SARS and failing to report - where Jersey leads others, follow.

The UK CPS now considers that any person who fails to report a suspicion of money laundering will not be able to rely on a defence that, despite failing to report a suspicion, it turns out that there was no underlying money laundering offence that took place.

However, Jersey applies a similar SAR standard, as shown in this CPS update. As established in 2015, Jersey tried to convict an MLRO.

In 2015, in the first prosecution of its kind in Jersey,

1. the Jersey Royal Court had acquitted Michelle Jardine (represented by Advocate Nuno Santos-Costa) and STM Fiduciaire Limited ("STM") (represented by Advocate David Steenson) of charges under the Proceeds of Crime (Jersey) Law 1999 (POCA).
2. Mrs Jardine and STM were charged with alternative offences of failing to report under 34A and 34D of POCA. Both of the charges under POCA relate to a failure to disclose information to the Jersey Financial Crimes Unit based on information received. The offences carry with them penalties of up to 5 years imprisonment.
3. Lasting for four days, the result of this trial should give a measure of comfort to financial institutions, MLROs and directors of companies alike
4. The case highlights the importance of these roles in assessing risk and combating cross-border crimes and the associated POCA (money-laundering) offences.

Always suspicious: implications of failing to report [ORIGINALLY PUBLISHED - SEPTEMBER 2015]

This SEPTEMBER 2015 update covers the first prosecution in Jersey against a regulated business and its Money Laundering Reporting Officer for failing to report suspicions under the Proceeds of Crime (Jersey) Law 1999.

1. The proceedings against STM Fiduciaire Limited (STM) and its Director and appointed Money Laundering Reporting Officer [Michelle Jardine, (Jardine)] for breaches of the Proceeds of Crime (Jersey) Law 1999 (PCL) resulted in an acquittal for all parties.
2. This was the first attempt at prosecution in Jersey for failure to report potential money laundering since the provisions requiring such reports were brought in over 15 years ago.
3. The proceedings are said to have arisen from a visit by the Jersey Financial Services Commission (the JFSC), and concerns were seemingly arising over compliance with the PCL, particularly the filing of Suspicious Activity Reports (SARs).
4. The visit took place in 2012 and related to failings in 2011. The JFSC concluded that STM had acted swiftly to address perceived failings, and no clients were said to have been put at risk.

However, several years later, the decision was taken to prosecute STM and Jardine, and those proceedings were heard in June 2015. The proceedings included

1. Evidence from the parties and representatives of the JFSC and the Jersey Financial Crimes Unit (JFCU).
2. STM provided details of a service provided by it connected with St Kitts and Nevis passport programme.
3. St Kitts and Nevis ran citizenship by investment programme, and one such application that STM became involved in concerned a Ukrainian politician, who would be a Politically-Exposed Person (a PEP).
4. STM carried out its usual KYC and CDD checks and also collected money for its fee for the service.
5. The fee was paid from a company in Belize via a Cypriot Trustco, and there was no conclusive and evidenced link to the applicant.
6. STM, therefore, returned the funds to the sender and did not process the application.

The prosecution case was that these facts should have given rise to a SAR.

1. Under the POCL,
   1. any person who knows or suspects (or has reasonable grounds to know or suspect) that another is engaged in money laundering or
   2. that any property constitutes or represents the proceeds of criminal conduct
2. is obligated to report that knowledge, suspicion or reasonable grounds for the same to the JFCU.

This includes cases where the business is ultimately declined, as in this case.

The prosecution case,

1. The funds received on behalf of a PEP, with connections to a notoriously corrupt country and with no apparent connection between the application for business and the source of the funds, gave rise to suspicion and so should have been reported.

The Defence was

1. In response, a risk-based assessment was adopted, as recommended by the JFSC, and that the information received had been adequately assessed.
2. There were plausible explanations for the routing of funds.
3. And a conclusion was ultimately reached that there was no money laundering, but only 'loose ends' to be addressed regarding the source and return of the money.

Unfortunately, there is no judgment of the Royal Court as the case ended in acquittal, so we do not have the Court's full reasoning as to why all parties were acquitted. However, it does appear that

1. The prosecution argued that the trigger for suspicion is very low and that PEP status was enough was dismissed by the Court.
2. The assessment carried out by Jardine and STM appears to have met the requirements in the view of the Court.

Thoughts

1. Whilst these facts may offer some comfort to MLROs and regulated businesses, as the apparent adoption of the risk-based approach did appear to cover Jardine and STM,
2. The JFSC will put forward instances of perceived non-compliance to the HM Attorney General for prosecution, and charges will be brought against those concerned.
3. Jersey's international obligations and the need to demonstrate regulatory enforcement action against those perceived to breach its regulatory standards are no doubt strong public interest arguments that weigh in favour of taking such action.
4. Whilst these proceedings were unsuccessful, that potentially makes it more likely that future similar prosecutions will arise for Jersey to point to a successful conviction for failure to report.

One small piece of comfort for STM and Jardine is that this case pre-dates the coming into force of the financial penalties regime. And this case appears to be one where a financial penalty may well have been imposed against STM and Jardine as a director of STM.

SOURCE:

• https://www.comsuregroup.com/news/no-proceeds-of-crime-but-you-should-have-been-suspicious-the-legal-duty-to-report-ml-in-the-uk/

https://archive.comsuregroup.com/failing-to-report-first-prosecution-of-its-kind-in-jersey/