Monday 14th October 2019
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Comsure operates in:the UK, Jersey, Guernsey

Guernsey trust company (Louvre) and its directors (inc a NED) fined (18th June 2019) for AML failures

On 18 June 2019 the Guernsey Financial Services Commission (“the Commission”) announced it has fined Louvre Trust (Guernsey) Limited, Derek Paul Baudains, Jonathan Ross Bachelet, Haidee Louise Stephens, Julian Dai Lane, Charles Peter Gervais Tracy as follows

  1. £70,000 on Louvre Trust (Guernsey Limited) (the “Licensee” or the “Firm”) under section 11D of the Financial Services Commission Law;
    1. £8,400 on each of Mr Baudains and Ms Stephens under section 11D of the Financial Services Commission Law;
    2. Mr Baudains is a director of the Licensee and was appointed from 20 December 2007.
    3. Ms Stephens was a director of the Licensee from 20 December 2007 to 3 September 2018.
  2. £7,000 on Mr Lane under section 11D of the Financial Services Commission Law;
    1. Mr Lane was a director of the Licensee from 27 October 2011 to 5 September 2018.
  3. £5,600 on each of Mr Bachelet and Mr Tracy under section 11D of the Financial Services Commission Law;
    1. Mr Bachelet is a director of the Licensee and was appointed from 1 January 2014.
    2. Mr Tracy was a non-executive director of the Licensee from 20 December 2007 to 5 December 2016.

The Commission considered it reasonable and necessary to make these decisions having concluded that the Licensee and the Directors had failed to ensure compliance with

  1. the Regulations, the Handbook,
  2. the Code of Practice – Corporate Service Providers,
  3. the minimum criteria for licensing set out in Schedule 1 of the Fiduciaries Law AND
  4. Instruction 6 of 2009
    1. In 2009, the Commission issued Instruction Number 6 requiring licensees to review policies, procedures and controls in place in respect of existing customers to ensure that the requirements of regulations 4 and 8 of the Regulations and each of the rules in Chapter 8 of the Handbook were met.
    2. Licensees were required to satisfy themselves that customer due diligence information appropriate to the assessed risk was held in respect of each business relationship by close of business on 31 March 2010.
    3. Where a licensee could not meet the regulations by the deadline they were required to terminate the business relationship.

BACKGROUND

  1. In 2007, the Licensee was established in Guernsey.  It was licensed under the Fiduciaries Law on 3 April 2008.
  2. The Commission conducted an on-site visit to the Licensee between 25 April 2016 and 5 May 2016 (the “2016 visit”).
  3. The purpose of the 2016 visit was to carry out a financial crime risk assessment of the Firm.  In doing so the Commission reviewed (among other things) a selection of customer files.
  4. During the 2016 visit and the subsequent investigation the Commission identified serious failings in respect of the Licensee’s and the directors’ compliance with applicable anti money laundering / countering the financing of terrorism related regulations.

THE SERIOUS FAILINGS (ISSUES) FELL BROADLY INTO THE FOLLOWING CATEGORIES:

  1. The Licensee did not always
    1. identify all high-risk factors when risk assessing its clients (client risk assessments);
    2. adequately risk assess a client relationship at the outset (client risk assessments);
    3. carry out the periodic ongoing client risk assessment required by the Regulations and the Handbook; (monitoring)
    4. adequately monitor customer relationships; (monitoring)
  2. The Licensee failed
    1. on multiple occasions to obtain adequate due diligence on client business relationships, including high-risk relationships; (CDD)
    2. to comply fully with Instruction 6 of 2009; (CDD)
    3. to maintain adequate board minutes, records of its customers, and the rationale that supported a decision to approve a high-risk transaction;(RECORD KEEPING)
    4. to have adequate policies, procedures and controls to forestall, prevent and detect money laundering and terrorist financing;(POLICY AND PROCEDURES)
    5. The Licensee unintentionally misled the Commission in its written response to the findings of the 2016 onsite visit;(REGULATORY COMMUNICATIONS)
  3. The Directors, during the periods when they were directors of the Licensee, failed
    1. to consider the appropriateness and effectiveness of the Licensee’s compliance with the Regulations and the Handbook (OVERSIGHT)
    2. to review the Licensee’s compliance with the Regulations and the Handbook at appropriate intervals; (OVERSIGHT)
    3. to ensure that the Commission was advised of material failures to comply with (REGULATORY COMMUNICATIONS)
      1. the provisions of the Regulations and the rules in the Handbook, and
      2. of any serious breaches of the Licensee’s policies, procedures or controls;
    4. The Licensee and the Directors failed to comply fully with the minimum criteria for licensing under the Fiduciaries Law.(CORPORATE GOVERNANCE-FIDUCIARY DUTIES)

FINDINGS NO1 – [POST 2016 VISIT – CDD OUTSTANDING] – THE COMMISSION’S INVESTIGATION FOUND:

  1. As a result of the GFSC 2016 onsite visit, the Licensee reviewed its entire client base and identified subjects that required Customer Due Diligence Remediation (the “verification subjects”).
    1. The Licensee concluded that 28% of its verification subjects required remediation.
    2. The Firm also identified that just over a quarter of the high-risk verification subjects required remediation.
    3. This evidences that there were large-scale systemic failings in the Licensee’s duty to have adequately conducted and reviewed client due diligence and enhanced due diligence prior to the 2016 onsite visit.

FINDINGS NO2- [RISK ASSESSMENTS] THE COMMISSION’S INVESTIGATION FOUND:

  1. The Licensee did not
    1. always identify all high-risk factors when risk assessing its clients
    2. always adequately risk assess a client relationship, and/or failed to carry out periodic ongoing client risk assessment
  2. The Licensee did not always adequately monitor customer relationships
  3. The Licensee failed
    1. on multiple occasions to obtain adequate due diligence on client business relationships
    2. on a significant number of occasions to identify all high-risk factors in high-risk client relationships, such as high-risk countries and high-risk activities.  Identification of these high-risk factors would have led to a more accurate enhanced due diligence focus.
    3. on a number of occasions to identify client relationships as high-risk.
    4. on occasion to conduct periodic ongoing reviews of its client risk assessments, including a high-risk client that was not reviewed for almost three years.
  4. These failures in respect of client risk-assessments meant that the Firm was not able to ensure that its policies, procedures and controls on forestalling, preventing and detecting money laundering and terrorist financing were appropriately and effectively implemented, having regard to the appropriate risk-rating.

FINDINGS NO3 – [SPECIFICS] THE COMMISSION’S INVESTIGATION FOUND:

  1. SINCE 2008 THE LICENSEE HAS FAILED TO always effectively monitor its business relationships, with insufficient consideration being given to the potential risks that the legal structures could be used to launder money or finance terrorism. 

In particular:

  1. the Licensee failed to
    1. conduct additional scrutiny of a transaction that, on the same day, saw assets being on-sold through a legal arrangement which, increased the value of the assets involved in the transaction by €4.5million;
    2. effectively scrutinise the movement of millions of US dollars between jurisdictions via generic consultancy agreements and interest-free loans, whilst also failing to identify this as a high-risk relationship;
    3. effectively scrutinise the source of funds for a transaction involving a high-risk business relationship prior to its decision to authorise the transaction.  At the time of the transaction the Firm had concerns that the source of funds may be linked to a sanctioned entity, but due diligence to confirm the legitimate source of funds was not received until after the transaction had taken place; and
    4. to raise the risk assessment of a client from medium to high-risk until after the 2016 onsite visit, despite knowing since 2008 that the client was under investigation for criminal matters and had been charged in 2013 with conspiracy to defraud investors.
  2. The Licensee did not always correctly risk rate its client risk assessments.
  3. A number of client business relationships were rated as medium-risk at the time of the 2016 onsite visit, yet re-rated to high-risk after the 2016 onsite visit, following the Firm’s review of its customer risk assessments as part of a remediation programme.
  4. The Licensee’s failure to identify these clients as high-risk prior to the 2016 onsite visit led to a failure to adequately monitor these business relationships as required under a risk-based approach.
  5. This reduced oversight increased the potential for money laundering and terrorist financing to occur undetected, and increased the reputation risk to the Bailiwick of Guernsey as a finance centre.
  6. The Licensee failed to comply fully with Instruction 6 of 2009
    1. The large volume of the Firm’s verification subjects that had customer due diligence deficiencies (28% of its customers), indicates that the Firm had failed to comply with Instruction Number 6.
  7. The Licensee failed to maintain and keep adequate records, including (but not limited to) failing to:
  8. keep customer due diligence and enhanced due diligence as required by the Regulations and the Handbook;
  9. record or retain any documentation recording its compliance officer’s rationale for a decision to approve a dividend payment in a high-risk business relationship;
  10. keep accurate records of board minutes for a client company that the Firm administered.
  11. The Licensee failed to have adequate policies, procedures and controls to forestall, prevent and detect money laundering and terrorist financing
  12. The Licensee misled the Commission in its written response to the 2016 onsite visit
  13. The Licensee failed to comply fully with the Fiduciaries Law
  14. The Directors failed
  15. TO establish effective policies and procedures for assessing the adequacy and effectiveness of the Licensee’s compliance with the Regulations and the Handbook.  The Firm failed to have a formal Compliance Monitoring Programme (“CMP”) in place until January 2014.  The CMP introduced in 2014 still required significant improvements to be made to it as late as March 2017, almost 10 years after the introduction of the Regulations that required the Licensee to have an effective CMP in place.  The Licensee’s failure to have an effective CMP restricted the Firm’s ability to monitor its capacity to forestall, prevent and detect money laundering and terrorist financing.
  16. failed in their duty to review the Firm’s compliance with the Regulations and the Handbook, and ensure that the Licensee had appropriate and effective policies, procedures and controls in place.
  17. The Licensee and the Directors unintentionally misled the Commission surrounding the timing of the Firm’s receipt of bank statements used to ascertain whether funds were sourced from a sanctioned entity.
  18. The Licensee and the Directors provided documentation that was misleading to the Commission for the purpose of justifying the Firm’s actions in respect of authorising a dividend payment.
  19. In so doing the Licensee and the Directors acted without due diligence and sound judgement.

The Commission concluded that the Licensee had failed to comply fully with the Fiduciaries Law, specifically paragraphs 1(1)(a), (b) & (c) and 3(2)(a), (b) & (e) of the minimum criteria for licensing set out in Schedule 1 to that Law.  The Licensee failed to act:

  1. with prudence, integrity, professional skill appropriate to the nature and scale of its activities, and in a manner which will not tend to bring the Bailiwick into disrepute as an international finance centre; and
  2. with diligence, competence, soundness of judgement, or with a knowledge and understanding of the legal and professional obligations to be undertaken.

The Commission also concluded that

  1. the Directors all failed to comply fully with the Fiduciaries Law, specifically paragraphs 3(2)(a), (b) & (e) of the minimum criteria for licensing set out in Schedule 1 to that Law.
  2. The Directors each failed to act with diligence, competence, soundness of judgement, or with a knowledge and understanding of the legal and professional obligations to be undertaken.

Aggravating factors

  1. The contraventions and non-fulfilments of the Licensee and the Directors in this case are serious, and expose the Firm and the Bailiwick to a significant risk of financial crime.
  2. Through its systemic failings the Licensee had potentially enabled specific structures that it administered to be involved in money laundering or terrorist financing.
  3. The potential to facilitate the movement of substantial amounts of funds, unhindered around the globe over a long period is of serious concern to the Commission.  The Firm has acted in a manner that could bring the Bailiwick into disrepute as an international finance centre.
  4. The Licensee’s and the Directors’ omission to instigate a formal CMP until January 2014, and the improvements required to be made to that formal programme when it was introduced, meant the Firm was unable to identify the serious systemic failings in its policies, procedures and controls prior to the 2016 onsite visit.  It is an essential role of the board of a regulated entity to implement effective policies, procedures and controls to forestall, prevent and detect money laundering and terrorist financing in order to protect against financial crime, which can have a serious detrimental effect on the reputation of the Licensee and the Bailiwick as an international finance centre.

Mitigating factors

  1. At the request of the Commission the Licensee instigated a Risk Mitigation Programme, which amongst other matters, reviewed and made fundamental changes to the policies, procedures and controls for forestalling, preventing and detecting money laundering and terrorist financing.
  2. A complete customer due diligence review was also conducted.
  3. An updated CMP has been operating since October 2017, and as of August 2018 training had been completed for all staff on the effective completion of client risk assessments.
  4. Since the investigation began the Licensee has strengthened its risk and compliance team and undertaken additional risk-rating.
  5. At all times the Directors and the Licensee co-operated fully with the Commission.  The Licensee and the Directors agreed to settle at an early stage of the process, and this has been taken into account by applying a 30% discount in setting the financial penalty.
  6. The financial penalties imposed on each of the Directors have been calculated to take account of the periods during which each person was a director of the Licensee, and their respective responsibilities.

End

Key references

  1. The Financial Services Commission (Bailiwick of Guernsey) Law, 1987 (the “Financial Services Commission Law”);
  2. The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law, 2000 (the “Fiduciaries Law”);
  3. The Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007 (the “Regulations”);
  4. The Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing (the “Handbook”)
  5. Louvre Trust (Guernsey Limited) (the “Licensee” or the “Firm”)
  6. Mr Derek Paul Baudains (“Mr Baudains”)
  7. Mr Jonathan Ross Bachelet (“Mr Bachelet”)
  8. Ms Haidée Louise Stephens (“Ms Stephens”)
  9. Mr Julian Dai Lane (“Mr Lane”)
  10. Mr Charles Peter Gervais Tracy (“Mr Tracy”) (together “the Directors”)

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