General overview of changes. Legislative changes. Andrew Le Brun Hamish Armstrong Financial crime policy. Overview (1)

Transcription

1 General overview of changes Andrew Le Brun Hamish Armstrong Financial crime policy 1 Legislative changes 2 Overview (1) Legislative changes Money Laundering (Amendment No. 6) (Jersey) Order 2013 ( MLO Amendment 6 ) In force with effect from 18 December 2013 Proceeds of Crime and Terrorism (Miscellaneous Provisions) (Jersey) Law 2014 In force with effect from 4 August 2014 Repeals Drug Trafficking Offences (Jersey) Law 1988 Brings all money laundering ( ML ) offences into Proceeds of Crime (Jersey) Law 1999 ( Proceeds of Crime Law ) Proceeds of Crime and Terrorism (Tipping Off Exceptions) (Jersey) Regulations

2 Overview (2) Legislative changes Money Laundering (Amendment No. 7) (Jersey) Order 2014 ( MLO Amendment 7 ) In force with effect from 27 October 2014 European Union Legislation (Implementation) (Jersey) Law 2014 In force with effect from 30 October 2014 EU Legislation (Sanctions) (General Provisions) (Jersey) Order 2014 EU Legislation (Sanctions Afghanistan) (Jersey) Order 2014 EU Legislation (Sanctions Al-Qaida) (Jersey) Order Overview (3) Legislative changes Financial Regulation (Miscellaneous Provisions No.2 ) (Jersey) Law 2014 In force with effect from November 2014 Draft Proceeds of Crime (Financial Intelligence) (Jersey) Law 201- Regulation making powers Allow Joint Financial Crimes Unit ( JFCU ) to request intelligence from relevant persons Recognise JFCU as standalone financial intelligence unit 5 Proceeds of Crime Law (1) Updates ML offences Article 29 Definition of criminal property : Constitutes or represents proceeds of criminal conduct ; and Alleged offender knows or suspects that it constitutes or represents such proceeds Criminal conduct is conduct that: Constitutes an offence under Schedule 1 of Proceeds of Crime Law; or If it occurs outside Jersey, would constitute an offence if occurring here 6 2

3 Proceeds of Crime Law (2) Updated ML offences Article 30 Acquiring, using, possessing or controlling criminal property Entering into or becoming concerned with arrangement knowing or suspecting that it facilitates above Article 31 Concealing, disguising, converting, transferring, or removing (from Jersey) criminal property 7 Proceeds of Crime Law (3) Updates ML offences Articles 30 and 31 Both cover self laundering and third party ML Former Article 33 did not cover self Offence committed where knowledge or suspicion that criminal property Former Article 34 referred to having reasonable grounds No purpose tests Former Article 34 referred to need to establish purpose of concealment, disguise, conversion or transfer 8 Proceeds of Crime Law (4) Reporting provisions Articles 32, 34A and 34D Express requirements set in Articles 34A and 34D Cover only suspicious activity reports ( SARs ) made in good faith Covered later Tipping off Article 35 No longer reference to matter that is likely to prejudice Covered later 9 3

4 Terrorism Law (1) Updated financing of terrorism ( FT ) offences Article 15 Use of property for purposes of terrorism or support of a terrorist entity Possess, provide or invite another to provide, collect or receive property Intending that it be used, or knowing or suspecting, or having reasonable grounds to suspect, that it may be used for the purpose of terrorism or support of a terrorist entity Provide or invite another to provide a financial service Intending that it be used. 10 Terrorism Law (2) Updated FT offences Article 16 Do any act which facilitates the retention or control of terrorist property (as defined): Defence to prove that did not know or suspect or have reasonable grounds to suspect:» Purpose of act was to facilitate retention or control» Property was terrorist property Reporting provisions and tipping off As for Proceeds of Crime Law 11 MLO Amendment 7 (1) MONEYVAL progress report Written analysis recommended Designation of higher risk customers in legislation, e.g. Non-residents Private banking Personal asset holding vehicles Companies with nominee shareholders/bearer shares Prohibition on application of simplified measures to customers in countries that do not comply with FATF Recommendations Identification of third parties on whose behalf customer acts even when simplified measures may be applied 12 4

5 MLO Amendment 7 (2) Article 15 Revised to require enhanced CDD measures Non-residents Private banking Personal asset holding vehicles Companies with nominee shareholders/bearer shares Articles 17 and 18 Revised to prevent the application of simplified identification measures to customers resident in countries that do not apply FATF Recommendations Appendix D2 of AML/CFT Handbook Sources 1 and 2 13 MLO Amendment 7 (3) Article 17 Basic information on third parties to be collected at time that simplified measures applied Limited to those with significant interests Hold 25% or more interest in relationship Other measures for executionary relationships Further details Consultation Paper No (issued June 2014) Feedback on Consultation Paper No. 3 (issued September 2014) 14 AML/CFT Handbooks 15 5

6 Overview (4) AML/CFT Handbooks Phase 1: alignment of AML/CFT Handbooks Accounting and Legal Sectors (31 March 2014) Estate Agents (3 July 2014) Phase 2: address some particular issues Accounting and Legal Sectors Simplified identification measures One-off transactions Termination of business relationship Estate agents Screening of employees 16 Overview (5) AML/CFT Handbooks Phase 3: catch-up Amendments consequential to MLO Amendment 6 and MLO Amendment 7 Other catch-up and presentational improvements Outlined in Position Paper AML 2014 (issued July 2014) 17 Overview (6) AML/CFT Handbooks Phase 3: catch-up Current section Topic Proposed section Section 3 Enhanced CDD Section 7 Section 4 Section 4 Reliance on obliged persons EnhancedCDD (higher risk customers) Section 5 Section 7 Section 4 Simplified CDD Section 7 Section 9 Existing customers Section

7 Overview (7) AML/CFT Handbooks Phase 3: catch-up Consultation Paper AML (issued August 2014) Closed Consultation Paper AML (issued September 2014) Closed Consultation Paper AML (issued October 2014) Closes on 28 November 2014 Consultation Paper AML (issued November 2014) Sector specific section: trust company business Closes on 5 December Overview (8) AML/CFT Handbooks Phase 3: catch-up Consultation Paper AML (to be issued December 2014) Guidance paper: funds and fund operators One month consultation Consultation Paper AML (issued 21 November 2014) Product and service guide: prepaid cards One month consultation 20 Overview (9) AML/CFT Handbooks Completion of phases 2 and 3 1 January Handbook for business regulated under Regulatory Laws Shortly thereafter -Handbooks for Accounting and Legal Sectors Later in Q1 -Handbook for Estate Agents Supervision for compliance with new AML/CFT Codes From 1 January 2015 (or later as appropriate) Findings and recommendations to take account of time needed to remediate 21 7

8 Section 1 - introduction 22 Section 1 (1) General Explains reference to AML/CFT Codes rather than regulatory requirements establishing Principles to be followed in area of governance, which it is considered must be in place in order for a relevant person to comply with statutory requirements; and Principles that explain in more detail how a statutory requirement is to be complied with 23 Section 1 (2) Scope of Money Laundering Order Jersey legal person (A) carrying on financial services business through an overseas branch Money Laundering Order applies Overseas subsidiary of A which carries on financial services business A must ensure that subsidiary applies measures that are at least equivalent to Money Laundering Order 24 8

9 Section 1 (3) Scope of Money Laundering Order Jersey legal arrangement (B) carrying on financial services business in Jersey and through an overseas branch Apply measures that are at least equivalent to Money Laundering Order Overseas subsidiary of B which carries on financial services business B must ensure that subsidiary applies measures that are at least equivalent to Money Laundering Order 25 Section 1 (4) Scope of AML/CFT Codes Jersey company(a) carrying on financial services business through an overseas branch AML/CFT Codes apply, or measures that are at least equivalent Overseas subsidiary of A which carries on financial services business A must ensure that subsidiary applies measures that are equivalent to AML/CFT Codes 26 Section 1 (5) Scope of AML/CFT Codes Other Jersey legal person or Jersey legal arrangement (B) carrying on financial services business in Jersey and through an overseas branch/office Apply measures that are at least equivalent to Money Laundering Order Overseas subsidiary of B which carries on financial services business B must ensure that subsidiary applies measures that are at least equivalent to AML/CFT Codes 27 9

10 Section 1 (6) Equivalent business Emphasises importance of demonstrating equivalence On request Where concession applied to non-appendix B (AML/CFT Handbook) country 28 Section 2 - corporate governance 29 Section 2 (1) Business risk assessment ( BRA ) Board to consider Appetite for risk Cumulative effect of risks identified: greater than the sum? Additional guidance provided on performing BRA: Consider: Any reliance on obliged persons Complex customers -where risk accumulation likely to be most acute Timing of update to BRA Events that may change risk and trigger review 30 10

11 Section 2 (2) Board s assessment of effectiveness of systems and controls Two distinct elements Check that design is fit for purpose Capable of delivering desired outcomes if applied in way intended 31 Section 2 (3) Board s assessment of effectiveness of systems and controls Two distinct elements (cont d) Check effect that actually having on day to day basis, eg Number and percentage of customers assessed as presenting higher risk Number of applications declined due to CDD issues Number of customer relationships terminated due to CDD issues Number of existing customers still be to remediated Failure of obliged persons or customers to provide information and evidence on demand 32 Section 2 (4) Testing of compliance with systems and controls Board s role is emphasised Periodically consider: Means by which compliance is monitored Deficiencies identified Action taken to address deficiencies Testing to cover policies and procedures maintained in line with: Article 11(1) of the Money Laundering Order AML/CFT Codes set in Section

12 Section 2 (5) Role of MLCO In effect, MLCO is independent audit function Statutory responsibility to monitor compliance with Money Laundering Order and AML/CFT Codes Clarifies what is appropriate independence Avoid customer-facing, business development, or systems and controls development role Periodic independent scrutiny where MLCO responsible for systems and controls development Includes external experts 34 Section 3 - identification measures: overview 35 Section 3 (1) Revised table outlines various stages of application of identification measures Clearer reference to Article 3(5) of the Money Laundering Order Basis for requesting more general information on customer (other than finding out identity) In order to assess ML/FT risk of a customer New stage (1.1) deals with requirement to understand ultimate beneficial ownership and control structure of customer that is a legal person 36 12

13 Section 3 (2) Understanding ownership and control Three stages Request information from customer or, if administered by a trust company, that company (or professional) Legal ownership Beneficial ownership Validate that information, again making use of information held by a trust company (or professional) Check that information makes sense If not done properly, risk is that true beneficial owners and/ or controllers not found out 37 Section 3 (3) Understanding ownership and control Validate, making use of information: Held by the customer e.g., In line with company law, AML/CFT requirements, or listing rules Held by a lawyer, accountant, or trust company, e.g. in order to meet AML/CFT requirements Held in a public register Central register of legal or beneficial ownership Information published in financial statements Provided directly by the beneficial owner Otherwise publicly available 38 Section 3 (4) Information for assessing risk Where customer is not an individual Need to understand types of activities undertaken through any underlying legal person Dalemont judgement 39 13

14 Section 3 (5) On-going monitoring Article 3(3)(b) of Money Laundering Order Undertaking reviews of existing records -in order to keep documents, data and information up to date and relevant Includes documents, data or information on: Customer, e.g. names and addresses Third party on whose behalf customer acts, e.g. beneficiaries and objects of power Beneficial owner or controller of customer Article 13(1)(c)(ii) of Money Laundering Order applies where doubts about adequacy or veracity 40 Section 4 finding out identity and obtaining evidence 41 Section 4 (1) Section 4 -Finding out identity and obtaining evidence Section Relationship in respect of: Customer Individuals 4.3 Individual Joint account Customary law partnership Legal arrangements 4.4 Trust Limited partnership Legal persons 4.5 Company Foundation Separate limited partnership Incorporated limited partnership Limited liability partnership Individual Individuals All partners Trustee(s) General partner(s) Company Foundation SLP ILP LLP 42 14

15 Section 4 (2) Section 4 -Finding out identity and obtaining evidence Section Relationship in respect of: Third party Individuals 4.3 Individual Joint account Customary law partnership Legal arrangements 4.4 Trust Limited partnership Legal persons 4.5 Company Foundation Separate limited partnership Incorporated limited partnership Limited liability partnership Trust LP 43 Section 4 (3) Section 4 -Finding out identity and obtaining evidence Section Relationship in respect of: BO&C Individuals 4.3 Individual Joint account Customary law partnership Legal arrangements 4.4 Trust Limited partnership Legal persons 4.5 Company Foundation Separate limited partnership Incorporated limited partnership Limited liability partnership Article 3(7) includes settlor, protector, beneficiaries and objects of power for trust Article 2 and guidance in AML/CFT Handbook 44 Section 4 (4) Finding out identity and obtaining evidence Individuals Requirement to verify former name of customer dropped Customer who physically presents documentary evidence of identity to suitable certifier considered to have been physically present for identification purposes Not subject to enhanced CDD measures» Suitable certification in effect enhanced measure Provision for greater use of external data sources Onus is on relevant person to be satisfied that evidence may be relied on 45 15

16 Section 4 (5) Finding out identity and obtaining evidence Individuals Provisions dealing with financial exclusions tidied up Minor: birth certificate and confirmation of status and residential address from parent or guardian Resident of nursing home: all elements of identity may be confirmed by home Other cases: employer, head of household, college principal may confirm residential address only 46 Section 4 (6) Finding out identity and obtaining evidence Trusts and foundations Find out and obtain evidence of certain beneficiaries and objects of power all customers In line with Article 3(7) of the Money Laundering Order Guidance currently says not necessary to find out and obtain evidence of beneficiaries or objects of power where trustee or foundation is considered to present a lower risk 47 Section 4 (7) Finding out identity and obtaining evidence Legal persons Explicit reference to corporate directors/council members/partners Identify each individual who ultimately controls, or otherwise exercises management of, corporate 48 16

17 Section 4 (8) Finding out identity and obtaining evidence Delaysin verifying identity under Article 13(4) of the Money Laundering Order to be reported to Board: Number of customers for which verification has been delayed (also expressed as a percentage) with reasons More information where verification delayed for > particular number of days: Reason why Extent to which evidence not obtained Customer risk rating Action to be taken and by when 49 Section 4 (9) Finding out identity and obtaining evidence Timing of identification measures for existing customers Find out identity on or before 31 December 2014 Unless otherwise agreed with the Commission Includes third parties and beneficial owners and controllers Includes more general relationship information (Article 3(5)) Terminate business relationship where cannot find out identity» No deadline set Obtain evidence of identity for higher risk customers as soon as possible 50 Section 5 reliance on obliged persons 51 17

18 Section 5 (1) Reliance Old terminology: introducers and intermediaries New Articles 16 and 16A: obliged person and group person 52 Section 5 (2) Reliance on obliged persons Article 16 Relevant person may place reliance on certain obliged persons to have applied identification measures and to keep evidence of identity» In order to meet relevant person s obligations under Articles 13 and 15 to apply identification measures Obliged persons must be:» Regulated and overseen by the Commission for AML/CFT compliance; or» Equivalent business Reliance is subject to six conditions and testing 53 Section 5 (3) Reliance on obliged persons Article 16 Conditions One: obliged person consents to being relied upon Two: identification measures applied by obliged person have been in the course of established business relationship or one-off transaction Three: obliged person provides adequate assurance in writing that:» It has applied full (and specified) identification measures» It is required to keep, and does keep, evidence of identity 54 18

19 Section 5 (4) Reliance on obliged persons Article 16 Conditions Four: information found out on customer by obliged person is immediately obtained by relevant person Five: obliged person provides adequate assurance in writing that evidence of identity will be:» Kept until provided to relevant person, or is notified that no longer required» Provided on request and without delay 55 Section 5 (5) Reliance on obliged persons Article 16 Conditions Six: relevant person assesses risk and makes written record of reason why it is appropriate to place reliance, having regard to:» ML/FT risk of placing reliance» Risk that evidence of identity is not provided [Note assurances may be provided through terms of business] 56 Section 5 (6) Reliance on obliged persons Article 16 Test that: Appropriate policies and procedures in place to apply necessary identification measures Evidence of identity is kept Evidence of identity is provided without delay on request» Have regard to secrecy legislation 57 19

20 Section 5 (7) Reliance on obliged persons Article 16 Exclusions ML/FT is suspected Reliance presents higher ML/FT risks» Necessary identification measures have not been applied» Complete and accurate information found out on identity will not be disclosed» Evidence of identity will not be kept and/or disclosed Obliged party has relevant connection to enhanced risk state 58 Section 5 (8) Reliance on group persons Article 16A Relevant person may place reliance on group entity to have applied identification measures and to keep evidence of identity» In order to meet relevant person s obligations under Articles 13 and 15 to apply identification measures Group person must be:» Member of same financial group defined» Carrying on business that would be financial services business if carried on in Jersey» Applying CDD measures and keeping records in line with FATF Recommendations 59 Section 5 (9) Reliance on group persons Article 16A Group person must be:» Part of group that has a programme against ML and FT; and» Part of group that is supervised for AML/CFT purposes by an overseas regulatory authority Reliance is subject to same six conditions and testing 60 20

21 Section 5 (10) Reliance Relevant person must first determine what identification measures to be applied before placing reliance Take into account customer risk assessment Consider Use of information template -Appendix C» Under review Description of evidence routinely obtained by obliged person» Risk assessment 61 Section 6 on-going monitoring: scrutiny of transactions and activity 62 Section 6 (1) Section 6 - Scrutiny of transactions and activity Reference points Article Article 3(3): on-going monitoring Article11(3)(a): policies and procedures Article 11(3)(d): policiesand procedures Article 11(10) Requirement Scrutinisetransactions in order to ensure consistent with knowledge of customer Identifyand scrutinise: complex or unusually large transactions; unusual patterns of transactions; and higher risk activity Determinewhethertransactions with a person connected with an enhanced risk state or sanctioned country Train employees in recognitionof transactions and conduct 63 21

22 Section 6 (2) Scrutiny of transactions and activity AML/CFT Codes extend scrutiny to customer activity Picks up: Non-transactional relationships, e.g. acting as director or providing registered office to company Company s activities change unexpectedly Information available that is not dependent upon a transaction, e.g. press report about customer 64 Section 6 (3) Scrutiny of transactions and activity Scrutiny is two separate but complementary processes Monitor transactions and activity to recognise transactions and activity that are Notable» Unusual (inconsistent with expectations)» Unusually large» Unusual patterns» Complex» Higher risk With an enhanced risk state Examinethose transactions and that activity 65 Section 6 (4) Scrutiny of transactions and activity Key Recognise transactions and activity Know enough about customer to recogniseunusual transactions and activity Develop business-specific red flags /indicators to recognise» Complex transactions and activity» Higher risk transactions and activity Make use of Appendix D1 to recogniseenhanced risk states 66 22

23 Section 6 (5) Scrutiny of transactions and activity Key (cont d) Examinetransactions and activity that have been recognised Refer to customer s business and risk profile As far as possible, review background and purpose Where necessary, if not, request further information from customer To determine whether apparenteconomic or visiblelawful purpose» Need not be certain 67 Section 6 (6) Scrutiny of transactions and activity Transactions with sanctioned countries No requirement to examine Instead, follow particular sanctions measures Make use of Appendix D2 to recognisesanctioned countries» Source 6 only 68 Section 6 (7) Scrutiny of transactions and activity Automated monitoring of transactions Need to understand: How system works Its coverage (who or what is monitored and what external data sources are used) How to use system Nature of output (exceptions, alerts etc) 69 23

24 Section 6 (8) Scrutiny of transactions and activity Screening Understand which relationships and transactions are screened Understand capacity for fuzzy matching Set clear procedures for dealing with potential matches driven by risk rather than resources Record basis for discounting alerts, e.g. false positives Audit trail Further information published on banking section of Commission s website 70 Section 7 Enhanced and simplified identification measures 71 Section 7 (1) Application of enhanced CDD measures Lists cases when enhanced CDD must be applied Higher risk On basis of customer risk assessment Other cases Use of risk-based approach encouraged taking account of net risk» Not physically present» Relevant connection to higher risk state» Customer or other person is PEP» Correspondent banking 72 24

25 Section 7 (2) Application of enhanced CDD measures Lists cases when enhanced CDD must be applied Other cases (cont d) Use of risk-based approach encouraged taking account of net risk» Customer is non-resident» Customer is provided with private banking service» Customer is personal asset holding vehicle» Customer is company with nominee shareholders or issues bearer shares 73 Section 7 (3) Application of enhanced CDD measures Explanation provided on nature of risk Provides guidance on enhanced CDD measures E.g., non-resident customer Find out why establishing overseas relationship; and Use of external data sources E.g., customer is personal asset holding vehicle Understand structure; and Determine purpose and rationale for use; and Take reasonable measures to understand source of funds and source of wealth, e.g. reliable information from tax advisor 74 Section 7 (4) Application of enhanced CDD measures Transitional/ existing customers? New requirements not retrospective; no remediation project required But: a relevant person must apply identification measures where doubts about veracity or adequacy of documents, data or information previously obtained So: if regular review of relationship highlights that documents, data or information previously obtained do not satisfy new requirements, enhanced CDD measures must be applied to that customer at that time 75 25

26 Section 7 (5) Application of simplified identification measures Article 17 Relevant person need not find out identity of a third party on whose behalf a customer acts, or obtain evidence of identity, where customer is: Regulated and overseen by the Commission for AML/CFT compliance or equivalent business Wholly-owned by such person and fulfils conditions set out in Article 17(2) Application of concession is dependent upon status of relevant person and its customer five cases Application of concession is subject to conditions (and testing for some cases) 76 Section 7 (6) Application of simplified identification measures Cases 1.customer is deposit-taker, insurance/fund/investment business, holds a fund permit/certificate (or equivalent) 2. customer acts in respect of unregulated/ COBO-only fund (or equivalent); if little risk of ML/FT 3. deposit-taker has TCB customer (or equivalent); if little risk of ML/FT 4.deposit-taker has lawyer customer; if little risk of ML/FT 5.lawyer/accountant has TCB customer (or equivalent); if little risk of ML/FT 77 Section 7 (7) Application of simplified identification measures Conditions (all cases) One: relevant person assesses risk and makes written record of reason why it is appropriate to apply simplified measures, having regard to: ML/FT risk of applying simplified measures Customer s business 78 26

27 Section 7 (8) Application of simplified identification measures Conditions (cases two to five only) Two: customer provides adequate assurance in writing that it has applied specified identification measures Three: customer provides adequate assurance in writing that: Information on identity found out will be provided on request and without delay Evidence of identity obtained under identification measures will be kept and provided on request and without delay [Note assurances may be provided through terms of business] 79 Section 7 (9) Application of simplified identification measures Testing (cases two to five only): Appropriate policies and procedures in place to apply necessary identification measures Identity is found out and evidence of identity obtained Information on identity found out and evidence of identity is kept Information on identity found out and evidence of identity is provided without delay on request Have regard to secrecy legislation 80 Section 7 (10) Application of simplified identification measures Exclusions ML/FT is suspected Customer presents higher ML/FT risk» Risk that customer does not apply necessary identification measures» Risk that customer does not keep records, or does not keep them for necessary period Customer has relevant connection to enhanced risk state Customer is resident in a country or territory that is not compliant with FATF Recommendations 81 27

28 Section 7 (11) Application of simplified identification measures New condition Basic information to be collected Natural persons -name, address and date of birth Legal persons/arrangements name, date and country of incorporation (or equivalent), registered office address (or equivalent) Applied at the time simplified measures applied Concerning any significant third party Designated- single third party clearly significant Pooled -25% financial interest (for low risk) Executionary e.g. trading activity (by volume or value) 82 Section 7 (12) Application of simplified identification measures Transitional/ existing customers? Not retrospective; no remediation project required But: apply identification measures where doubts about veracity or adequacy, etc So: if review of relationship highlights that documents, data or information are inadequate etc, apply simplified measures again (if appropriate) -including collection of basic data Designated collect basic information Pooled/executionary determine significance and collect basic information at that time 83 Section 7 (13) Enhanced CDD measures vs simplified identification measures Guidance on interplay between enhanced CDD and simplified identifcation measures E.g. customer is non-resident company whose securities traded on IOSCO-compliant market 84 28

29 Section 8 reporting ML and FT 85 Section 8 (1) Reporting knowledge or suspicion of ML and FT Reporting requirement Person carrying on a financial services business Person carrying on business, trade or profession Protection for reporting 86 Section 8 (2) Reporting requirement Carrying on a financial services business Article 34D of the Proceeds of Crime Law SAR must be made when there is knowledge, suspicion or reasonable grounds for suspecting that:» Another person is engaged in ML or FT; or» Property constitutes or represents proceeds of criminal conduct Article 21 of the Terrorism Law (formerly Article 23) SAR must be made when there is knowledge, suspicion or reasonable grounds for suspecting that:» Another person is engaged in FT; or» Property is or may be terrorist property 87 29

30 Section 8 (3) Reporting requirement Carrying on a financial services business SAR to be made in good faith to the JFCU as soon as is practicable after information or matters comes to attention Otherwise, criminal offence» Imprisonment for term not exceeding 5 years or a fine or both» Except where employee has not been given material training and, as a result, did not know or suspect that other person engaged in ML or FT 88 Section 8 (4) Reporting glossary Knowledge or suspicion See Section 3 of Information Resource (Part 2) Reasonable grounds for suspicion/ objective test See Section 3 of Information Resource (Part 2) Determined from facts or circumstances from which an honest or reasonable person would have formed suspicion (Section 8) 89 Section 8 (5) Effectiveness of reporting MLRO to consider Period of time between matter coming to employee s attention and date of SAR Reasonable? Disciplinary measures Number and content of internal SARs consistent with business risk assessment? 90 30

31 Section 8 (6) Effectiveness of reporting Board to consider Typical period of time taken by MLRO to consider internal SAR Number of SARs not processed within this typical period 91 Section 8 (7) Tipping off Article 35(4) of the Proceeds of Crime Law and Terrorism Law Offence to disclose: That SAR (internal or external) has been made or will be made or information otherwise relating to such a SAR» If person knows or suspects that a SAR (internal or external) has been or will be made Exceptif protected disclosure under Proceeds of Crime and Terrorism (Tipping Off Exceptions) (Jersey) Regulations ( Tipping Off Regulations ) Imprisonment for term not exceeding 5 years or a fine or both Defence if reasonable excuse for disclosure 92 Section 8 (8) Tipping off Article 35(4) of the Proceeds of Crime Law and Terrorism Law Tipping off provisions do not apply to disclosure to: Lawyer in connection with provision of legal advice or purpose of legal proceedings» And vice versa Accountant to enable provision of accounting services In both cases, so long as not with view to furthering criminal purpose 93 31

32 Section 8 (9) Tipping off Protected disclosures under Tipping off Regulations Made in good faith for purpose of preventing ML or FT and falls under five cases Required to be made by statute in Jersey or law elsewhere E.g. under Article 30 of Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 Person disclosing may transmit copy of SAR form Made with permission of JFCU 94 Section 8 (10) Tipping off Protected disclosures Case 1: internal disclosure Person disclosing may transmit SAR form within Jersey Case 2: disclosure within financial group or network Case 3: other relevant persons Case 4: domestic agencies Cases 2 to 4: person disclosing may nottransmit copy of SAR form Case 5: further disclosure by external MLRO Case 5: MLRO may nottransmit copy of SAR form 95 Section 9 screening, awareness and training of employees 96 32

33 Section 9 (1) Screening, awareness and training Everything goes horribly wrong if employees: Lack competence and/or probity Are unaware of policies and procedures and AML/CFT obligations Not adequately trained to recognise transactions and activity Legislative requirement covers awareness and training of relevant employees AML/CFT Code applies basic awarenessand training requirements to other employees 97 Section 9 (2) Awareness Relevant employees Policies and procedures Provide written explanation of BRA - context Provide case studies illustrating how products or services may be abused context Provide ready access to policies and procedures AML/CFT enactments Explanation of personal obligations and criminal liability Explanation of disciplinary measures for failing to submit internal SARs as soon as is practicable Circulate relevant material - context Circulate media reports - context 98 Section 9 (3) Awareness Those involved with technological developments Where identified that ML/FT risk: Developers need to have basic awarenessof ML/FT and techniques, methods and trends Relevant person to provide explanations and material, or obtain assurances that others have done so 99 33

34 Section 9 (4) Training Board Conducting and recording a BRA Establishing a formal strategy to counter ML and FT Assessing effectiveness of, and compliance with, systems and controls (including policies and procedures) 100 Section 10 record-keeping 101 Section 10 (1) Why keep records? Effective investigation, prosecution and confiscation Facilitate effective supervision Evidence of work undertaken by relevant person to comply with statutory requirements and AML/CFT Codes Provide context for opinion that may be prepared by auditor on financial statements Can be held electronically (no change here)

35 Section 10 (2) What must be kept? Article 19 of Money Laundering Order Accounts files and business correspondence Corporate governance arrangements On-going monitoring SARs Screening, awareness and training 103 Section 10 (3) What must be kept? Corporate governance arrangements BRA Documentation of systems and controls Assessment of effectiveness and compliance with systems and controls MLCO and MLRO experience and skills, independence, access to resources and technical awareness Application of measures to overseas branches and subsidiaries 104 Section 10 (4) How long should records be kept? Article 19 of Money Laundering Order 5 years from end of business relationship or carrying out one-off transaction 5 years from end of transaction Others (except SARs) 5 years after end of calendar year in which document superseded, matter considered or action taken» On-going monitoring: reduced from 5 years after end of business relationship SARs 5 years from end of business relationship

36 Section 10 (5) Who can records be passed to? Article 19(5) to (7) Relevant person (or overseas equivalent) to whom written assurance provided under Articles 16 and 17 of Money Laundering Order (or overseas equivalent) Correspondent bank 106 Key learning points 107 Key learning points (1) BRA Start with agreement of risk appetite; and Consider accumulation of risk MLCO Avoid customer-facing, business development, and systems and controls development role Identification measures Understand ultimate beneficial ownership and control structure of customer that is a legal person Looming deadline to complete finding out of identity

37 Key learning points (2) Enhanced CDD measures Additional circumstances in which must be completed Does not automatically make relationship higher risk Gaps to be picked up by on-going monitoring Application of simplified identification measures Basic information to be collected For any significant third party Reporting and tipping off provisions MLRO and Board to consider effectiveness of reporting Prescribed circumstances when tipping off permitted 109 General overview of changes Andrew Le Brun Hamish Armstrong Financial crime policy