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JERSEY'S NEW MONEY LAUNDERING OFFENCES – WATCH OUT, THEY ARE VERY STRICT ☹

06/05/2022
INTRODUCTION

The States of Jersey on the 27th of April approved a new offence under:

  1. Article 35A of the Proceeds of Crime (Jersey) Law 1999
  2. 35A Failure to prevent money laundering

The substantive offences covered under the Amendment are

  1. Articles 30 and 31 of POCL and Articles 15 and 16 of the Terrorism (Jersey) Law 2002
  2. Conduct outside Jersey, which, if occurring in Jersey, would be an offence under said articles.

This means that ONLY money laundering and terrorist financing as defined [in articles above] would trigger the new offence,

  1. Whereas a contravention of the Money Laundering (Jersey) Order 2008 WOULD NOT.
  2. It will come into force once sanctioned by order of Her Majesty in Council and Registered by the Royal Court.
WHAT DOES THE NEW OFFENCE DO?

This Law amends the Proceeds of Crime (Jersey) Law 1999 and introduces 2 new offences:

  1. Failing to prevent a financial services business (body corporate [LEGAL PERSON]) from committing an offence of money laundering and
  2. A NATURAL PERSON's liability for the offence [in [a] above], if committed with the consent or connivance of that person.

The offences are "STRICT LIABILITY" and require the authorities to prove that the accused committed the physical act [money laundering] beyond a reasonable doubt.

The accused can then avoid conviction if it proves [REVERSE BURDEN OF PROOF] it took "REASONABLE STEPS" (applied adequate procedures)

WHO DOES IT APPLY TO?

The offence would apply to Jersey FINANCIAL SERVICES BUSINESSES (FSBS).

And the substantive ML offences would be committed by an ASSOCIATED PERSON [the money launderer] of the FSB,

The new offence defines ASSOCIATED PERSONS and lists the most relevant categories from a financial services and money laundering perspective.

WHEN WOULD IT APPLY?

The offences apply in two possible scenarios:-

  1. The first and probably most common case is where:-
    • The money launderer cannot be prosecuted in Jersey due to being based in another jurisdiction and an extradition cannot be secured.
    • However, if there is a local financial services business which failed to prevent the money laundering, this legal entity could then be prosecuted under the new offence.
  2. In the second scenario,
    • The money launderer might be prosecuted in Jersey and,
    • If the money laundering was facilitated by a local Financial Service Businesses (FSB), such business might then be charged in addition to the actual launderer
THE OFFENCE BROKEN DOWN

35A creates an offence where:-

  1. [35A(1)] - A FINANCIAL SERVICES BUSINESS (FSB) commits an offence, and is liable
  • When acting in the capacity of
    • A person [CRIMINAL](CRIMINAL PERSON) associated with FSB.

[35A(4)] - A CRIMINAL PERSON [CP] acts in the capacity of a CP associated with an FSB if that CP is –

  • An EMPLOYEE of FSB who is acting in the capacity of an 
  • An AGENT of FSB (other than an employee) who is acting in the capacity of an agent OR
  • ANY OTHER PERSON who performs services for or on behalf of FSB who is acting in the capacity of a person performing such services.
    1. [35A(7)] - For the purposes of paragraph (4)(c) the question whether the person is a person who performs services for or on behalf of FSB is to be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between that person and FSB.
  • A customer of FSB, or
  • An agent of a customer of FSB, in relation to any service performed by or on behalf of FSB.

[35A(3)] - A CP is engaged in money laundering if the CP engages in conduct which constitutes money laundering,

  1. Whether or not the CP has been convicted of an offence in relation to that conduct.
DEFENCE

35A(2) It is a defence for an FSB to prove that when the money laundering occurred:

  1. The FSB adequately maintained and applied prevention procedures in relation to the activities of the CP [AS SHOWN IN [35A(4)]] associated with the FSB.

35A(5) In paragraph (2) “prevention procedures” means:

  1. Procedures designed to prevent CPs acting in the capacity of a CP associated with FSB being engaged in money laundering.

35A(6) - In determining whether an FSB has adequately maintained and applied prevention procedures in relation to the activities of the CP associated with FSB, the Court –

  1. May take account of any relevant Code of Practice or guidance that applies to FSB and is issued by the supervisory body exercising supervisory functions in respect of FSB; or
  2. If no such Code of Practice or guidance applies, may considerany relevant Code of Practice or guidance that is issued by another supervisory body; or
  3. If there is no such relevant Code of Practice or guidance, may take account of any other relevant guidance issued by a body that is representative of FSB or any supervised business that is carried on by FSB.

35A(9) For the purposes of paragraph 35A(6)  “Code of Practice”, “supervised business”, “supervisory body” and “supervisory functions” have the same meaning as in

the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008.”. https://www.jerseylaw.je/laws/current/Pages/08.785.aspx

STRICT LIABILITY

Criminal conviction typically requires authorities to prove, beyond a reasonable doubt, that the accused both committed

  1. The physical act (Actus Reus) [e.g., money laundering] and
  2. Had the mental intent for the offence (Mens Rea) [e.g., was reckless in allowing it to happen].

However, in a “Strict liability” conviction the authorities are required to only prove beyond a reasonable doubt only that the accused committed the physical act.

  1. The physical act (Actus Reus) [e.g., money laundering]

The accused can then avoid conviction if it proves [reverse burden of proof]

  1. On a balance of probabilities (e.g., 50% or more), it exercised “reasonable procedures” (e.g., took all reasonable care that a reasonable person would have taken in the circumstances.)
REVERSE BUDEN OF PROOF

Under the new offence, an FSB will have available to it a “reasonable steps” defence that it had “adequately maintained and applied prevention procedures” in place.

Such a defence will be subject to a reverse burden of proof on the defendant, such that the defendant will be required to establish, on the balance of probabilities, any facts that need to be proved in advancing the defence.

DO YOU HAVE A DEFENCE?

When building a defence, the following are just a few problematic issues to consider:-

  1. Procedures that have not been reviewed or updated for several years.
  2. Procedures that the Board has not formally adopted.
  3. Different versions of the same procedure are being used.
  4. Procedures that are not aligned with the regulatory requirements in the AML handbook.
  5. A compliance monitoring program has fallen behind schedule or fails to test the application of and adherence to the procedures.
  6. Backlogs of client risks reviews in breach of the business' procedures.
  7. Lack of documentation to evidence application of and training to the procedures.
WARNING - JFSC VISITS  

Further to the above, the outcomes from several JFSC themed examinations have highlighted

  1. Inadequate AML policies and procedures were at the root cause of most findings.
  2. https://www.jerseyfsc.org/industry/examinations/examination-findings-and-questionnaires/

It therefore seems there is some work to do!!!!

CONCLUSION
  • Now is a good time for financial services businesses to focus attention on the adequacy of procedures and
  • Test if they are being applied correctly before the offence of failing to prevent money laundering comes into force.
SOURCE
  1. https://www.jerseylaw.je/laws/pending/Pages/ProceedsofCrime(AmendmentNo.7)Law202-_ADOPTED.aspx
  2. https://statesassembly.gov.je/AssemblyPropositions/2022/P.51-2022.pdf
  3. https://statesassembly.gov.je/AssemblyPropositions/2022/P.51-2022%20Com.pdf
  4. https://www.jerseyfsc.org/industry/examinations/examination-findings-and-questionnaires/

JERSEY FRAUD