The new failure to prevent money laundering offence in Jersey – have you thought about it?

Following in the footsteps of the failing to prevent tax evasion offence, with effect from 24 June 2022 Jersey has introduced a new offence under Article 35A of the Proceeds of Crime (Jersey) Law 1999 (the Law) of failing to prevent money laundering (the Failure to Prevent Offence).

Following similar legislation in the UK [SEE BELOW] the Jersey 35A is a significant development in the regulation of Jersey's financial services industry:

• If a business is connected to certain persons who are engaged in money laundering, the business is itself at risk of committing a criminal offence unless it can demonstrate that its AML policies and procedures (both on paper and in practice) were nonetheless fit for purpose.

Considering the above the following commentary provides some food for thought.

“FAILURE TO PREVENT” OFFENCES.

• “Failure to prevent” offences were a response to legal difficulties in holding corporations to account.  They sought to overcome the so-called identification doctrine, where a company is only liable for conduct by a person who constitutes the organisation’s “DIRECTING MIND AND WILL”.

WHY?

• The introduction of ‘failure to prevent’ offences are an attempt to overcome these difficulties.
• The basis of a failure to prevent offence is simple – to have any defence, an organisation needs to prove that it had ‘reasonable’ or ‘adequate’ procedures in place to prevent an individual associated with it from carrying out a criminal activity.

THE UK OFFENCES

• The first failure to prevent offence was introduced in relation to BRIBERY IN 2010.
• Two further failure to prevent offences followed in the Criminal Finances Act 2017 related to the FACILITATION OF TAX EVASION.

THE FUTURE

• Future UK Proposals now LOOK to add MONEY LAUNDERING, FALSE ACCOUNTING AND FRAUD into the mix.
• Peter Binning, a criminal defence lawyer at Corker Binning, who would like to see a similar approach taken around online harms, was quoted as saying.
• “A robust regulatory regime, backed by meaningful criminal penalties and a range of civil and criminal enforcement options, can develop a much better attitude and culture in an industry,”
• Most lawyers concede that even the possibility of criminal sanctions helps focus senior minds.

ARE THEY SUCCESSFUL?

• Research last year by Kathryn Westmore at think-tank Rusi suggested.
• Waning effectiveness over time in the absence of high-profile enforcement action.
• After all, there have been no prosecutions for failure to prevent tax evasion.
• Westmore reports
• Dwindling interest or focus within companies as a result, with risk assessments allowed to go stale and little consideration given to potential offences in the design of new products.
• https://rusi.org/explore-our-research/publications/emerging-insights/corporate-criminal-liability-lessons-introduction-failure-prevent-offences
• The bribery rules have resulted in negotiated settlements, and Glencore’s guilty pleas last year. But those haven’t (yet) led to separate charges against individuals, frustrating those who believe real deterrence requires a face.
• A proliferation of offences that aren’t ever prosecuted seems unhelpful for everyone —
• Companies, regulators or policymakers.
• The resourcing of bodies like the Crown Prosecution Service and Serious Fraud Office (with its share of embarrassing failures in this area in recent years) is cited as an issue.
• A multiplicity of new overlapping offences could further complicate bringing cases in an already-fraught area:
• The Law Commission last year proposed limiting any additions to fraud alone.
• Even if success is defined as changing behaviour, rather than collecting scalps, more needs to be done.
• The financial regulators sometimes struggle to show they are using their tools, such as the lack of regulatory sanctions brought against individuals under the Senior Managers’ Regime (now under review as part of the government’s efforts to look bank-friendly).
• More generally, UK guidance around failure to prevent has tended to be thin or not kept up to date, say practitioners.
• Matthew Russell, risk advisory partner at Ashurst said:-
• “Other jurisdictions like the US have a rich body of granular guidance that companies rely on in implementing these regimes,”
• “That guidance then also becomes the tool by which the rules are enforced.”

In Jersey why has the Failure to Prevent Offence been introduced?

• The introduction of the Failure to Prevent Offence will make it easier for the authorities in Jersey to prosecute businesses and key persons for AML offences.
• As the JFSC has made clear on several occasions[*1],
• "The continuing ability of Jersey’s finance industry to attract legitimate customers with funds and assets that are clean and untainted by criminality depends, in large part, upon the Island’s reputation as a sound, well-regulated jurisdiction".
• [1] Financial crime examinations: Industry feedback Issued:26 June 2020 https://www.jerseyfsc.org/industry/examinations/financial-crime-examination-feedback/
• As the JFSC notes, Jersey’s defences "rely heavily on the vigilance and co-operation of the finance sector".
• [1] 23 Dec 2022 tracked changes AML handbook - https://www.jerseyfsc.org/media/6256/section-1-introduction-tracked-changes-23-december-2022.pdf
• The introduction of the Failure to Prevent Offence is intended to ensure that businesses are properly motivated to play their part. As shown, when consulting on this offence the Government stated that it would enhance Jersey's overall AML enforcement effectiveness.  The Government referred to the Financial Action Task Force's "Methodology – Immediate Outcome 7", which provides that jurisdictions are required to demonstrate that money laundering offences and activities are investigated, and offenders are prosecuted and subject to effective, proportionate, and dissuasive sanctions[*2].

• [*2] The consultation can be found at:
• https://www.gov.je/SiteCollectionDocuments/Crime%20and%20justice/C%20Consultation%20on%20amendments%20under%20the%20Proceeds%20of%20Crime%20(Jersey)%20Law%201999.pdf

Sources

• https://rusi.org/explore-our-research/publications/emerging-insights/corporate-criminal-liability-lessons-introduction-failure-prevent-offences
• https://www.ft.com/content/28a8a1bc-6bf9-44f6-868c-1aaeab823b82?accessToken=zwAAAYXoNSHrkc8oqKG8a_lE9tOGjBquq4I7gg.MEUCIA4D8gpW4IzgP1NIP5O-lY6XKO1h9CZjX_UvCRPS3z0LAiEAgeJ4f-l9aQDN9UCy3hST7dqkvRI3rc3PBhwenq79hPs&sharetype=gift&token=7c370545-7b5e-4542-88fa-c8bb01b1b0e7