Recent [2020] Jersey money laundering case is a good reminder about what happens when you miss a RED FLAG

For this news post Comsure is looking back to 2020 and the Jersey case of:-

• Her Majesty’s Attorney General V LGL Trustees Limited

This case was about a failure by LGL to:

• Recognise and respond to the obvious risk that a structure it set up and administered in Jersey might be used to embezzle funds from the public purse of an African country for the benefit of its rulers

KEY FACTS

• On Friday 19 February 2021, the Royal Court imposed a fine of £550,000 on LGL Trustees Limited (LGL), and awarded costs of £50,000, for failing to comply with the requirements of the Money Laundering (Jersey) Order 2008.
• LGL had pleaded guilty on 4 December 2020 to two related offences under Article 37(4) of the Proceeds of Crime (Jersey) Law 1999 for breaches of the Money Laundering Order.
• The offence contained within
• Count 1 concerned a failure by LGL to recognise and respond to the risk that a structure it set up and administered in Jersey might be used to embezzle funds from the public purse of an African country for the benefit of its rulers.
• Count 2 relates to LGL’s failure to properly identify and verify the controllers of one of its customers, namely the board members of the National Bank of Angola. Having failed to obtain the information at the outset of the business relationship as they were required to, they then failed to remedy this for another six years which was a further and separate breach of the ongoing monitoring requirements of the Money Laundering Order.

COUNT 2 – SILLY ERROR

• Count 2 was a strict liability offence and was a silly error.  Not only did LGLs fail to do the minimum they failed to correct the situation.

COUNT 1 - THE RED FLAG

• Whilst there is no suggestion that any of the funds provided by Angola were of suspicious origin or that the investments into which the funds were placed were themselves suspicious, LGL failed to identify the real risks of money laundering that were apparent.
• In doing so LGL placed themselves at risk of being involved in the diversion of tens millions of dollars of public funds of one of the poorest countries in the world, to its rulers, their relatives and associates.

WHAT WAS HIGHLIGHTED IN COURT

The court was reminded that at the heart of jersey anti money-laundering regulation is

• The requirement that financial services businesses must have in place, and must follow, effective procedures to ensure that they avoid being mixed up in money laundering – i.e. assisting a criminal to benefit from their crimes, for example by moving criminal money through corporate structures to hide the link between the money and the criminal and
• To minimise this risk. The Money Laundering Order prescribes a “risk-based approach”, which requires greater due diligence in cases where the risk of money laundering appears higher, for example, because the country or type of business is known for high levels of corruption.

The Money Laundering Order requires financial services businesses to identify various things, including:

• The risk that the business might involve money laundering, for example based on the nature of the business or the country it emanates from; such risk must be duly assessed and managed if the business is taken on and while it is maintained.
• The legitimacy of any assets involved; and
• The identity of those individuals who beneficially own the assets, and those who control the assets.

Advocate Grace [for the defendant said

• That LGLs preventative measures taken fell short of what the Money Laundering Order required.

He said in essence there were two sticks (48[v]):

1. The first stick was
• To have in place appropriate policies and procedures to prevent and detect money-laundering.
2. The second stick
• Is what LGL did.

He said:-

1. It did have such policies and procedures and it did take steps to prevent money-laundering.
2. It tried to think things through but did not do enough.

He said:-

1. The steps it did take included ascertaining that:-
1. The funds coming in were clean,
2. Making sure that it was working with respected professionals,
3. Ensuring that monies were invested in clean assets,
4. Focusing on ensuring that control was not in the hands of corrupt rulers and
5. Focusing on the “end game”, namely ensuring that assets would go back to the Angolan State.
2. The process was audited and there was full accountability to the National Bank of Angola.
3. However, in all of this,
1. LGL was distracted from the risk of corrupt diversion through Quantum Global and
2. So the length of the second stick fell short of the length of the first stick.

Conclusion

This case serves as a reminder that proper compliance with money laundering regulations is crucial in preventing financial crime and maintaining the integrity of financial institutions.

Doing nearly all your CDD is not enough.  If you miss the red flag [advocate Graces second stick] all you efforts will be wasted.

The case provides several important lessons, particularly in relation to compliance with money laundering regulations, these lessons include:-

• Recognize and Respond to Risks:
• LGL Trustees Limited (LGL) failed to recognize and respond to the risk that a structure it set up and administered in Jersey might be used to embezzle funds from the public purse of an African country for the benefit of its rulers.
• Proper Identification and Verification:
• LGL failed to properly identify and verify the controllers of one of its customers, namely the board members of the National Bank of Angola. This highlights the importance of obtaining necessary information at the outset of a business relationship.
• Ongoing Monitoring:
• After failing to obtain the necessary information at the beginning, LGL then failed to remedy this for another six years, which was a further and separate breach of the ongoing monitoring requirements of the Money Laundering Order
• Compliance Officers’ Role:
• The case also underscores the importance of listening to compliance officers. One of LGL’s Compliance Officers recommended terminating the relationship, but her advice was ignored.
• Legal Consequences:
• For these breaches, LGL was fined £550,000 and had costs awarded against them of £50,00012.

Source

• https://www.moneylaundering.com/wp-content/uploads/2021/03/Jersey.Enforcement.LGL_.022621.pdf / https://www.i-law.com/ilaw/doc/view.htm?id=422388
• https://www.comsuregroup.com/news/lgl-trustees-ltd-fined-550k-plus50k-what-is-known-and-what-the-jersey-court-said-about-what-happened/
• https://www.gov.je/News/2021/pages/trustcompanyfined.aspx
• https://www.bailiwickexpress.com/jsy/news/focus-corruption-conviction-and-red-flags/

Jersey c LGL Trustees Ltd re Angola pdf