituted overseas, the authorities do not appear to have been as successful at pro-active investigation of money laundering, and examples where investigations have been initiated on the Island (in respect of "off-Island" activity) are rare. This report recommends a package of measures to improve the capacity of the authorities to mount successful investigations at their own initiative, by bringing together the expertise of the police, customs and regulators within the context of a new, pro-active enforcement strategy. This strategy would involve more effective analysis of the financial intelligence available to the authorities, and closer cooperation with other jurisdictions. The authorities need to provide sufficient resources to ensure this strategy can be implemented effectively.
The system of financial regulation appears to be comprehensive and effective. The Criminal Justice (Proceeds of Crime) Regulations set a high standard, and apply that standard to a very wide range of financial institutions and professionals. The money laundering guidance notes produced by the Financial Services Commission (FSC) give clear advice to the financial sector on the risks they face from money launderers. The evaluators propose that the customer identification requirements are extended to business relationships formed before the introduction of the 1999 law, and that the record-keeping requirements are clarified, to ensure that all relevant records are held for a full 5 years. This report supports the FSC's programme to step-up its anti-money laundering compliance activities, through greater use of on-site inspections. The FSC can employ wide-ranging sanctions for non-compliance, although they should consider supplementing them with a power to levy administrative fines.
The compliance culture of the financial sector in Guernsey - judged principally by the number and pattern of suspicious transaction reports is not easily assessed. The authorities are encouraged to initiate an analysis of the pattern of suspicious transaction reporting, and to address areas - such as the legal and accountancy profession - where reporting is low.
Abuse of corporate and trust vehicles has been a significant problem for Guernsey, most notoriously through the "Sark Lark". Sark, which has no company law, has 575 residents holding 15,000 company directorships between them. Arrangements for the oversight of the fiduciary sector in the Bailiwick as a whole have also been insufficiently rigorous, with the result that the sector has been particularly vulnerable to money laundering. The Guernsey authorities have proposed significant changes to tighten up regulation in the company and trust sectors. This report strongly endorses the authorities' plans to regulate, license and supervise company and trust service providers. If enacted in Guernsey, Alderney and Sark, these measures would place the Bailiwick of Guernsey at the forefront of international efforts to prevent the abuse of company structures for criminal purposes. To ensure this legislation succeeds in reducing the extent to which company service providers and other financial intermediaries can be used for the purpose of money laundering, the authorities need to remove what the evaluators consider to be an important loop-hole in the system. Under the arrangements for introduced business, where the owner is represented by a regulated intermediary - such as a company service provider, lawyer or accountant - there are circumstances in which a financial institution need not verify the beneficial owner of funds. In the view of the evaluators, this represents a potentially serious gap in the system, and the report proposes that the authorities set out an over-riding obligation on all financial institutions in Guernsey to "know" the beneficial owner of the funds with which they deal.
The evaluators consider that the Guernsey authorities have constructed a comprehensive anti-money laundering system, and that the adoption of the proposals contained in this report will ensure it complies with the best international standards. Finally, the evaluation team would like to repeat their thanks to the authorities on the island for the constructive way in which they participated in the mutual evaluation process."