handbook for the prevention and … for the prevention and ... proceeds of crime, ... will face the...

JERSEY FINANCIAL SERVICES COMMISSION

HANDBOOK FOR THE PREVENTION AND DETECTION OF MONEY LAUNDERING AND THE

FINANCING OF TERRORISM

FOR THE LEGAL SECTOR

Statutory and Regulatory Requirements and Guidance Notes

Issued: October 2008

Handbook for the Legal Sector

Contents

Issued: October 2008 of 124

CONTENTS CONTENTS .................................................................................................... 3

1 INTRODUCTION ..................................................................................... 7 1.1 Definition of lawyers undertaking specified Schedule 2 business .......................... 8

1.1.1 Activities covered by the Money Laundering Order......................................... 9 1.2 Objectives of this Handbook ................................................................................. 10 1.3 Structure of this Handbook ................................................................................... 11 1.4 Legal status of this Handbook and sanctions for non-compliance ....................... 12 1.5 Scope of the Money Laundering Order and this Handbook ................................. 13

1.5.1 Application of this Handbook to lawyers conducting relevant business in Jersey ............................................................................................................ 13

1.5.2 Application of the Order and this Handbook outside Jersey ......................... 13

2 CORPORATE GOVERNANCE...............................................................14 2.1 Overview of section............................................................................................... 14 2.2 Obligation to have procedures and controls ......................................................... 14 2.3 Senior management responsibilities..................................................................... 14

2.3.1 Systems, controls, training and awareness................................................... 16 2.3.2 Oversight of the effectiveness of systems and controls ................................ 17 2.3.3 Monitoring compliance................................................................................... 18 2.3.4 Consideration of cultural barriers .................................................................. 19 2.3.5 Outsourcing ................................................................................................... 20

2.4 The Money Laundering Compliance Officer (“MLCO”)......................................... 21 2.5 The Money Laundering Reporting Officer (“MLRO”) ............................................ 22

3 RISK-BASED APPROACH ....................................................................25 3.1 Overview of section............................................................................................... 25 3.2 Business risk assessment .................................................................................... 26 3.3 Assessing service area vulnerabilites and warning signs..................................... 28

3.3.1 Use of client accounts ................................................................................... 28 3.3.2 Establish a policy on handling cash .............................................................. 29 3.3.3 Source of funds ............................................................................................. 29 3.3.4 Private client work - Administration of estates............................................... 29 3.3.5 Charities......................................................................................................... 30 3.3.6 Property transactions..................................................................................... 30 3.3.7 Company and commercial work .................................................................... 33

4 CLIENT DUE DILIGENCE (“CDD”) REQUIREMENTS .........................37 4.1 Overview of section............................................................................................... 37 4.2 Obligation to conduct CDD ................................................................................... 38 4.3 Risk based approach to CDD ............................................................................... 38

4.3.1 CDD information – Stage 1............................................................................ 40 4.3.2 CDD profile – Stage 1.................................................................................... 41


Contents

of 124 Issued: October 2008

4.3.3 Source of funds and wealth – Stages 1 and 2............................................... 41 4.3.4 Evaluation of CDD information – Stage 2...................................................... 42 4.3.5 Client risk assessment – Stage 3 .................................................................. 45 4.3.6 Identification and verifying identity – Stage 4 ................................................ 46 4.3.7 Updating CDD and client risk assessments – Stage 5.................................. 46

4.4 Enhanced CDD..................................................................................................... 46 4.4.1 Politically Exposed Persons (“PEPs”) ........................................................... 47

4.5 Simplified due diligence ........................................................................................ 48 4.5.1 Reduced or simplified measures: CDD for very low risk products/services.. 49 4.5.2 Reduced or simplified CDD requirements for lower value one-off

transactions ................................................................................................... 50 4.6 Application of CDD requirements to existing clients............................................. 51 4.7 CDD requirements when acquiring another business or a block of clients .......... 54

5 IDENTIFICATION AND VERIFICATION OF IDENTITY..........................56 5.1 Overview of section............................................................................................... 56 5.2 Obligation to identify and verify identity of applicant for business ........................ 56 5.3 Identification and verification: Individuals ............................................................. 58

5.3.1 Establishing identity....................................................................................... 58 5.3.2 Verifying identity ............................................................................................ 59 5.3.3 Independent data sources ............................................................................. 61 5.3.4 Verification of residential address of overseas residents .............................. 62

5.4 Identification and verification: trustees and express trusts ................................... 62 5.4.1 Establishing identity....................................................................................... 63 5.4.2 Verifying identity ............................................................................................ 64

5.5 Identification and verification: legal bodies ........................................................... 65 5.5.1 Establishing identity....................................................................................... 66 5.5.2 Verifying identity ............................................................................................ 67

5.6 Identification and verification: authorised agent of applicants for business.......... 69 5.7 Identification and verification: applicants acting for third parties

(intermediary relationships) .................................................................................. 69 5.8 Non-face to face Identification and verification..................................................... 70

5.8.1 Suitable certifiers ........................................................................................... 71 5.9 Exceptions from identification procedures ............................................................ 72

5.9.1 Regulated persons and those carrying on equivalent businesses................ 73 5.9.2 Equivalent jurisdictions .................................................................................. 74 5.9.3 Persons authorised to act on behalf of a regulated applicant for business... 75 5.9.4 Publicly listed companies .............................................................................. 75 5.9.5 Jersey public authorities ................................................................................ 75 5.9.6 Jersey property transfers............................................................................... 76

5.10 Identification and verification of identity in intermediary and introduced relationships.......................................................................................................... 76

5.10.1 Assessment of risk where reliance is placed on intermediaries and introducers ..................................................................................................... 77

5.10.2 Intermediary relationships – reliance where the intermediary is a regulated person (Article 17 of the Order)..................................................... 79


Contents


5.10.3 Intermediary and introduced relationships - reliance where the intermediary is a non-regulated person (Article 16 of the Order) .................. 80

5.10.4 Group intermediaries and introducers ........................................................... 82 5.10.5 Intermediary clients and lower risk products ................................................. 83

5.11 Timing of initial identification and verification of identity ....................................... 85 5.11.1 Delayed completion of verification requirements........................................... 86

5.12 Failure to complete identification or verification of identity ................................... 87 5.12.1 Ascertaining legal position............................................................................. 87

6 MONITORING ACTIVITY AND TRANSACTIONS..................................89 6.1 Overview of section............................................................................................... 89 6.2 Obligation to monitor............................................................................................. 89 6.3 Appropriate monitoring procedures. ..................................................................... 91

6.3.1 Jurisdictions that do not, or insufficiently, apply FATF Recommendations... 93 6.4 Warning signs for the legal sector ........................................................................ 93

7 LEGAL PROFESSIONAL PRIVILEGE (“LPP”).....................................94 7.1 Overview of section............................................................................................... 94 7.2 Requirement to report knowledge or suspicion of money laundering or

terrorist financing .................................................................................................. 94 7.3 Duty of confidentiality............................................................................................ 95 7.4 Application of LPP................................................................................................. 96

7.4.1 Advice privilege ............................................................................................. 96 7.4.2 Litigation privilege.......................................................................................... 97 7.4.3 Important points to consider .......................................................................... 98 7.4.4 Crime/fraud exception ................................................................................... 98

7.5 Determining when to submit a suspcious activity report....................................... 98

8 REPORTING MONEY LAUNDERING AND TERRORIST FINANCING ACTIVITY AND TRANSACTIONS...................................100

8.1 Overview of section............................................................................................. 100 8.1.1 Reporting knowledge or suspicion of money laundering and terrorist

financing activity on business conducted outside Jersey............................ 101 8.2 Requirement to disclose knowledge or suspicion within a firm .......................... 101

8.2.1 What constitutes knowledge or suspicion ................................................... 102 8.2.2 Internal reporting procedures ...................................................................... 103 8.2.3 Evaluation of SARs by the MLRO ............................................................... 104

8.3 Reporting to the JFCU ........................................................................................ 105 8.3.1 Procedures for reporting to the JFCU ......................................................... 106

8.4 Tipping-off ........................................................................................................... 107 8.4.1 Avoiding tipping-off during the CDD process .............................................. 107

8.5 Consent to activity and acknowledgement of reports ......................................... 108 8.5.1 Pre-transaction consent............................................................................... 108 8.5.2 Acknowledgment of post-transaction reports .............................................. 109 8.5.3 Avoiding tipping-off during the JFCU consent process ............................... 109

8.6 Terminating a relationship .................................................................................. 109


Contents


8.7 Investigation and the use of court orders............................................................ 110 8.7.1 Feedback from the JFCU ............................................................................ 111

9 VETTING, AWARENESS RAISING AND TRAINING ...........................112 9.1 Overview of the section....................................................................................... 112 9.2 Obligation to promote awareness and to train.................................................... 112 9.3 Vetting of relevant employees ............................................................................ 113 9.4 Awareness of employees.................................................................................... 114

9.4.1 All relevant employees ................................................................................ 114 9.4.2 Non-relevant employees.............................................................................. 115 9.4.3 Ongoing awareness (all employees) ........................................................... 115

9.5 Training of employees......................................................................................... 115 9.6 Adequacy of training ........................................................................................... 116

9.6.1 All relevant employees ................................................................................ 116 9.6.2 Senior management .................................................................................... 116 9.6.3 The MLCO ................................................................................................... 117 9.6.4 The MLRO and deputy MLROs................................................................... 117 9.6.5 Non-relevant employees.............................................................................. 117

9.7 Timing and frequency of training ........................................................................ 117 9.8 Monitoring the effectiveness of promotion and awareness and of training ........ 117

10 RECORD KEEPING .............................................................................119 10.1 Overview of section............................................................................................. 119 10.2 Recording evidence of identity and other CDD measures.................................. 119 10.3 Recording transactions ....................................................................................... 120 10.4 Other record keeping requirements .................................................................... 121

10.4.1 Compliance monitoring procedures............................................................. 121 10.4.2 SARs............................................................................................................ 122 10.4.3 Records relating to higher risk activity and transactions ............................. 122 10.4.4 Training and awareness .............................................................................. 123

10.5 Access to and retrieval of records ...................................................................... 123 10.5.1 External record keeping............................................................................... 123 10.5.2 Requirements on closure or transfer of business........................................ 124


Section 1: Introduction


1 INTRODUCTION 1.

2.

3.

4.

5.

Criminals have responded to the anti-money laundering and countering the financing of terrorism (“AML/CFT”) measures taken by the traditional financial sector over the past decade and have sought other means to convert their proceeds of crime, or to mix them with legitimate income before they enter the banking system, thus making them harder to detect. Professionals such as lawyers, notaries, other independent legal professionals and accountants who interface with the financial sector have frequently been used in some jurisdictions as a conduit for criminal property to enter the financial system. The legal sector in Jersey should be on guard to ensure that it is not used as such a conduit.

In particular, criminals and money launderers will often try to exploit the services offered by lawyers, through the business of undertaking property and financial transactions, setting up corporate and trust structures and when acting as directors or trustees. In addition, client accounts can provide a money launderer with a valuable, anonymous, route into the banking system.

The inter-governmental agencies and international standard-setting bodies have recognised the access that professionals provide for their clients to financial services and products, and have extended the scope of the international standards and recommendations to cover lawyers and accountants - often referred to as ‘gatekeepers’. As a well-regulated jurisdiction operating in the international financial arena, Jersey has adopted the international standards to guard against money laundering and terrorist financing and has integrated the requirements into the legal and regulatory system.

Lawyers are key professionals in the business and financial world, facilitating vital transactions that underpin Jersey’s economy. As such, they have a significant role to play in ensuring that their services are not used to further a criminal purpose. As professionals, lawyers must act with integrity and uphold the law, and they must not engage in criminal activity.

The continuing ability of Jersey’s finance industry to attract legitimate clients 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. Any law firm in Jersey that assists in laundering the proceeds of crime, or financing of terrorism, whether:

• with knowledge or suspicion of the connection to crime; or

• in certain circumstances, acting without regard to what it may be facilitating through the provision of its services,

will face the loss of its reputation, risk discipline by the Royal Court, damage the integrity of Jersey’s professional and finance industry as a whole, and may risk prosecution for criminal offences.




6. The primary legislation on money laundering and terrorist financing (the “money laundering legislation”) is:

• The Proceeds of Crime (Jersey) Law 1999 (as amended)

• The Drug Trafficking Offences (Jersey) Law 1988.

• The Terrorism (Jersey) Law 2002.

• The Terrorism (United Nations Measures (Channel Islands) Order 2001.

• The Al-Qa’ida and Taliban (United Nations Measures)(Channel Islands) Order 2002.

7. Law firms that fall within the scope of Schedule 2 to the Proceeds of Crime (Jersey) Law 1999 (the “Proceeds of Crime Law”) as relevant persons1 must put in place systems and controls to guard against money laundering and terrorist financing in accordance with Jersey requirements and international standards.

8. The international standards require that all relevant persons must be supervised by an appropriate anti-money laundering supervisory body. Within Jersey, the Jersey Financial Services Commission (the “Commission”) has been designated as the relevant supervisory body under the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 for all regulated and specified Schedule 2 businesses.

9. Every law firm in Jersey must recognise the role that it must play in protecting itself, and its employees, from involvement in money laundering and terrorist financing, and also in protecting the Island’s reputation of probity. This principle relates not only to business operations within Jersey, but also operations conducted by Jersey law firms outside the Island.

1.1 DEFINITION OF LAWYERS UNDERTAKING SPECIFIED SCHEDULE 2 BUSINESS

10. Schedule 2 of the Proceeds of Crime (Substitution of Schedule 2) (Jersey) Regulations 2008 defines the relevant transactions and activity of lawyers for the purposes of the complying with anti-money laundering requirements in the Money Laundering (Jersey) Order 2008 (the “Order”) as being:

• The business of providing services by independent legal professionals; and

• Independent legal professionals means those who by way of business provide legal or notorial services to third parties when participating in financial or immovable property transactions concerning any of the following:

• the buying and selling of immovable property or business entities;

• the managing of client money, securities or other assets;

• the opening or management of bank, savings or securities accounts;

• the organisation of contributions necessary for the creation, operation or management of companies; or

1 The term relevant person used within this Handbook refers to a person carrying on financial services

business as defined in Schedule 2 of the Proceeds of Crime Law and amendment by the Proceeds of Crime (Substitution of Schedule 2 ) (Jersey) Regulations 2008.

http://www.jerseylaw.je/law/display.aspx?url=lawsinforce%2fconsolidated%2f08%2f08.780_ProceedsofCrimeLaw1999_RevisedEdition_1January2006.htm

http://www.jerseylaw.je/law/display.aspx?url=lawsinforce%2fconsolidated%2f08%2f08.580_DrugTraffickingLaw1988_RevisedEdition_1January2006.htm

http://www.jerseylaw.je/law/display.aspx?url=lawsinforce%2fconsolidated%2f17%2f17.860_TerrorismLaw2002_RevisedEdition_1January2008.htm

http://www.jerseylaw.je/Law/display.aspx?url=lawsinforce%2fconsolidated%2f17%2f17.910.72_Appendix_Terrorism(UnitedNationsMeasures)(ChannelIslands)Order2001.htm

http://www.jerseylaw.je/Law/display.aspx?url=lawsinforce%2fconsolidated%2f17%2f17.910.16_Appendix_Al-Qa'idaandTaliban(UnitedNationsMeasures)(ChannelIslands)Order2002.htm

http://www.jerseylaw.je/Law/display.aspx?url=lawsinforce%2fconsolidated%2f17%2f17.910.16_Appendix_Al-Qa'idaandTaliban(UnitedNationsMeasures)(ChannelIslands)Order2002.htm



http://www.jerseylaw.je/Law/display.aspx?url=lawsinforce%5chtm%5cLawFiles%5c2008%2fL-32-2008.htm


http://www.jerseylegalinfo.je/law/display.aspx?url=lawsinforce/consolidated/superseded/08/08.780_proceedsofcrimelaw1999_revisededition_31august2004.htm


http://www.jerseylaw.je/Law/Display.aspx?url=LawsInForce%2fhtm%2frofiles%2fR%26OYear2008%2fR%26O-020-2008.htm







11.

12.

13.

• the creation, operation or management of trusts, companies or similar structures.

Legal professionals employed by public authorities or undertakings which do not provide services to third parties are excluded from the definition.

A person is defined as participating in a transaction by assisting in the planning or execution of the transaction, or otherwise acting for or on behalf of a third party in a transaction.

For the purpose of this Handbook, within the Regulatory Requirements and Guidance Notes (see Section 1.3 of this Handbook) legal professionals who fall within the definition of specified Schedule 2 businesses are referred to as “law firms” or “firms”. Within the Order and the references within this Handbook to the specific requirements of the Order, all persons and businesses that fall within the scope of the Order are referred to as ‘relevant persons’.

1.1.1 Activities covered by the Money Laundering Order

14. The Order only applies to certain legal activities where there is a higher risk of money laundering occurring. In terms of activities covered it should be noted that:

• managing client money is narrower than handling it; and

• operating or managing a bank account is wider than simply opening a client account. It would be likely to cover lawyers acting as a trustee, attorney or receiver.

15. The Attorney General has confirmed that the following would not generally be regarded as participating in specified Schedule 2 business:

• Payment on account of costs to a legal professional or payment of a lawyer’s bill.

In respect of payments on account of costs, law firms should ensure that the payment is proportionate to the issue in respect of which the firm is asked to advise.

In respect of payment of a lawyer’s bill, if payment is made out of the proceeds of criminal conduct, this would constitute an offence under Article 33 of the Proceeds of Crime Law.

• Provision of legal advice

In relation to the provision of legal advice, a lawyer needs to consider whether they are providing legal advice or whether they are a lawyer participating in a transaction by assisting in its planning or its execution. Ultimately, each case will have to be decided on its own facts and it is a matter for each firm to form a view.

However, generally, the giving of generic advice, or advice specific to a transaction in terms of whether such a transaction is possible under Jersey Law or what factors are taken into account in making such a transaction possible, will only constitute the giving of legal advice where the decision has not already been taken to proceed with the transaction.

Where a decision has already been taken to proceed with a transaction, drafting documentation to enable that transaction to proceed, or seeking information to advise further on the planning or execution of the transaction will fall within the scope of the Order.










• Participation in litigation or a form of alternative dispute resolution.

However, the following guidance should be taken into account:

• in relation to litigation involving trusts where the proposed resolution includes a change in trusteeship or the application related to asking the Court to approve a future transaction, then the requirements of the Order may apply;

• in respect of advising insolvency practitioners relating to individuals or entities, the Schedule 2 exemption is unlikely to apply; and

• corporate transactions requiring Court approval, such as schemes of arrangement, are not covered by a Schedule 2 exemption and are therefore likely to be covered by the requirements of the Order.

• Will writing, although firms should consider whether any accompanying taxation advice is covered.

In relation to Will writing, any steps taken during the lifetime of the deponent of the Will to enable their wishes to be given effect to as recorded in the Will, may well fall within definition of Schedule 2 business in which case the requirements of the Order will apply.

• Publicly funded work.

Publicly funded work extends to individuals under the legal aid scheme, even if an individual may be required to make a contribution to the fees of the law firm.

1.2 OBJECTIVES OF THIS HANDBOOK 16. The objectives of this Handbook are as follows:

• to outline the requirements of the money laundering legislation (see Part 2 of the Handbook for Regulated Financial Services Business) all of which apply to all persons (natural or legal) in Jersey, all persons (natural or legal) operating from within the Island, and all companies and limited liability partnerships registered in Jersey conducting activities in any part of the world;

• to outline the requirements of the Order that supplements the above legislation by placing more detailed requirements on relevant persons;

• to outline good practice for implementing the legal requirements;

• to set out the Commission’s requirements for lawyers undertaking specified Schedule 2 business;

• to outline good practice in developing systems and controls to prevent lawyers from being used to facilitate money laundering and terrorist financing;

• to provide a base from which individual law firms can design and implement systems and controls and tailor their own policies and procedures for the prevention and detection of money laundering and terrorist financing;

• to ensure that Jersey matches international standards to prevent and detect money laundering and the financing of terrorism;

• to provide direction on applying the risk-based approach effectively;

• to provide practical guidance on customer due diligence, including identification and verification of identity; and




http://www.jerseyfsc.org/pdf/hbk%20part%202%20april%202007%20(mlo1999).pdf






17.

18.

• to provide an information resource to be used in training and raising awareness of money laundering and terrorist financing.

This Handbook is intended for use by senior management and compliance staff of a law firm to assist in the development of systems and controls, and detailed policies and procedures. This Handbook is not to be intended to be used by law firms as an internal procedures manual.

Where law firms are authorised and regulated by the Commission under the Financial Services (Jersey) Law 1998 and subject to one or more of the Investment Business, Trust Company Business and Funds Services Business Codes of Practice, they should refer to the separate AML/CFT Handbook, issued by the Commission, for Regulated Financial Services Businesses (the “Handbook for Regulated Financial Services Businesses”) when drawing up their policies and procedures for the prevention of and detection of money laundering and the financing of terrorism in respect of those regulated activities.

1.3 STRUCTURE OF THIS HANDBOOK 19.

20.

21.

22.

This Handbook is structured to take a two level approach:

• Level One - Statutory Requirements describes the statutory requirements that must be adhered to by any person (natural or legal) when carrying on a relevant activity in relation to that activity. Failure to follow a statutory requirement is a criminal offence and may also attract regulatory sanction.

• Level Two - Regulatory Requirements sets out how a regulated relevant person must meet the statutory requirements. Failure to follow level two may attract regulatory sanction2. This level has an equivalent status to Codes of Practice issued by the Commission under regulatory legislation.

The Guidance Notes, which accompany the two levels, present ways of complying with the Statutory Requirements (level one) and Regulatory Requirements (level two) and must always be read in conjunction with these requirements. A relevant person may adopt other appropriate measures to those set out in the Guidance Notes, including policies and procedures established by group, so long as it can demonstrate that such measures also achieve compliance with the Statutory and Regulatory Requirements.

The provisions of the Statutory Requirements and of the Regulatory Requirements are described using the term must, indicating that these requirements are mandatory. In contrast, the Guidance Notes use the term may, indicating ways in which the requirements may be satisfied, but allowing for alternative means of meeting the requirements. References to must and may elsewhere in this Handbook should be similarly construed.

In addition to the above levels, this Handbook also contains overview text which provides some background information relevant to particular sections or sub-sections of this Handbook.

2 Regulatory Requirements and the Guidance Notes shall also be relevant in determining whether or not

requirements contained in the Order or in Article 23 of the Terrorism (Jersey) Law 2002 have been complied with.

http://www.jerseylaw.je/law/lawsinforce/consolidated/13/13.225_FinancialServicesLaw1998_RevisedEdition_1February2008.pdf






23.

24.

This Handbook is not intended to provide an exhaustive list of systems and controls to counter money laundering and terrorist financing. In complying with the Statutory and Regulatory Requirements, and in applying the Guidance Notes, a law firm should (where permitted) adopt an appropriate and intelligent risk based approach and should always consider what additional measures might be necessary to prevent its exploitation, and that of its products and services, by persons seeking either to launder money or to finance terrorism.

The Statutory Requirements (level one) necessarily paraphrase provisions contained in the money laundering legislation and the Order and should always be read and understood in conjunction with the full text of each law. This text is presented in italics, to distinguish the text, and contains hyperlinks to the relevant statutory provisions.

1.4 LEGAL STATUS OF THIS HANDBOOK AND SANCTIONS FOR NON-COMPLIANCE

25. This Handbook is issued by the Commission pursuant to its powers under Article 8 of the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 and in the light of provisions of Article 37 of the Proceeds of Crime Law (which provides for the Order) and Article 23(6) of the Terrorism (Jersey) Law 2002 (the “Terrorism Law”), which anticipate that AML/CFT procedures will be prescribed for persons carrying out relevant business.

26. Failure to comply with the Order is a criminal offence under Article 37(4) of the Proceeds of Crime Law. In determining whether a firm has complied with any of the requirements of the Order, the Royal Court is, pursuant to Article 37(8) of the Proceeds of Crime Law, required to take account of the guidance provided by this Handbook (for this purpose guidance will include the Regulatory Requirements of this Handbook in conjunction with the Guidance Notes), as amended from time to time.

27. The sanction for failing to comply with the Order may be an unlimited fine or up to two years imprisonment, or both.

28. Similarly, in determining whether a person has committed an offence under Article 23 of the Terrorism Law (the offence of failing to report), the Royal Court is required to take account of the guidance provided by this Handbook. The sanction for failing to comply with Article 23 of the Terrorism Law may be an unlimited fine or up to five years imprisonment, or both.

29.

30.

Nevertheless, this Handbook is not a substitute for the law and compliance with it is not of itself a defence to offences under the principal laws. However, courts will generally have regard to regulatory guidance when considering the standards of a professional persons conduct and whether they acted reasonably, honestly, and appropriately, and took all reasonable steps and exercised necessary due diligence to avoid committing the offence.

The consequences of non-compliance with this Handbook could include an investigation by or on behalf of the Commission, the imposition of regulatory sanctions, and criminal prosecution of the business and its employees. Regulatory sanctions include:

• issuing a public statement;

• imposing a registration condition;

• imposing a direction and making this public; and

• revocation of a registration.
















31. The Order came into effect for law firms that are specified Schedule 2 businesses on 1 May 2008.

1.5 SCOPE OF THE MONEY LAUNDERING ORDER AND THIS HANDBOOK

1.5.1 Application of this Handbook to lawyers conducting relevant business in Jersey

32. The Order applies to any law firm carrying out either regulated business or specified Schedule 2 business in, or from within, Jersey. This will include Jersey-based offices of law firms incorporated outside Jersey conducting specified Schedule 2 services business in Jersey.

1.5.2 Application of the Order and this Handbook outside Jersey

33. Under Article 11(6) of the Order, an overseas office of a firm, which carries out specified Schedule 2 business, must comply with the Order. In addition, Article 11(7) of the Order requires that a law firm undertaking such business with a subsidiary outside Jersey that is also carrying on specified Schedule 2 business must ensure that the Order is applied to that subsidiary.

34. Where legislation in place in a jurisdiction outside Jersey prevents compliance with the Order, then, under Article 12 of the Order, the Commission must be informed that this is the case. In such circumstances, Article 12 requires a firm to take other steps to effectively deal with the risk of money laundering and the financing of terrorism.

35. Overseas regulatory requirements and guidance may be followed by overseas offices of Jersey law firms conducting specified Schedule 2 business, rather than the Regulatory Requirements and Guidance Notes contained in this Handbook, so long as the overseas regulatory requirements and guidance are consistent with those of this Handbook, or are otherwise consistent with the requirements of the Financial Action Task Force (the “FATF”) Recommendations.










Section 2: Corporate Governance

2 CORPORATE GOVERNANCE

2.1 OVERVIEW OF SECTION 1.

2.

Corporate governance is the system by which businesses are directed and controlled and the business risks managed. For those law firms undertaking specified Schedule 2 business, money laundering and terrorist financing are risks that must be managed in the same way as other business risks. Under the general heading of corporate governance, this Section therefore considers:

• senior management responsibilities for the prevention and detection of money laundering and the financing of terrorism;

• requirements for risk management systems and controls, and for training; and

• the appointment of a Money Laundering Compliance Officer (the “MLCO”) and Money Laundering Reporting Officer (the “MLRO”).

This Handbook describes the requirements for a law firm’s general framework of systems and controls to manage the risk of money laundering and terrorist financing, and refers to the way in which those systems and controls are to be implemented into the day-to-day operation of the business as policies and procedures.

2.2 OBLIGATION TO HAVE PROCEDURES AND CONTROLS

STATUTORY REQUIREMENTS

3. In accordance with Article 37 of the Proceeds of Crime Law, a relevant person must have in place procedures to forestall and prevent money laundering. Failure to establish and maintain such procedures is a criminal offence and, where such an offence is proved to have been committed with the consent or connivance of, or to be attributable to neglect on the part of, an officer partner or member of the business, they too shall be deemed to have committed a criminal offence.

4. Article 37 of the Proceeds of Crime Law enables the Treasury and Resources Minister to prescribe by Order the procedures that must be put in place by a relevant person. These procedures are established in the Order.

2.3 SENIOR MANAGEMENT RESPONSIBILITIES OVERVIEW

5.

6.

The key responsibilities of senior management, set out in further detail below, are to:

• identify the firm’s money laundering and terrorist financing risks;

• ensure that its systems and controls are appropriately designed and implemented to manage those risks; and

• ensure that sufficient resources are devoted to achieving these objectives.

Senior management is assisted in fulfilling these responsibilities by a MLCO and MLRO. Larger or more complex firms may also require dedicated risk and internal audit functions to assist in the assessment and management of money laundering and terrorist financing risk.








7. Article 11(1) of the Order requires a relevant person to establish and maintain procedures of internal control and communication as may be appropriate for the purposes of forestalling, detecting and preventing money laundering.

8. Article 11(9) of the Order requires a relevant person to take appropriate measures for the purpose of making employees whose duties relate to the provision of relevant services aware of procedures required under Article 11(1)of the Order and of Jersey’s money laundering legislation. Article 11(10) of the Order requires a relevant person to provide employees whose duties relate to the provision of relevant services with training in the recognition and handling of transactions carried out by or on behalf of persons who are, or appear to be, engaged in money laundering.

9. Article 11(11) of the Order requires a relevant person to establish and maintain procedures for monitoring and testing the effectiveness of its systems and internal controls, including the effectiveness of awareness raising and training for relevant employees (see Section 9 of this Handbook).

10. Articles 7 and 8 of the Order require that a relevant person appoints a MLCO and a MLRO.

REGULATORY REQUIREMENTS

11.

12.

Senior Management must establish a formal strategy to counter money laundering and terrorist financing. For a Jersey law firm forming part of a group operating outside the Island, that strategy must protect both its global reputation and its Jersey business.

The firm must conduct and document a business risk assessment. In particular, senior management must consider, on an ongoing basis, the extent of its exposure to risks by reference to its organisational structure, its clients, the jurisdictions with which its clients are connected, its range of services, and how it delivers those services. The firm’s assessment must be kept up to date. (Guidance on conducting the business risk assessment is set out in Section 3 of this Handbook).

13.

14.

15.

16.

Senior management must record the results of its business risk assessment and keep the assessment under review.

Taking into account the conclusions of the business risk assessment, senior management must organise and control the firm’s affairs effectively and be able to demonstrate the existence of adequate risk management systems and controls (including policies and procedures) to counter money laundering and terrorist financing.

Senior management must oversee both the effectiveness of, and compliance with, risk management systems and controls and take prompt action necessary to address any deficiencies.

Senior management must consider what barriers (including cultural barriers) exist to prevent the operation of effective systems and controls to counter money laundering and the financing of terrorism, and must take effective measures to address them.











17. Senior management must notify the Commission immediately in writing of any material failures to comply with the requirements of the Order or of this Handbook. Refer to Part 3 of the Handbook for Regulated Financial Services Business for further information of the Commission’s policy for supervising and enforcing compliance with the Commission’s AML/CFT Handbooks.

2.3.1 Systems, controls, training and awareness

18. A law firm undertaking specified Schedule 2 business must establish and maintain systems and controls to prevent and detect money laundering and terrorist financing, that enable the business to:

• apply appropriate client due diligence (“CDD”) policies and procedures that take into account vulnerabilities and risk (in line with Sections 4, 5, and 6 of this Handbook, which must include:

• the development of clear client acceptance policies and procedures; and

• identifying and verifying the identity of the applicant for business;

• monitor and review instances where exemptions are granted to policies and procedures, or where controls are overridden;

• report to the Joint Financial Crimes Unit (the “JFCU”) when it knows, suspects or has reasonable grounds to know or suspect that another person is involved in money laundering or terrorist financing, including attempted transactions (in line with Section 8 of this Handbook);

• ensure that relevant employees are adequately screened when they are initially employed, aware of the risks of becoming concerned in arrangements involving criminal money and terrorist financing, aware of their personal obligations and internal policies and procedures concerning measures to combat money laundering and terrorist financing, and provided with training (in line with Section 9 of this Handbook);

• keep records (in line with Section 10 of this Handbook);

• liaise closely with the Commission and the JFCU on matters concerning vigilance, systems and controls; and

• monitor compliance by overseas branches and subsidiaries with policies and procedures.

19.

20.

21.

In maintaining the required systems and controls, a firm must ensure that the systems and controls are implemented and operating effectively.

Senior management must ensure that systems and procedures are in place, or take appropriate measures to guard against the use of technological developments in money laundering or terrorist financing schemes.

A firm must also have policies and procedures in place to address specific risks associated with non-face to face business relationships or transactions, which should be applied when conducting due diligence procedures.


http://www.jerseyfsc.org/pdf/HBK_Part%203%20_final_.pdf

http://www.jerseyfsc.org/pdf/HBK_Part%203%20_final_.pdf




GUIDANCE NOTES

22. Whilst the Order, and consequently this Handbook, only brings within its scope the relevant business of law firms as specified in Schedule 2 of the Proceeds of Crime Law, the primary money laundering legislation and the general offences and penalties cover all persons and all business activities within Jersey. Consequently, law firms undertaking a significant proportion of Schedule 2 business may wish to consider applying the systems and controls to counter money laundering and terrorist financing across the whole of their business activities.

2.3.2 Oversight of the effectiveness of systems and controls

GUIDANCE NOTES

23.

24.

25.

26.

For systems and controls (including policies and procedures) to be effective, they will need to be both appropriate to the circumstances of the firm and complied with.

It is the responsibility of senior management to ensure that the systems and controls implemented by a firm are effective. Whilst it is the responsibility of senior management to reach an independent conclusion, senior management may wish to use the MLCO and MLRO to provide information and advice to assist them in assessing the effectiveness of the business’ systems and controls. Alternatively, independent assessments could be commissioned from time to time from external experts. Larger or more complex firms may require separate risk management and internal audit functions to assist in the assessment and management of risk.

The level of internal controls, and the extent to which monitoring needs to take place will be affected by:

• the firm’s size;

• the nature and scale of its practice; and

• its overall risk profile.

Issues which may be covered in an internal controls system include:

• the level of personnel permitted to exercise discretion on the risk-based application of regulations, and under what circumstances;

• CDD requirements to be met for simplified, standard and enhanced due diligence;

• when outsourcing of CDD obligations or reliance on third parties will be permitted, and on what conditions;

• how the firm will restrict work being conducted on a file where CDD has not been completed;

• the circumstances in which delayed CDD is permitted;

• when cash payments will be accepted;

• when payments will be accepted from or made to third parties;

• the manner in which disclosures are to be made to the MLRO; and

• the firm’s policy for applying legal professional privilege (see Section 7 of this Handbook).







27. Senior management may demonstrate that it has considered the effectiveness of the firm’s risk management systems and controls where it, for example:

• receives regular and timely information relevant to the management of the firm’s money laundering and terrorist financing risks;

• considers the adequacy of the management information received by senior management relevant to the management of money laundering and terrorist financing risks;

• monitors the ongoing competence and effectiveness of the MLCO and the MLRO;

• considers the adequacy of resources to ensure effective compliance with the money laundering legislation and the Order (and by extension, also this Handbook);

• periodically reviews the adequacy of policies and procedures for higher risk clients;

• considers the adequacy of policies and procedures in place where CDD information and documentation is held by third parties such as group entities, outsourcing service providers, introducers and intermediaries;

• considers whether the incidence of suspicious activity reports (or absence of such reports) has highlighted any deficiencies in the firm’s CDD, monitoring or internal or external suspicious activity reporting policies and procedures, and whether changes are required to address any such deficiencies;

• takes into account changes made or proposed in respect of new legislation, regulatory requirements or guidance, or as a result of changes in business activities; and

• whether inquiries have been made by the JFCU, or production orders received, without issues have previously being identified by CDD or reporting policies and procedures.

2.3.3 Monitoring compliance

GUIDANCE NOTES

28.

29.

Monitoring compliance will assist a firm to assess whether the policies and procedures that have been implemented are effective in managing the risk of money laundering and terrorist financing.

Procedures to be undertaken to monitor compliance may involve:

• random file audits;

• file checklists to be completed before opening or closing a file;

• an MLRO’s log of situations brought to their attention including queries from staff and reports made;

• how the firm rectifies lack of compliance, when identified; or

• how lessons learnt will be communicated back to staff and fed back into the risk profile of the firm.





30. Senior management may demonstrate that it has addressed compliance where it periodically commissions and considers a report from the MLCO that covers compliance by the firm with the Order and this Handbook, and records and retains the report. The frequency of such reports should be determined by its business risk assessment and consideration of cultural barriers.

31.

32.

Areas which the periodic report may cover include:

• the means by which compliance with the firm’s systems and controls have been monitored and tested;

• compliance deficiencies identified and details of action taken or proposed to address any such deficiencies;

• the number and scope of exemptions granted to the firm’s policies and procedures;

• the number of internal suspicious activity reports received and the number of subsequent external suspicious activity reports submitted to the JFCU, by business area, if appropriate;

• information concerning the training programme e.g. which employees have received training, the methods of training and the nature of any significant issues arising from the training;

• actions taken in response to notices highlighting jurisdictions which do not or insufficiently apply the FATF Recommendations or which are the subject of international countermeasures, and the measures taken to manage and monitor business relationships connected with such jurisdictions; and

• action taken to comply with terrorist and financial sanctions legislation.

To assist the MLCO in preparing the report, a firm may wish to provide the MLCO with support from its internal audit or compliance function, as appropriate, or to use external resources.

2.3.4 Consideration of cultural barriers

OVERVIEW

33.

34.

The implementation of systems and controls for the prevention and detection of money laundering and the financing of terrorism does not obviate the need for a firm to address cultural barriers that can prevent effective control. Human factors, such as the inter-relationships between different employees within a firm, and between employees and clients, can result in the creation of damaging barriers.

Unlike systems and controls, the prevailing culture of an organisation is intangible. As a result, its impact on the firm can sometimes be difficult to measure.

GUIDANCE NOTES

35. The risk that cultural barriers might prevent the operation of effective systems and controls to prevent and detect money laundering and the financing of terrorism may be minimised by senior management considering the prevalence of the following factors:

• an assumption on the part of more junior employees that their concerns or suspicions are of no consequence;





• negative handling by partners or fee earners of queries raised by more junior employees regarding unusual, complex or higher risk activity and transactions;

• an unwillingness on the part of fee earners or other employees to subject high value (and therefore important) clients to effective CDD checks;

• pressure applied by senior management or fee earners outside Jersey upon employees in Jersey to transact without first conducting all relevant CDD;

• excessive pressure applied on fee earners to meet aggressive revenue-based targets, or where employee or fee earner remuneration or bonus schemes are exclusively linked to revenue-based targets;

• the familiarity of fee earners or other employees with certain clients resulting in unusual, complex, or higher risk activity and transactions within such relationships not being identified as such;

• the inability of employees to understand the commercial rationale for client relationships, resulting in a failure to identify non-commercial and therefore potential money laundering and terrorist financing activity;

• a tendency for management to discourage employees from raising concerns due to lack of time and/or resources, preventing any such concerns from being addressed satisfactorily;

• an excessive desire on the part of employees to provide a confidential and efficient client service; and

• non-attendance of partners or other members of management at anti-money laundering and terrorist financing training sessions on the basis of mistaken belief that they cannot learn anything new or because they have too many other competing demands on their time.

2.3.5 Outsourcing

OVERVIEW

36.

37.

In all instances of outsourcing, it is the delegating business that bears the ultimate responsibility for the duties undertaken in its name. This will include the requirement to ensure that the third party has in place satisfactory systems and controls, and to ensure that those systems and controls are kept up to date to reflect changes in requirements.

Depending on the nature and size of a firm, the roles of MLCO and MLRO may require additional support and resources. Where a firm elects to bring in additional support, or to delegate areas of the MLCO or MLRO functions to third parties, the MLCO or MLRO will remain directly responsible for the respective roles, and senior management will remain responsible for overall compliance with the money laundering legislation and the Order (and by extension, also this Handbook).


38.

39.

A firm must consider the effect that outsourcing has on money laundering and terrorist financing risk, in particular where a MLCO or MLRO is provided with additional support from third parties, either from within group or externally.

A firm must assess possible money laundering or terrorist financing risk associated with outsourced functions, record its assessment, and monitor any risk on an ongoing basis.




Where an outsourced activity is a financial services or Schedule 2 activity, then a firm must ensure that the provider of the outsourced services has in place procedures that are consistent with those required under the Order and, by association, this Handbook.

40.

41. In particular, a firm must ensure that knowledge, suspicion, or reasonable grounds for knowledge or suspicion of money laundering or terrorist financing activity are reported by the third party to the firm’s MLRO (or deputy MLRO).

2.4 THE MONEY LAUNDERING COMPLIANCE OFFICER (“MLCO”) OVERVIEW

42. The Order requires a firm to maintain effective policies and procedures, and to ensure compliance with those policies and procedures. The Order requires that the firm appoints an individual as MLCO, and tasks that individual with the function of monitoring the business’ compliance, and reporting thereon to senior management. The objective of this requirement is to require firms to clearly demonstrate the means by which they ensure compliance with the requirements of the Order.

43.

44.

These requirements do not preclude senior management from using other resources, whether internal or external, to support the firm with its responsibilities. Additionally, while a Jersey-based business must ensure that the MLCO reports directly to senior management, this does not preclude the MLCO also having a functional reporting line, to a group compliance function, for example.


Article 7 of the Order requires a relevant person to appoint a MLCO to assist the Board to meet its statutory obligation to comply with the Order. The same person may be appointed as both MLCO and MLRO.


45. A law firm undertaking relevant business must ensure the MLCO :

• is employed by the firm;

• is based in Jersey;

• has sufficient experience and skills;

• has appropriate independence;

• has sufficient resources, including sufficient time and (if appropriate) a deputy MLCO and support staff;

• has regular contact with other members of senior management to ensure that the senior management is able to satisfy itself that statutory obligations are being met and that the business is taking sufficiently robust measures to protect itself against the risk of money laundering and terrorist financing;

• reports directly to the senior management team;

• has a sufficient level of seniority and authority within the business to ensure that senior management reacts to, and acts upon, any recommendations made;











• has unfettered access to all business lines, support departments and information necessary to appropriately perform the function; and

• is fully aware of both their and the business’ obligations under the money laundering legislation and the Order (and by extension, also this Handbook), and take reasonable steps to ensure compliance.

46.

47.

48.

In the event that the position of MLCO is expected to fall vacant, to comply with the statutory requirement to have an individual appointed to the office of MLCO at all times, a firm must take action to appoint an appropriate member of senior management to the position on a temporary basis.

If temporary circumstances arise where the firm has a limited or inexperienced compliance resource, senior management must ensure that this resource is supported as necessary.

When considering whether it is appropriate to appoint the same person as MLCO and MLRO, a firm must have regard to:

• the respective demands of the two roles, taking into account the size and nature of the firm’s activities; and

• whether the individual will have sufficient time and resources to fulfil both roles effectively.

GUIDANCE NOTES

49. A firm may demonstrate that it has clearly apportioned responsibilities for countering money laundering and the financing of terrorism, where the MLCO (or other audit, compliance or review function):

• develops and maintains systems and controls (including policies and procedures) in line with evolving requirements;

• undertakes regular reviews (including testing) of compliance with policies and procedures to counter money laundering and the financing of terrorism;

• advises senior management on anti-money laundering and terrorist financing compliance issues that need to be brought to its attention;

• reports periodically, as appropriate, to senior management on compliance with the Order and this Handbook; and

• responds promptly to requests for information made by the Commission and the JFCU.

2.5 THE MONEY LAUNDERING REPORTING OFFICER (“MLRO”) OVERVIEW

50. Whilst the Order requires one individual to be appointed as MLRO, it recognises that, given the size and complexity of operations of many firms, it may be appropriate to designate additional persons (“deputy MLROs”) to whom suspicious activity reports may be made.







51. Article 8 of the Order requires a firm to appoint a MLRO. The same person may be appointed as both MLCO and MLRO.

52. Article 9 of the Order allows a relevant person to designate one or more persons (deputy MLROs), in addition to the MLRO, to whom suspicious activity reports may be made.

53. Under Article 22(1) of the Order, if a deputy MLRO concludes that a report does not give rise to knowledge, suspicion or reasonable grounds for knowledge or suspicion, they need not forward the report to the MLRO. Under Article 21(e) of the Order, if a deputy MLRO, on considering a report, concludes that it does give rise to knowledge, suspicion or reasonable grounds for knowledge or suspicion, then either the deputy MLRO or the MLRO may disclose that matter to the JFCU.

54. Under Article 21(g) of the Order procedures must be established and maintained which allow the MLRO and any deputy MLROs to have access to all relevant information which may be of assistance to them when considering a suspicious activity report.


55. A firm must ensure that the MLRO:

• is employed by the firm;

• is based in Jersey;

• has sufficient experience and skills;

• has appropriate independence;

• has a sufficient level of seniority and authority within the business;

• has sufficient resources, including sufficient time, and (if appropriate) is supported by deputy MLROs;

• is able to raise issues directly with senior management;

• maintains a record of all enquiries received from law enforcement authorities and records relating to all internal and external suspicious activity reports (see Section 8 of this Handbook);

• is fully aware of both their and the business’ obligations under the money laundering legislation and the Order (and by extension, also this Handbook);

• ensures that relationships are managed effectively post disclosure to avoid tipping-off any third parties; and

• acts as the liaison point with the Commission and the JFCU and in any other third party enquiries in relation to money laundering or terrorist financing.

56. Where a firm has appointed one or more deputy MLROs, it must ensure that the requirements set out above for the MLRO are also applied to any deputy MLROs.











57.

58.

59.

Where a firm has appointed one or more deputy MLROs, it must ensure that the MLRO:

• keeps a record of all deputy MLROs;

• provides support to and routinely monitors the performance of any deputy MLROs; and

• ensures that suspicious activity reports are considered and determined in an appropriate and consistent manner.

In the event that the position of MLRO is expected to fall vacant, to comply with the statutory requirement to have an individual appointed to the office of MLRO at all times, a firm must take action to appoint an appropriate member of senior management to the position on a temporary basis.

If temporary circumstances arise where a firm has a limited or inexperienced reporting resource, the firm must ensure that this resource is supported as necessary.

GUIDANCE NOTES

60. A firm may demonstrate routine monitoring of the performance of any deputy MLROs by requiring the MLRO to review:

• samples of records containing internal suspicious activity reports and supporting information and documentation;

• decisions of the deputy MLRO concerning whether to make an external suspicious activity report; and

• the bases for decisions taken.


Section 3: Risk-Based Approach


3 RISK-BASED APPROACH


2.

3.

The possibility of being used to assist with money laundering and terrorist financing poses many risks for law firms including:

• criminal and disciplinary sanctions for firms and for individual lawyers;

• civil action against the firm as a whole and against individual partners; and

• damage to reputation leading to loss of business.

These risks must be identified, assessed and mitigated in the same way as for all business risks faced by a firm.

To assist the overall objective to prevent money laundering and terrorist financing, the Order and this Handbook adopt a risk-based approach. Such an approach:

• recognises that the money laundering and terrorist financing threats to a firm vary across clients, jurisdictions, services and delivery channels;

• allows a firm to differentiate between clients in a way that matches risk in a particular business;

• while establishing minimum standards, allows a firm to apply its own approach to systems and controls, and other arrangements in particular circumstances; and

• helps to produce a more cost effective system.

4.

5.

Nevertheless, it must be accepted that applying the risk-based approach will vary between firms and may not provide a level playing field.

Section 2.3 of this Handbook requires a firm to conduct (and keep up to date) a business risk assessment, which considers the business’ activities and structure and concludes on the firm’s exposure to money laundering and terrorist financing risk. Section 2.3 also requires a firm to use the outcome of this business risk assessment in the development of appropriate risk management systems and controls, and the firm’s policies and procedures.

6. In particular, Section 2.3 requires a firm to develop CDD procedures that take into account risk, and to apply enhanced CDD procedures to higher risk client relationships. Simplified due diligence can also be applied in circumstances where the money laundering risk is considered to be at its lowest (See Section 4 of this Handbook).

7.

8.

Firms can decide for themselves how to carry out their risk assessment, which may be simple or sophisticated depending on the nature of the firm and its business. Where the business is simple, involving few services or areas of law, with most clients falling into similar categories, a simple approach may be appropriate for most clients, with the focus being on those clients that fall outside the norm.

System and controls will not detect and prevent all money laundering or terrorist financing. A risk-based approach will, however, serve to balance the cost burden placed on individual firms and on their clients with a realistic assessment of the threat of a firm being used in connection with money laundering or terrorist financing by focusing effort where it is needed and has most impact.




An effective and documented risk-based approach will enable a firm to justify its position on managing money laundering and terrorist risks to law enforcement, the courts, regulators and supervisory bodies.


9.

10. Article 11(2) of the Order requires the policies that are maintained to be appropriated, having regard to the degree of risk of money laundering, taking into account the type of clients, business relationships, products or transactions with which the relevant person’s business is concerned.

11. The risk-based approach does not apply to reporting suspicious activity. The Proceeds of Crime Law, the Drug Trafficking Offences (Jersey) Law 1988 (the “Drug Trafficking Offences Law”) and the Terrorism Law lay down specific legal requirements not to engage in certain activities and to make reports of suspicious activities once a suspicion is held. (See Part 2 of the Handbook for Regulated Financial Services Business and Section 8 of this Handbook). The risk-based approach does however apply to ongoing monitoring of clients and retainers which enables firms to identify suspicions.

3.2 BUSINESS RISK ASSESSMENT REGULATORY REQUIREMENTS

12.

13.

The firm must conduct and document a business risk assessment. In particular, senior management must consider, on an ongoing basis the extent of its exposure to risks by reference to its organisational structure, its clients, the jurisdictions with which its clients are connected, its services, and how it delivers those services. The firm’s assessment must be kept up to date.

Taking into account the conclusions of the business risk assessment, senior management must organise and control its affairs effectively and be able to demonstrate the existence of adequate risk management systems and controls.

GUIDANCE NOTES

14.

15.

A firm may extend its existing risk management systems to address money laundering and terrorist financing risks. The detail and sophistication of these systems will depend on the firm’s size and the complexity of the business it undertakes. Ways of incorporating a firms’ business risk assessment will be governed by the size of the firm and how regularly compliance staff and senior management are involved in day-to-day activities.

The business risk assessment will depend on the firm’s size, type of clients and the practice area it engages in. Firms should consider the following factors:

• Client geography – A firm’s client geographical diversity can affect the risk of money laundering or terrorist financing. Factors which may vary the risk level include whether a firm:

• acts for politically exposed persons (“PEPs”);

• acts for clients without meeting them;

• practices in locations with high levels of acquisitive crime, or for clients who have convictions for acquisitive crimes, which increases the likelihood the client may possess criminal property;











16.

• acts for clients affiliated to countries with high levels of corruption or organised crime, or where terrorist organisations operate, or countries with inadequate frameworks to prevent and detect money laundering and the financing of terrorism;

• acts for entities that have complex ownership structures; and

• is, or is not, easily able to obtain details of beneficial owners of its clients.

• Services and areas of law – Some services and areas of law provide greater opportunities to facilitate money laundering or terrorist financing. For example:

• complicated financial or property transactions;

• providing assistance in setting up trusts or company structures which could be used to obscure ownership of property;

• payments that are made to, or received from, third parties;

• payments made by cash; and

• transactions with a cross-border element.

A firm may demonstrate that it has considered the business’ exposure to money laundering and terrorist financing risk by:

• involving all members of senior management in determining the risks posed by money laundering and terrorist financing within those areas for which they have responsibility;

• considering organisational factors that may increase the level of exposure to the risk of money laundering and terrorist financing, e.g. business volumes and outsourced aspects of regulated activities or compliance functions;

• considering the nature, scale and complexity of its business, the diversity of its operations (including geographical diversity), the volume and size of its transactions, and the degree of risk associated with each area of its operation;

• considering who its clients are and what they do;

• considering whether any additional risks are posed by the jurisdictions with which the firm or its clients (including intermediaries and introducers) are connected; and

• considering the characteristics of the services and areas of law that it offers and assessing the associated vulnerabilities posed by each service or area, including delivery channels. For example:

• the use of third parties such as group entities, introducers and intermediaries to conduct elements of the CDD process;

• assessing how legal entities and structures might be used to mask the identities of the underlying beneficial owners; or

• considering how the firm establishes and delivers services to its clients. For example, risks are likely to be greater whether relationships may be established remotely (non-face to face).




17. Senior management must record and retain its business risk assessment. An annual, formal reassessment might be appropriate for a dynamic, growing business, but too often in some other cases, e.g. a smaller well-established business.

3.3 ASSESSING SERVICE AREA VULNERABILITES AND WARNING SIGNS OVERVIEW

18. As part of their business risk assessment, firms are required to assess their service area risks. This service area risk assessment must also be reflected when undertaking a client risk assessment and firms must also take steps to be aware of transactions with heightened money laundering risks.

GUIDANCE NOTES

19. The following sub-sections set out some key legal service area vulnerabilities drawn from FATF and law enforcement guidance and case studies, and some key warning signs that have been drawn up by the Law Society for England and Wales, as an indication of service area vulnerabilities. Further factors to consider when evaluating the risks posed by clients and service areas are set out in Section 4.3.4 of this Handbook.

3.3.1 Use of client accounts

20.

21.

22.

23.

Lawyers should not provide a banking service for their clients. However, it can be difficult to draw a distinction between holding client money for a legitimate transaction and acting more like a bank. For example, when the proceeds of a sale are left with a firm to make payments, these payments may be to mainstream lending companies, but these may also be to more obscure recipients, including private individuals, whose identity is difficult or impossible to check.

The following situations could give rise to cause for concern:

• a client deposits funds into a firm’s client account, but then ends the transaction for no apparent reason;

• a client advises that funds are coming from one source and at the last minute the source changes; or

• a client unexpectedly requests that money received into a firm’s client account be sent back to its source, to the client or to a third party.

Firms should think carefully before disclosing client account details as this allows money to be deposited into a client account without the firm’s knowledge. If it is necessary to provide account details, firms should ask the client where the funds will be coming from. Will it be an account in their name, from Jersey or another jurisdiction? Firms should consider whether they are prepared to accept funds from any source that they are concerned about.

Circulation of client account details should be kept to a minimum. Clients should be discouraged from passing the details on to third parties and should be asked to use the account details only for previously agreed purposes.




3.3.2 Establish a policy on handling cash

24. It is good practice to establish a policy of not accepting cash payments above a certain limit either at the firm’s office or into the firm’s bank account. Clients may attempt to circumvent such a policy by depositing cash directly into a client account at a bank. Firms may consider advising clients in such circumstances that they might encounter a delay in completion of the final transaction. Avoid disclosing client account details as far as possible and make it clear that electronic transfer of funds is expected.

3.3.3 Source of funds

25.

26.

27.

28.

Accounts staff should monitor whether funds received from clients are from credible sources. For example, it is reasonable for monies to be received from a company if your client is a director of that company and has the authority to use company money for the transaction.

However, if funding is from a source other than a client, firm’s may need to make further enquiries, especially if the client has not advised what they intend to do with the funds before depositing them into the firm’s account. If it is decided to accept funds from a third party, perhaps because time is short, firms should ask how and why the third party is helping with the funding.

Enquiries do not need to be made into every source of funding from other parties. However firms must always be alert to warning signs and in some cases will need to seek more information.

In some circumstances, cleared funds will be essential for transactions and clients may want to provide cash to meet a completion deadline. Firms should assess the risk in these cases and ask more questions if necessary.

3.3.4 Private client work - Administration of estates

29.

30.

31.

A deceased person’s estate is very unlikely to be actively utilised by criminals as a means for laundering their funds; however, there is still a low risk of money laundering for those working in this area.

When winding up an estate, there is no blanket requirement that firms should be satisfied about the history of all of the funds which make up the estate under administration; however firms should be aware of the factors which can increase money laundering risks and consider the following:

• where estate assets have been earned in a foreign jurisdiction, firms should be aware of the wide definition of criminal conduct in the Proceeds of Crime Law; and

• where estate assets have been earned or are located in a higher risk territory, firms may need to make further checks about the source of those funds.

Firms should be alert from the outset and monitor throughout so that any disclosure can be considered as soon as knowledge or suspicion if formed and problems of delayed consent are avoided (see Section 8.5 of this Handbook).

32. Firms should bear in mind that an estate may include criminal property. An extreme example would be where the firm knows or suspects that the deceased person was accused or convicted of acquisitive criminal conduct during their lifetime.




33.

34.

35.

If firms know, or suspect that the deceased person improperly claimed welfare benefits/allowances or had evaded the due payment of tax during their lifetime, criminal property will be included in the estate and so a money laundering disclosure may be required.

Relevant local laws will apply before assets can be released. For example, a grant of probate will normally be required before UK assets can be released. Firms should remain alert to warning signs, for example if the deceased or their business interests are based in a higher risk jurisdiction.

If the deceased person is from another jurisdiction and a lawyer is dealing with the matter in the home country, firms may find it helpful to ask that person for information about the deceased to gain some assurances that there are no suspicious circumstances surrounding the estate. The issue of the tax payable on the estate may depend on the jurisdiction concerned.

3.3.5 Charities

36.

37.

While the majority of charities are used for legitimate reasons, they can be used as money laundering/terrorist financing vehicles.

Firms acting for charities should consider its purpose and the organisations it is aligned with. If money is being received on the charity’s behalf from an individual or a company donor, or a bequest from an estate, firms should be alert to unusual circumstances, including large sums of money.

3.3.6 Property transactions

38.

39.

40.

Criminal conduct generates huge amounts of illicit capital and these criminal proceeds need to be integrated into personal lifestyles and business operations. Law enforcement advise that property purchases are one of the most frequently identified methods of laundering money. Property can be used either as a vehicle for laundering money or as a means of investing laundered funds.

Criminals will buy property both for their own use, e.g. as principal residencies or second homes, business or warehouse premises, and as investment vehicles to provide additional income. The Serious Organised Crime Agency in the UK advises that real property arises in over 85% of all confiscation cases and at least 25% of those investigated hold five or more properties both residential and commercial.

The purchase of real estate is commonly used as part of the last stage of money laundering. Such a purchase offers the criminal an investment which gives the appearance of financial stability. The purchase of a restaurant or hotel, for example, offers particular advantages, as it is often a cash-intensive business, which is the preferred currency of the criminals. Retail businesses provide a good front for criminal funds where legitimate earnings can be used as a front for the proceeds of crime.




3.3.6.1 Criminal use of conveyancing services

41. Law enforcement advises that of all the services offered by legal practitioners, conveyancing is the most utilised function by criminal groups. Conveyancing is a comparatively easy and efficient means to launder money with relatively large amounts of criminal monies ‘cleaned’ in one transaction. In a stable or rising property market, the launderer will incur no financial loss except fees. Conveyancing transactions can also be attractive to money launderers who are attempting to disguise the audit trail of the proceeds of their crimes. As the property itself can be ‘criminal property’ for the purposes of the Proceeds of Crime Law, lawyers can still be involved in money laundering even if no money changes hands.

42. Corrupt lawyers may employ trainees to perform the conveyancing work from criminal groups, thereby distracting themselves from the criminal aspect of the business. Conveyancers should also be alert to instructions which are a deliberate attempt to avoid assets being dealt with in the way intended by the court or through the usual legal process. For example, lawyers may sometimes suspect that instructions are being given to avoid the property forming part of a bankruptcy, or forming part of assets subject to confiscation.

3.3.6.2 Ownership issues

43.

44.

45.

Properties owned by nominee companies or multiple owners may be used as money laundering vehicles to disguise the true owner and/or confuse the audit trail. Firms should be alert to sudden or unexplained changes in ownership.

One form of laundering, known as flipping, involves a property purchase, often using someone else’s identity. The property is then quickly sold for a much higher price to the same buyer using another identity. The proceeds of crime are mixed with mortgage funds for the purchase. This process may be repeated several times.

Another potential cause for concern is where a third party is providing the funding for a purchase, but the property is being registered in someone else’s name. There may be legitimate reasons for this, such as a family arrangement, but firms should be alert to the possibility of being misled about the true ownership of the property. Further CDD measures should be undertaken on the person providing the funding.

3.3.6.3 Methods of funding

46.

47.

Many properties are bought with a combination of deposit, mortgage and/or equity from a current property. Usually, the lawyer acting for the purchaser will have information about how the client intends to fund the transaction. Lawyers should expect to be updated if those details change, for example, if a mortgage falls through and new funding is obtained.

Firms should remember that payments made through the mainstream banking system are not guaranteed to be clean.






48.

49.

50.

Transactions that do not involve a mortgage or are not being financed wholly from the sale of a previous property have a higher risk of being fraudulent. Firms should be alert for large payments from private funds, especially if the client receives payments from a number of individuals or sources. If concerns arise;

• the client should be asked to explain the source of funds. Firms should assess whether the explanation appears to be valid – e.g. the money has been received from an inheritance;

• ensure that the client is the beneficial owner of the funds being used in the purchase.

Third parties often assist with purchases and firms may be asked to receive funds directly from third parties, for example relatives often assist first time buyers. Consideration will need to be given as to the extent of due diligence that needs to be undertaken on those third parties. Firms should consider whether there are any obvious warning signs and what needs to be known about:

• the client;

• the third party;

• their relationship; and

• the proportion of the funding being provided by the third party.

Firms should consider their obligations to the lender in these circumstances – firms are normally required to advise lenders if the buyers are not funding the balance of the price from their own resources.

3.3.6.4 Valuations

51.

52.

An unusual sale price can be an indicator of money laundering. Whilst lawyers acting in a property sale are not required to get independent valuations, if a firm becomes aware of a significant discrepancy between the sale price and what a property would reasonably be asked to sell for, consideration should be give to asking more questions.

Properties may also be sold below the market value to an associate, with a view to obscuring the title to the property which the original owner still maintains the beneficial ownership.

3.3.6.5 Mortgage fraud

53.

54.

A firm may discover or suspect that a client is attempting to mislead a lender client to improperly inflate a mortgage advance – for example, by misrepresenting the borrower’s income or because the seller and buyer are conspiring to overstate the sale price. Transactions which are not at arms length may warrant particular consideration. However, until the improperly obtained mortgage advance is received, there is not any criminal property for the purposes of disclosure obligations to the JFCU.

If a firm suspects that a client is making a misrepresentation to a mortgage lender, the firm must either dissuade them from doing so or consider the ethical implications of continuing with the retainer. Even if a firm no longer acts for the client, it may still be under a duty to advise the mortgage lender.




55.

56.

57.

58.

59.

60.

Large scale mortgage fraud is more sophisticated and will normally involve several properties. It may be committed by criminal groups or by individuals. The buy-to-let market is particularly vulnerable to large scale mortgage fraud whether through new-build apartment complexes or large scale renovation properties. Occasionally commercial properties will be involved.

Fraudsters may use private sources of funding such as property clubs, especially when credit market conditions tighten. These lenders often have lower safeguards than institutional lenders, leaving them vulnerable to organised fraud. Property clubs can be targeted particularly in relation to overseas properties where the property either does not exist, or is a vacant piece of land, not a developed property.

Sometimes fraud is achieved by selling the property between related private companies. The transactions will involve inflated values and will not be at arms length. Increasingly, offshore companies are used with the property sold several times within the group before approaching a lender for a mortgage at an inflated value.

Firms that discover or suspect that a mortgage advance has already been improperly obtained should consider advising the mortgage lender.

Firms acting in a connection with a re-mortgage who discover or suspect that a previous mortgage has been improperly obtained may need to advise the lender, especially if the re-mortgage is with the same lender. Consideration should also be given to making a disclosure to the JFCU as the improperly obtained mortgage advance represents criminal property.

If a client has made a deliberate misrepresentation on their mortgage application, it is likely that the crime/fraud exemption to legal professional privilege will apply (see Section 7 of this Handbook). This means that no waiver of confidentiality will be needed before a disclosure is made. However, such matters will need to be dealt with on a case by case basis.

3.3.7 Company and commercial work

61.

62.

63.

The nature of company structures can make them attractive to money launderers because it is possible to obscure true ownership and protect assets for relatively little expense. For this reason, lawyers working with companies and in commercial transactions should remain alert throughout their retainers, with existing as well as new clients.

A common operating method amongst serious organised criminals is the use of front companies. These are often used to disguise criminal proceeds as representing the legitimate profits of fictitious business activities. They can also help to make the transportation of suspicious cargoes appear as genuine goods being traded. More often than not, they are used to mask the identity of the true beneficial owners and the source of criminally obtained assets. Corporate vehicles are also frequently used to help commit tax fraud, facilitate bribery/corruption, shield assets from creditors, facilitate fraud generally or circumvent disclosure requirements.

The lack of transparency concerning the ownership and control of corporate vehicles has proved to be a consistent problem for money laundering investigations. Corporations serving as directors and nominee directors can be used to conceal the identity of the natural persons who manage and control a corporate vehicle.




64.

65.

Several international reports have highlighted the extent to which private limited companies, shell companies, bearer shares, nominees, front companies and special purpose vehicles have been used in laundering operations. Case studies submitted to the FATF have indicated the following common elements in the misuse of corporate vehicles:

• multi-jurisdictional and/or complex structures of corporate entities and trusts;

• foreign payments without a clear connection to the actual activities of the corporate entity;

• use of offshore bank accounts without clear economic necessity;

• use of nominees;

• use of shell companies; and

• tax, financial and legal advisers were generally involved in developing and establishing the structure. In some case studies a lawyer was involved and specialised in providing illicit services for clients.

The more of the above elements that exist, the greater the likelihood and the risk that the identity of the underlying beneficial owner may be able to remain unidentifiable.

3.3.7.1 Shell corporations

66.

67.

The shell corporation is a tool that appears to be widely used by criminals. Often purchased “off-the-shelf” it remains a convenient vehicle for laundering money and form concealing the identity of the beneficial owner of the funds. The company records are often more difficult for law enforcement to access because they are held behind a veil of professional privilege or the professionals who run the company act on instructions remotely and anonymously.

Shell companies are often used to receive deposits of cash which are the transferred to another jurisdiction, to facilitate false invoicing or to purchase real estate and other assets. They have also been used as the vehicle for the actual predicate offence of bankruptcy fraud on many occasions.

3.3.7.2 Bearer shares

68.

69.

Bearer shares confer rights of ownership to a company upon the physical holder of the share. They are commonly and legitimately used in a number of countries. However, the high level of anonymity that bearer shares offer provides opportunities for misuse where the identity of the shareholder is not recorded when the share is issued and transferred, ownership of the share is effectively anonymous.

Such shares are open to two money laundering risks:

• financial assets can be acquired without the purchaser being identified; and

• the company owners and controllers may not be capable of being identified.




70. To guard against misuse, a number of jurisdictions have dematerialised or immobilised bearer shares when they are registered in an effort to ensure that the identity of the beneficial owners can be verified. Dematerialisation is achieved by requiring registration upon transfer or requiring registration in order to vote or collect dividends. While physical transfer of bearer shares is possible, it is believed to be rare.

3.3.7.3 Holding of funds

71.

72.

Firms who choose to hold funds as stakeholder or escrow agent in commercial transactions should consider the checks to be made about the funds they intend to hold before the funds are received. Consideration should be given to conducting CDD measures on all those on who behalf the funds are being held.

Particular consideration should be given to any proposal that funds are collected from a number of individuals whether for investment purposes or otherwise. This could lead to wide circulation of client account details and payments being received from unknown sources.

3.3.7.4 Private equity

73.

74.

Law firms could be involved in any of the following circumstances:

• the start-up phase of a private equity business where individuals or companies seek to establish a private equity firm (and in certain cases, become authorised to conduct investment business);

• the formation of a private equity fund;

• ongoing legal issues relating to a private equity fund; or

• execution of transactions on behalf of a member of a private equity firm’s group of companies (a private equity sponsor that will normally involve a vehicle company acting on its behalf (newco)).

Generally private equity work will be considered to be low risk for money laundering or terrorist financing for the following reasons:

• private equity firms are also covered by the Order and similar legislation in equivalent jurisdictions;

• investors are generally large institutions, some of which will also be regulated for money laundering purposes;

• there are generally detailed due diligence processes followed prior to investors being accepted;

• the investment is generally illiquid and the return of capital is unpredictable; and

• the terms of the investment in the fund generally strictly control the transfer of interests and the return of funds to investors.

75. Factors which may alter this risk assessment include:

• where the private equity firm, fund manager or an investor is located in a jurisdiction which is not regulated for money laundering to a standard which is equivalent to the FATF recommendations;

• where the investor is either an individual or an investment vehicle itself (a private equity fund of funds); and





• where the private equity firm is seeking to raise funds for the first time or is approaching a large investor base.


Section 4: Client Due Diligence ( ) Requirements “CDD”


4 CLIENT DUE DILIGENCE (“CDD”) REQUIREMENTS


2.

This Section establishes the minimum CDD requirements of this Handbook and sets out a framework by which a firm is required to develop a risk-based approach to determining the type and extent of due diligence measures to apply to different types of clients, and services. For example, the type and extent of client identification and relationship information to collect, the nature of verification of information obtained and the level of client relationship monitoring activity.

Identification and verification elements of CDD are addressed in Section 5 of this Handbook together with circumstances in which exceptions apply and simplified procedures might be applied to lower risk applicants for business. Ongoing monitoring and scrutiny of activity and transactions is described in Section 6 of this Handbook. Accordingly, this Section should be read and understood in conjunction with Sections 5 and 6.

3.

4.

The minimum CDD measures required by the Statutory and Regulatory Requirements of this Handbook involve:

• identifying an applicant for business and verifying the applicant’s identity using reliable, independent source documents, data or information;

• identifying the beneficial ownership and control of the applicant and taking reasonable measures to verify the identity of the beneficial owners and controllers such that a firm is satisfied that it knows who the beneficial owners and controllers are;

• obtaining information on the purpose and intended nature of the business relationship; and

• keeping the above information up to date, and monitoring activity and transactions undertaken throughout the course of a relationship to ensure that the activity or transaction being conducted is consistent with the firm’s knowledge of the client.

Sound CDD measures are vital because they:

• help to protect the firm and the integrity of the professional and financial sector in which it operates by reducing the likelihood of the business becoming a vehicle for, or a victim of, financial crime;

• assist law enforcement, by providing available information on applicants for business, clients or activities and transactions being investigated - following a suspicious activity report to the JFCU;

• constitute an essential part of sound risk management e.g. by providing the basis for identifying, limiting and controlling risk; and

• help to guard against identity fraud.



The inadequacy or absence of satisfactory CDD measures can subject a law firm to serious client and counterparty risks, as well as reputational, operational, legal, regulatory and concentration risks, any of which can result in significant financial cost to the business. CDD information is also a vital tool for the MLRO and for fee earners and other employees when examining unusual or higher risk activity or transactions, in order to determine whether a suspicious activity report is appropriate.

5.

6.

7.

Throughout this section, references to an “applicant for business” or “applicant” relate to a prospective client, and references to a “client” relate to a person with whom a business relationship has been formed or one-off transaction conducted.

The individuals considered to be the beneficial owners and controllers for each applicant/client type are described in Section 5 of this Handbook.

4.2 OBLIGATION TO CONDUCT CDD


8. Article 37 of the Proceeds of Crime Law enables the Treasury and Resources Minister to prescribe the identification procedures to be followed by a relevant person.

9. Article 13(1) of the Order requires a relevant person to apply CDD procedures.

10. Article 3 of the Order sets out what due diligence procedures are to involve.

11. Article 11(1) of the Order requires a relevant person to maintain policies for the application of CDD procedures that are appropriate having regard to the degree of risk of money laundering and the financing or terrorism.

12. Article 11(3) of the Order requires that the appropriate procedures include policies:

• which specify additional procedures where products and transactions are susceptible to anonymity; and

• which determine whether a client is a PEP.

4.3 RISK BASED APPROACH TO CDD OVERVIEW

13. Section 2.3 of this Handbook requires senior management to conduct (and keep up to date) a business risk assessment, which considers the business’ activities and structure and concludes on the business’ exposure to money laundering and terrorist financing risk. This is further considered in Section 3 of this Handbook.

14.

15.

This business risk assessment will enable a firm to determine its initial approach to performing Stage 1 of the CDD process set out below, depending on the type of client, or service involved. The remaining stages of the process require consideration as to whether the specific circumstances of the client, or the service requested, will necessitate further CDD measures to be taken.

A risk-based approach to CDD is one that involves a number of discrete steps in assessing the most effective and proportionate way to manage the money laundering and terrorist financing risk faced by a firm. While these steps must be incorporated into a firm’s policies and procedures, the steps do not need to take place in the sequence outlined below, and will often occur simultaneously.










16.

17.

18.

The risk assessment of a particular applicant will determine the extent of identification information (and other CDD information) that will be requested, how that information will be verified, and the extent to which the resulting relationship will be monitored.

Systems and controls will not detect and prevent all instances of money laundering or terrorist financing. A risk-based approach will, however, serve to balance the cost burden placed on a firm and on applicants and clients with the risk that the firm may be used in money laundering or to finance terrorism by focusing resources on higher risk areas.

Care has to be exercised under a risk-based approach. Being identified as carrying a higher risk of money laundering does not automatically mean that a client is a money launderer or is financing terrorism. Similarly, identifying a client as carrying a lower risk of money laundering does not mean that the client is not a money launderer or financing terrorism.


19. A firm must apply a risk based approach to determine the extent and nature of the measures to be taken when undertaking the process set out below.

Stages 1-3:

Regulatory Requirements: determination and recording of risk

Guidance

Stage 1: Relevant CDD information must be collected on: • the applicant for business; • any beneficial owners and controllers of the

applicant; • third parties on whose behalf the applicant

acts (and beneficial owners and controllers of third parties); and

• the relationship to be established to enable a client profile to be prepared. In particular, a firm must understand the nature of the business that the applicant expects to conduct and the rationale for the business relationship.

Section 4.3.1

Section 4.3.2

Section 4.3.3

Stage 2: A firm must, on the basis of the relevant CDD information collected at Stage 1, evaluate the information with reference to “factors to consider” and appropriate external data sources, and consider whether it is appropriate to collect further information.

Section 4.3.4

Stage 3: A firm must determine and record an initial risk assessment for the applicant.

Section 4.3.5

Stages 4-5:

Regulatory Requirements: application of a risk based approach

Guidance

Stage 4: A firm must verify the identity of the applicant and take reasonable measures to verify the identity of any beneficial owners and controllers of the applicant and of any third parties on whose behalf the applicant acts (and beneficial owners and controllers of such third parties).

Section 5




Stages 4-5:

Regulatory Requirements: application of a risk based approach

Guidance

Stage 5: A firm must periodically update relevant CDD information and its risk assessment (in line with Stages 1 to 3). In the event of any change in beneficial ownership or control of the applicant, or third parties on whose behalf the applicant acts, Part 3 of the Order requires reasonable measures to be taken to verify identity (in line with Stage 4).

Section 4.3.6

4.3.1 CDD information – Stage 1

GUIDANCE NOTES

20.

21.

CDD information comprises both identification information and relationship information.

Information that may be considered relevant identification information is set out in Section 5 of this Handbook. Relevant relationship information for individuals, express trusts, and legal bodies is described below.

22. The extent of relationship information sought in respect of a particular applicant, or type of applicant, will depend upon the jurisdictions with which the applicant is connected, the characteristics of the service requested, how the service will be delivered, as well as factors specific to the applicant.

Guidance Notes: client relationship information

All client types • purpose and intended nature of relationship; • type, volume and value of activity expected; • source of funds, e.g. nature and details of occupation

or employment; • details of any existing relationships with the firm; and • reason for using an overseas law firm (non-residents

only).

Additional relationship information

Express trusts

• type of trust (e.g. fixed interest, discretionary, testamentary);

• structure of any underlying companies (if applicable) and nature of activities undertaken by the trust and any underlying companies (having regard for “sensitive activities” and trading activities);

• classes of beneficiaries, including any charitable causes named in the trust instrument; and

• name of trustee’s regulator, if applicable.





Additional relationship information

Legal bodies • entity and group (if applicable) ownership and control structure;

• nature of activities undertaken (having regard for “sensitive activities” and trading activities);

• geographical sphere of the legal body’s activities and assets; and

• name of regulator, if applicable.

4.3.2 CDD profile – Stage 1

GUIDANCE NOTES

23.

24.

For certain types of clients, it may be possible to prepare a profile on the basis of generic expected activity and transactions. However, for most client relationships and retainers within law firms, tailored activity profiles will be necessary.

In any event, a firm may demonstrate that a client profile contains sufficient information where that profile enables it to:

• identify a pattern of expected business activity and transactions within each client relationship; and

• identify unusual, complex or higher risk activity and transactions that may indicate money laundering or terrorist financing activity.

4.3.3 Source of funds and wealth – Stages 1 and 2

OVERVIEW

25.

26.

27.

The ability to follow the audit trail for criminal funds and transactions flowing through the professional and financial sector is a vital law enforcement tool in money laundering and terrorist financing investigations. Understanding the source of funds and, in higher risk relationships, the client’s source of wealth is also an important aspect of CDD.

Firms should monitor whether funds received from clients are from credible sources. If funding is from a source other than a client, a firm may need to make further enquiries. If it is decided to accept funds from a third party, perhaps because time is short, firms should ask how and why the third party is helping with the funding.

In some circumstances, cleared funds will be essential for transactions and clients may want to provide cash to meet a completion deadline. Firms should assess the risk in these cases and ask more questions if necessary.



GUIDANCE NOTES

28. A firm may demonstrate that it has collected relevant relationship information by:

Lower and standard risk

• taking reasonable measures to establish source of funds for each applicant and, when third party funding is involved, making further enquiries as to the relationship between the person providing the funds and the applicant.

Higher risk: additional measures

• taking reasonable measures to establish a client’s source of wealth; and

• considering whether it is appropriate to take measures to verify source of funds or wealth.

29.

30.

“Source of funds” is the activity which generates the funds for a relationship e.g. a client’s occupation or business activities. Information concerning the geographical sphere of the activities may also be relevant.

The Order and this Handbook stipulate record keeping requirements for transaction records which require information concerning the remittance of funds also to be recorded (e.g. the name of the bank and the name and account number of the account from which the funds were remitted). This is the source of transfer and is not to be confused with source of funds.

“Source of wealth” is distinct from source of funds, and describes the activities which have generated the total net worth of a person both within and outside of a relationship, i.e. those activities which have generated a client’s funds and property. Information concerning the geographical sphere of the activities that have generated a client’s wealth may also be relevant.

31.

32. In determining source of wealth it will often not be necessary to establish the monetary value of an individual’s net worth.

4.3.4 Evaluation of CDD information – Stage 2

GUIDANCE NOTES

33. The following factors may be relevant when assessing and evaluating the CDD information collected at Stage 1, and are not exhaustive. A firm should consider whether other variables are appropriate factors to consider in the context of the products and services that it provides and its client base. Where this evaluation of CDD information highlights a higher risk, then it may prove necessary to request further CDD information.

4.3.4.1 Factors to consider

Client risk

• Type of applicant or client. For example, a politically exposed applicant will present a higher risk (as may a domestic politician);

• Nature and scope of business activities generating the funds/assets. For example, an applicant or client conducting “sensitive” activities (as defined by the Commission), engaged in higher risk trading activities or engaged in a business which involves significant amounts of cash may indicate higher risk;





Client risk

• Transparency of applicant or client. For example, persons that are subject to public disclosure rules, e.g. on exchanges or regulated markets (or majority-owned and consolidated subsidiaries of such persons), or subject to licensing by a statutory regulator, e.g. the Jersey Competition Regulatory Authority may indicate lower risk. Clients where the structure or nature of the entity or relationship makes it difficult to identify the true beneficial owners and controllers may indicate higher risk;

• Secretive clients. Whilst face to face contact with clients is not always necessary or possible, an excessively obstructive or secretive client may be a cause for concern;

• Reputation of applicant or client. For example, a well known, reputable person, with a long history in its industry, and with abundant independent information about it and its beneficial owners and controllers may indicate lower risk;

• Behaviour of applicant or client. For example, where there is no commercial rationale for the service that is being sought, or where undue levels of secrecy are requested, or where it appears that an “audit trail” has been deliberately broken or unnecessarily layered, may indicate higher risk;

• The regularity or duration of the relationship. For example, longstanding relationships involving frequent client contact that result in a high level of understanding of the client relationship may indicate lower risk;

• Type and complexity of relationship. For example, unexplained use of corporate structures and express trusts, and use of nominee and bearer shares may indicate higher risk;

• Value of assets;

• Value and frequency of cash or other “bearer” transactions;

• Delegation of authority by the applicant or client. For example, the use of powers of attorney, mixed boards and representative offices may indicate higher risk;

• Nature of the relationship between an applicant’s beneficial owners and controllers and account signatories; and

• In the case of an express trust, the relationship of the settlor(s) to beneficiaries with a vested right, to other beneficiaries and persons who are the object of a power and the nature of classes of beneficiaries and classes within an expression of wishes. (See also Section 5.4 of this Handbook).

Country risk

• Residence in, or connection with, higher risk jurisdictions. The following jurisdictions may be considered to present a higher risk:

• those that are generally considered to be un-cooperative in the fight against money laundering and terrorist financing;

• those that have inadequate safeguards in place against money laundering or terrorism;

• those that have high levels of organised crime;




Country risk

• those that have strong links (such as funding or other support) with terrorist activities;

• those that are vulnerable to corruption; and

• those that are the subject of United Nations (“UN”) or EU sanctions measures.

In assessing which jurisdictions may present a higher risk, objective data published by the International Monetary Fund (“IMF”), FATF, World Bank, the Egmont Group of Financial Intelligence Units, US Department of State (International Narcotics Control Strategy Report), Office of Foreign Assets Control (“OFAC”), and Transparency International (Corruption Perception Index) will be relevant.

• Geographical sphere of business activities, e.g. the location of the markets in which a client does business.

• Familiarity with a country, including knowledge of its local legislation, regulations and rules, as well as the structure and extent of regulatory oversight, for example, as a result of a firm’s own operations within that country.

Service risk

• Instructions that are unusual in themselves or that are unusual for the firm or the client may give risk to concern, particularly where no rational or logical explanation can be given.

• Taking on work which is outside the firm’s normal range of expertise can present additional risks because money launderer might be using the firm to avoid answering too many questions. An inexperienced lawyer might be influenced into taking steps which a more experienced lawyer would not contemplate. Lawyers should be wary of niche areas of work in which the firm has no background, but in which the client claims to be an expert.

• If the client is based outside Jersey, consider why you have been instructed. For example, have the firm’s services been recommended by another client or is the matter based near your firm?

• The ability to pool the funds of clients increases the risk. Placing money through a lawyer’s client account can clean it whether it is the money is sent back to the client, on to a third party, or invested in some way.

• Firms should be wary of unusual retainers e.g:

• disputes which are settled too easily may indicate sham litigation;

• loss making transactions where the loss is avoidable;

• dealing with money or property where there are suspicions that it is being transferred to avoid the attention of either a trust in a bankruptcy case, a revenue authority, or a law enforcement agency; or

• settlements which are to be paid in cash, particularly where cash is to be passed directly between sellers and buyers without adequate explanation.




Service risk

• The following characteristics increase the service risk:

• where there is an ability to make payments to third parties;

• holding boxes, parcels or sealed envelopes in safe custody;

• the provision of “hold mail” facilities for clients; and

• accepting large amounts of cash into the firm’s client account.

Delivery risk

• Indirect relationship with the client - use of intermediaries or other third parties.

• Non-face to face relationships - service delivered exclusively by post, telephone, internet etc.

4.3.4.2 External data sources

34.

35.

Appropriate external data sources will include sources such as domestic legislation applying UN and EU sanctions and measures, and guidance issued by the Commission, and may include information published by governments and law enforcement authorities on terrorists (e.g. United States government agencies such as the Federal Bureau of Investigation and OFAC), electronic subscription databases, the internet and other media.

In particular, HM Treasury maintains a consolidated list of targets listed by the UN, EU, and UK under legislation relating to current financial sanctions regimes.

4.3.5 Client risk assessment – Stage 3

GUIDANCE NOTES

36.

37.

38.

A firm may demonstrate an effective process to determine an initial client risk assessment by taking into account:

• the CDD information obtained at Stage 1 and the evaluation of this information carried out at Stage 2 against relevant “factors to consider” and external data sources; and

• inconsistencies between the CDD information obtained, for example, between specific information concerning source of funds or source of wealth, and the nature of transactions.

In determining a risk assessment for a client, the presence of one factor to consider that might indicate higher risk will not automatically establish that a client is higher risk. Equally, the presence of one lower risk factor should not automatically lead to a determination that a client is lower risk. As set out above, the process of determining an appropriate risk assessment should take into account the absence or presence of relevant factors, whether any compensating factors apply and the CDD information held by the firm business.

The sophistication of the risk assessment process may be determined according to factors established by the business risk assessment (see Section 3 of this Handbook).





39.

40.

Where it is appropriate to do so, risk may be assessed generically for applicants and clients falling into similar categories. However, for law firms, individual assessment will generally be more applicable.

Firms should keep records of decisions on the risk assessment process and CDD that was undertaken for a client, and how the category of risk was determined. Such an approach will assist firms to demonstrate that they have applied a risk-based approach to CDD in a reasonable and proportionate manner.

4.3.6 Identification and verifying identity – Stage 4

41. The requirements for verifying the identity of the applicant and its beneficial owners and controllers are contained in Section 5 of this Handbook.

4.3.7 Updating CDD and client risk assessments – Stage 5

GUIDANCE NOTES

42.

43.

44.

45.

46.

Risk assessment is an ongoing process both for the firm generally and for each client business relationship and instruction. In a law practice it is generally the overall information gathered whilst acting for the client that will inform the risk assessment and enable risks to be re-assessed.

In the case of a client relationship assessed as presenting higher risk, a firm may demonstrate that its CDD information remains up to date where it is reviewed and updated on at least an annual basis.

In the case of other relationships, a firm may demonstrate that its CDD information remains up to date where it is reviewed and updated on a risk sensitive basis, including where additional “factors to consider” become apparent.

Trigger events e.g. when taking new instructions from a client, or meeting with a client may also present a convenient opportunity to update CDD information.

A comprehensive understanding of the risk presented by a client relationship may only become evident at a later stage following the establishment of relationship. A firm may demonstrate that its client risk assessments remain up to date where its review procedures (as outlined above), and its monitoring procedures (set out in Section 6 of this Handbook) involve consideration as to the ongoing appropriateness of the client’s risk assessment.

4.4 ENHANCED CDD REGULATORY REQUIREMENTS

47.

48.

Where a relationship or transaction is assessed as presenting a higher risk, a firm must perform appropriate enhanced due diligence.

Where a relationship or transaction involves a politically exposed person (see Section 4.4.1 of this Handbook) then it must always be considered to present a higher risk.




GUIDANCE NOTES

49.

50.

A firm may demonstrate that it has applied enhanced due diligence to higher risk client relationships where it undertakes one of more of the measures set out below. The nature of the measures to be applied will depend on the circumstances of the relationship or transaction and the factors leading to the client relationship being considered to be higher risk.

Enhanced due diligence measures include:

• obtaining further CDD information (identification information and relationship information, including further information on the source of funds and source of wealth), from either the client or independent sources (such as the internet, public and commercially available databases);

• taking additional steps to verify the CDD information obtained;

• commissioning due diligence reports from independent experts to confirm the veracity of CDD information held;

• requiring higher levels of management approval for higher risk new client relationships;

• requiring more frequent review of client relationships;

• requiring the review of client relationships to be undertaken by the compliance function, or other employees not directly involved in managing the client relationship; and

• setting lower monitoring thresholds for transactions connected with the client relationship.

4.4.1 Politically Exposed Persons (“PEPs”)

OVERVIEW

51.

52.

53.

54.

55.

Corruption by some high profile individuals, generally referred to as PEPs, inevitably involves serious crime, such as theft or fraud, and is of global concern. The proceeds of such corruption are often transferred to other jurisdictions and concealed through private companies, trusts or foundations, frequently under the names of relatives or close associates.

By their very nature, money laundering investigations involving the proceeds of corruption generally gain significant publicity and are therefore very damaging to the reputation of both businesses and jurisdictions concerned, in addition to the possibility of criminal charges.

Indications that an applicant or client may be connected with corruption include excessive revenue from “commissions” or “consultancy fees” or involvement in contracts at inflated prices, where unexplained “commissions” or other charges are paid to third parties.

The risk of handling the proceeds of corruption, or becoming engaged in an arrangement that is designed to facilitate corruption, is greatly increased where the arrangement involves a PEP. Where the PEP also has connections to countries or business sectors where corruption is widespread, the risk is further increased.

PEP status itself does not, of course, incriminate individuals or entities. It will, however put an applicant for business or client into a higher risk category.





56.

57.

•

Appropriate risk based systems and controls must be put in place to determine whether an: (i) applicant for business or client; (ii) owner or controller of an applicant or client; or (iii) third party on whose behalf an applicant or client acts, is a PEP. Such systems and controls must recognise that clients may subsequently acquire PEP status.

A firm must have clear policies and procedures for dealing with PEPs, including:

appropriate senior management approval to establish a relationship with a PEP, and for continuing a relationship, should a subsequent connection with a PEP be identified; and

• enhanced CDD, including enhanced scrutiny and regular oversight of the relationship at appropriate senior management level.

GUIDANCE NOTES

58.

59.

The nature and scope of a firm’s activities will generally determine whether the existence of PEPs in its client base is a practical issue for the business.

Where the existence of PEPs is considered to be a practical issue, a firm may demonstrate that it has appropriate systems and controls for whether applicants for business or clients are PEPs where it:

• establishes who are the current and former holders of prominent public functions within those higher risk countries and determines, as far as is reasonably practicable, whether or not applicants for business and clients have any connections with such individuals (including through immediate family or close associates). In determining who are the current and former holders of prominent public functions, it may have regard to information already held by the firm and to external information sources such as the UN, the European Parliament, the UK Foreign and Commonwealth Office, the Group of States Against Corruption, and commercially available databases; and

• exercises vigilance where applicants and clients are involved in business sectors that are vulnerable to corruption such as, but not limited to, oil or arms sales. One source of information is the Transparency International Corruption Perception Index.

60. Unless a firm is aware that a middle ranking or more junior official is vulnerable to corruption, such individuals need not be considered as PEPs.

4.5 SIMPLIFIED DUE DILIGENCE OVERVIEW

61. In certain circumstances where the risk of money laundering and the financing of terrorism may be lower, the Order permits reduced or simplified identification procedures. The circumstances are:

• where an intermediary (or introducer) itself is subject to the Order or to requirements to combat money laundering and the financing of terrorism equivalent to those in place in Jersey and is supervised for compliance with those requirements;

• where the product is deemed to be very low risk and the funds to be used in a relationship qualify for a source of funds concession; and

http://www.transparency.org.uk/

http://www.transparency.org.uk/






• where the arrangement under which services are provided and/or activity conducted by the firm would be a lower value one-off transaction within the meaning of Article 4 of the Order.

62. Where an intermediary (or introducer) itself is situated in an equivalent jurisdiction and is subject to equivalent AML/CFT measures, and is supervised for compliance with those measures, a firm may accept an introduction certificate from that intermediary (or introducer) see Section 5.10 of this Handbook.

4.5.1 Reduced or simplified measures: CDD for very low risk products/services

OVERVIEW

63. Where the funds involved in a relationship:

• have been received from a bank which is supervised by the Commission or meets the conditions required by Article 4 of the Order for equivalent financial services business (refer to Section 5.9.2 of this Handbook); and

• have come from an account in the sole or joint name of the applicant for business,

then the receipt of funds from such an account will be considered to provide a satisfactory means of verifying the identity of an applicant for business, provided that: (i) the product or service requested by the applicant for business is considered to present a very low money laundering risk; and (ii) the applicant for business is not considered to present higher risk.

64. The basis for this concession is that funds may only be received from and paid to an account in the customer’s name, i.e. a product or service where funds may not be paid in by, or paid out to, third parties.


65.

66.

In considering whether it is appropriate for verification of a customer’s identity to be carried out using this concession, a firm must be able to demonstrate that an applicant for business does not present higher risk and that it is reasonable for the concession to apply. Particular care must be taken in circumstances where the applicant is not an individual.

To benefit from this concession, the product or service must satisfy the following conditions:

• all initial and future payments must be received from an account at a bank that is a regulated person or carries on an equivalent business to deposit-taking (refer to Section 5.9.2 of this Handbook), where the account can be confirmed as belonging to the applicant for business;

• no initial or future payments may be received from third parties;

• cash withdrawals are not permitted, with the exception of face to face withdrawals by the customer, where he is required to produce evidence of identity before the withdrawal can be made;

• no payments may be made, other than to an account at a bank which is supervised by the Commission or is an equivalent financial services business (refer to Section 5.9.2 of this Handbook), where the account can be confirmed as belonging to the client, or on the death of the client a personal representative named in the grant of probate or the letters of administration; and






67.

• no future changes must be made to the product or service that enable funds to be received from or paid to third parties.

In the event that the above conditions are breached, the identity of the client must be verified at that time in accordance with Section 5.3, Section 5.4 or Section 5.5 of this Handbook.

68. A firm must obtain and retain evidence confirming that payment has been received from an account at a bank which is supervised by the Commission or is an equivalent financial services business (refer to Section 5.9.2 of this Handbook), and, where a request for a withdrawal or transfer to another bank account is received, confirmation that this account is also in the customer’s name and held at a bank which is supervised by the Commission or is an equivalent financial services business.

69. If a firm has reason to suspect the motive behind a particular transaction or believes that the business is being structured to avoid standard identification procedures, it must not use this concession.

4.5.2 Reduced or simplified CDD requirements for lower value one-off transactions

OVERVIEW

70. Article 13 of the Order requires that identification procedures must be undertaken before establishing a business relationship or carrying out a one-off transaction the value of which either in a single or linked transactions amounts to 15,000 euro or more.

71. For the purposes of the Order, the value of a transaction between a client and a law firm is the value of the underlying asset(s) to which the instruction relates e.g. the value of property for which conveyancing transactions are being undertaken, or the value of assets being settled into trust.

72.

73.

74.

A business relationship is one that is expected to have “an element of duration”. An instruction to a law firm to perform a single task within a limited timeframe (such as drafting a single deed of appointment) does not have “an element of duration”, although it would of course constitute a transaction.

In such circumstances, and where there are no underlying assets to which a value can be allocated, the value of the transaction may be taken as the amount of fees charged to the client by the law firm. Where those fees are known at the outset to be less than 15,000 euro, verification of identity will not be required.

However, other than for such transactions, a client instruction or transaction undertaken by a law firm would more often than not be classed as a business relationship.


75. Where a relationship between a client and a firm is determined to be a lower value one-off transaction within the meaning of Article 4 of the Order, identification procedures within the meaning of Article 13 of the Order are not required unless:

• the firm suspects money laundering; or

• the firm has doubts about the veracity or adequacy of any documents, data or information previously obtained under the CDD procedures.








76.

77.

78.

79.

However, the identity of the person undertaking the transaction must be recorded.

A firm must have in place procedures to identify when linked transactions are being undertaken which would, in total, amount to 15,000 euro or more. Firms must also consider when the frequency of regular one-off transactions by the same client would constitute a business relationship.

A firm must consider the nature of the lower value one-off transactions that it undertakes for which identification procedures are not required. Where these transactions are considered to present a higher risk of money laundering or terrorist financing, consideration must be given to applying full CDD procedures.

Firms must be able to demonstrate that the application of simplified due diligence for the lower value one-off transactions that it undertakes is reasonable taking into account its business risk profile.

GUIDANCE NOTES

80.

81.

Where a one-off transaction is likely to increase in value or develop into a business relationship, firms should consider undertaking verification of identity measures at the outset.

A firm should however take such steps as may be appropriate to ensure that it complies fully with the terms of the Order where the relationship between the law firm and its client is such that the instruction constitutes a “one-off transaction”.

4.6 APPLICATION OF CDD REQUIREMENTS TO EXISTING CLIENTS OVERVIEW

82.

83.

FATF Recommendation 5 states that “financial institutions” should be required to apply that Recommendation (which deals with CDD) to existing clients at appropriate times on the basis of materiality and risk.

For the purpose of the Order, an existing client of a specified Schedule 2 firm means a relationship established before 19 February 2008. CDD procedures must be applied by law firms to those existing relationships at appropriate times on or after 1 May 2008.

84.

85.

86.

Ongoing identification procedures apply to all clients, including existing clients. However, monitoring of existing clients will be based on information that is already held by a firm immediately before 19 February 2008, and the requirement to ensure that documents, data or information are kept up to date should be understood within the context of what is actually held. Where something is not already held, then it cannot be kept up to date.

In order to apply a risk-based approach to existing client, it is implicit that a firm will have conducted a risk assessment of its existing client base on the basis of the information that it holds at the time of the review.

Irrespective of risk, identification procedures must always be applied to existing clients:

• where a firm suspects money laundering or terrorist financing; or

• where there are doubts about the veracity or adequacy of documents, data or information that a firm has previously obtained for the purposes of CDD, except where a firm suspects money laundering and, with the consent of the JFCU, does not conduct identification procedures.






87. Article 13(2) of the Order requires that, where a relevant person has a business relationship with a client that starts before the Order took effect for that firm, a relevant person must apply CDD procedures that are in line with the Order to that relationship at appropriate times.

88. Article 13(3) of the Order defines “appropriate times” for the application of identification procedures and on-going identification procedures as:

• times that are appropriate having regard to the degree of risk of money laundering, taking into account the type of client, business relationship, product or transaction concerned; and

• any time when a relevant person suspects money laundering (unless agreed otherwise with JFCU) or has doubts about the veracity or adequacy of documents, data or information previously obtained.

89. Article 3(2) of the Order sets out what is meant by CDD procedures including identification procedures. Identification of a person means: finding out the identity of a person; and obtaining satisfactory evidence that is reasonably capable of verifying that the person to be identified is who the person is said to be and satisfies the person responsible for the identification that the evidence does establish that fact.

90. Article 3(6) of the Order provides that, in the case of a relationship with a person that is not an individual and/or is acting (as an intermediary) on behalf of another person, procedures for obtaining evidence of identity must involve reasonable measures – having regard to all the circumstances of the case, including the degree of risk.


91.

92.

A firm must review its existing client based in order to determine a risk assessment for each client.

When considering the risk presented by an existing intermediary or introduced client, as defined in Section 5.10 of this Handbook, its review must consider the status of the review of existing clients by that intermediary or introducer.

GUIDANCE NOTES

93.

94.

95.

A firm does not have to ensure that all existing clients have been identified by 1 April 2008, nor update all current identification in accordance with the new requirements by that date.

In the case of a higher risk customer, an appropriate time to apply identification procedures will be:

• as soon as practicable after the risk has been assessed as higher;

• when an existing standard or lower risk client instructs on a new higher risk retainer; or

• where an existing client has already been designated as higher risk.

In the case of standard and lower risk clients, an appropriate time to apply identification procedures will be:

• when a transaction of significance takes place;

• where there has been a gap in retainers of three years or more; or of 124 Issued: October 2008










96.

97.

98.

• when the firm’s client documentation standards change substantially.

In all cases identification procedures must be applied when a firm develops a suspicion of money laundering or terrorist financing by a client.

When conducting or updating CDD measures on existing clients, or a subsidiary of an existing client, a firm may demonstrate that it has taken reasonable measures to apply identification procedures when other information already held on file for an existing client provides satisfactory evidence that the client is who they claim to be. Publicly available information may also confirm the information held by the firm. Alternatively, it may be appropriate for a fee earner or partner who has known the client for a long time to place a certificate on the file providing an assurance as to identity. In such cases, it may not be necessary to collect additional identification information.

Consequently, in many cases, the identification information that has been collected for an existing client may be different to the identification information that is collected for new clients in accordance with Section 5 of this Handbook. It also means that in the case of standard or lower risk clients, the identification information within the firm’s records may not have been verified in the same way as for new clients.

99. However, for all clients a firm must ensure ongoing monitoring of the business relationship to identify any suspicious activity.

GUIDANCE NOTES FOR INTRODUCED AND INTERMEDIARY RELATIONSHIPS

100. Separate provisions apply where an existing relationship is with an intermediary that is a financial services business, or where an existing client has been introduced by a financial services business, that is overseen for AML/CFT compliance in Jersey or which carries on equivalent business. For the purpose of transitional provisions, the Commission may be considered to discharge supervisory functions for each of the activities that are listed in the Proceeds of Crime (Substitution of Schedule 2) (Jersey) Regulations 2008.

101.

102.

103.

In the case of an existing client that has been introduced (and reliance placed on the introducer to have applied an element of CDD), or where the existing relationship is with an intermediary, an appropriate time to conduct identification procedures will be at any time when a firm suspects money laundering or has doubts about the veracity or adequacy of documents, data or information previously obtained.

Introduced relationships

In respect of a higher risk client that has been introduced (and reliance placed on the introducer to have applied an element of CDD), an appropriate time to apply identification procedures will also be as soon as is practicable after the risk has been assessed as “higher”.

Alternatively, a firm may delay obtaining satisfactory evidence of identity until such time as this has been collected by the introducer. However, confirmation should be received from the introducer that identification procedures are to be applied within a reasonable period of time and the firm should periodically check that this is the case. Where confirmation is received that such procedures have been applied then this confirmation may be considered to present satisfactory evidence of identity and there is no need to obtain an assurance from the introducer that this is in line with Article 16(4) of the Order.

http://www.jerseylaw.je/Law/display.aspx?url=lawsinforce%5chtm%5cROFiles%5cR%26OYear2008%2fR%26O-025-2008.htm

http://www.jerseylaw.je/Law/display.aspx?url=lawsinforce%5chtm%5cROFiles%5cR%26OYear2008%2fR%26O-025-2008.htm





104.

105.

106.

107.

Otherwise, identification procedures for lower and standard risk customers may be delayed until such time (if any) that the relationship is assessed as presenting a “higher risk”.

Intermediary relationships

A firm may demonstrate that it has applied identification procedures to an existing intermediary where it does so in accordance with this Section taking into account any factors that are relevant to the existing client.

In respect of third parties, a firm may limit the collection of full identification information to those third parties that it has assessed as presenting a higher risk. This means that it may collect just the name of a third party where it assesses a third party as presenting a lower or standard risk.

A firm may also delay obtaining satisfactory evidence of identity for a third party until such time as this has been collected by the intermediary. However, confirmation should be received from the introducer that identification procedures are to be applied within a reasonable period of time and the firm periodically checks that this is the case. Where confirmation is received that such procedures have been applied then this confirmation may be considered to present satisfactory evidence of identity and there is no need to obtain an assurance from the introducer that this is in line with Article 16(4) of the Order.

108. In the case of an intermediary that is a trust, the third parties to be identified are the individuals that are concerned with the trust (in line with Section 5.4 of this Handbook).

4.7 CDD REQUIREMENTS WHEN ACQUIRING ANOTHER BUSINESS OR A BLOCK OF CLIENTS REGULATORY REQUIREMENTS

109.

110.

Before acquiring another law firm or other business with established client relationships or a block of clients, a firm must undertake sufficient due diligence on the vendor to establish the level of CDD information and evidence of identity held in relation to the business to be acquired.

A firm may rely on the information and evidence of identity previously obtained by the vendor where the following criteria are met:

• the vendor is a financial services business that is a regulated person or carries on equivalent business to any category of regulated business as defined by Article 5 of the Order (refer to Section 5.9.1 of this Handbook); and

• the firm has assessed that the vendor’s CDD measures are satisfactory. This assessment must either involve sample testing, or alternatively an assessment of all relevant CDD for the relationships to be acquired.

111.

112.

When relying on this concession, a firm must obtain from the vendor the CDD information and evidence of identity held for each client acquired.

Otherwise, where the vendor is not supervised by the Commission, or is not an equivalent relevant person (refer to Section 5.9.1 of this Handbook), or where deficiencies in the vendor’s CDD measures are identified (either at the time of transfer or subsequently), a firm must determine and implement a programme to conduct due diligence on each client and to remedy deficiencies. The firm must agree its programme with the Commission.






113. CDD must be undertaken as soon as possible in line with a risk-based approach and requirements set out in this Handbook.


Section 5: Identification and Verification of Identity


5 IDENTIFICATION AND VERIFICATION OF IDENTITY 5.1 OVERVIEW OF SECTION

1.

2.

3.

4.

5.

6.

The purpose of this Section of the Handbook is to establish the identification information to be requested when establishing a relationship, the information to be verified, and how that information is to be verified. This Section also sets out exceptions and concessions to these general requirements, which apply in certain scenarios.

Guidance is also given on the timing of verification procedures, on what to do where it is not possible to complete identification or verification of identity and the exception when ascertaining legal position.

Identification and verification requirements apply at the outset of a client relationship or when a larger value on-off transaction is being undertaken, and also when there is a:

• change in identification information of a client;

• change in beneficial ownership and control of a client; or

• change in the third parties (or beneficial ownership or control of third parties) on whose behalf an applicant or client acts.

Identification and verification requirements also apply where there is knowledge or suspicion of money laundering or where there is some doubt as to the veracity of evidence of identity that is already held.

An applicant for business may be an individual, trustee of an express trust, or a legal body (including bodies corporate, foundations, anstalts, partnerships, associations, or any similar bodies that can establish a permanent client relationship with a relevant person or otherwise own property) seeking to enter into a business relationship or to conduct a one-off transaction - as principal or on behalf of a third party.

This Section should be read and understood in conjunction with Sections 4 and 6, which also address CDD requirements.

7. Throughout this Section, references to an “applicant for business” or “applicant” relate to a prospective client, and references to a “client” relate to a person with whom a business relationship has been formed or one-off transaction conducted.

5.2 OBLIGATION TO IDENTIFY AND VERIFY IDENTITY OF APPLICANT FOR BUSINESS OVERVIEW

8. Determining that an applicant for business is who they claim to be is a combination of being satisfied that:

• a person or legal entity exists - on the basis of appropriate identification information; and

• the applicant for business is that person or entity - by verifying from reliable, independent source documents, data or information, satisfactory confirmatory evidence of appropriate components of the applicant’s identity.



Evidence of identity can take a number of forms. In respect of individuals, much weight is placed on identity documents and these are often the easiest way of providing evidence as to someone’s identity. It is, however, possible to be satisfied as to a client’s identity by obtaining other forms of confirmation, including, in appropriate circumstances, written assurances from persons or organisations that have dealt with the client for some time.

9.

10. How much identification information to ask for, what to verify, and how to verify it in order to be satisfied as to a client’s identity, will depend on the risk assessment for that relationship (refer to Section 4.3 of this Handbook).

11.

12.

When verifying identity, a firm will need to be prepared to accept a range of documents, and may also wish to use independent data sources to verify information.


Article 13 of the Order requires identification and verification procedures to be conducted in respect of an applicant for business and any third parties for whom the applicant is acting (reasonable measures to verify identity in the case of the latter). Where the applicant (or any third party) is not an individual, Article 13 of the Order also requires beneficial owners and controllers of the applicant (or third parties) to be identified and reasonable measures to be taken to verify their identity.

13. For persons who are not individuals, Article 2 of the Order describes:

• beneficial owners as individuals with ultimate beneficial ownership of that person; and

• beneficial controllers as individuals who ultimately control that person or otherwise exercise control over the management of that person.

14.

15.

The description of a beneficial owner or controller will apply whether the individual satisfies the description alone or jointly with other persons.

Article 2 of the Order does not include owners or controllers of bodies corporate whose stock or shares are admitted to trading on a regulated market within the definition of beneficial owner and controller.

16. Article 3 of the Order defines evidence of identity as consisting of two aspects:

• information about identity; and

• verification of that information.

17.

18.

Verification evidence is satisfactory if it is reasonably capable of establishing that the applicant for business or client (and others) is who they are said to be and the relevant person is satisfied that it does establish that fact.

Where the person to be identified is not physically present when verification procedures are carried out, Article 15(3) of the Order requires that the CDD procedures must take into account the greater money laundering risk posed.

19. Article 13(1) of the Order requires identification procedures to be applied before the establishment of a business relationship or before carrying out a one-off transaction, except where Articles 13(4) and (5) of the Order apply. It also requires identification procedures to be applied where the relevant person suspects money laundering or the financing of terrorism or has doubts about the veracity or adequacy of documents, data or information previously obtained under CDD procedures.












20. Article 13(4) of the Order provides for identification of a person to be completed

as soon as reasonably practicable after the establishment of a business relationship if:

• this is necessary not to interrupt the normal conduct of business; and

• there is little risk of money laundering occurring.

21. Where there is a change in the beneficial owners or controllers of a client, Article 13 of the Order requires that the new beneficial owners or controllers are identified and that reasonable measures are taken to verify their identity.

22. Article 13 of the Order requires a relevant person to identify and to take reasonable measures to verify the identity of persons authorised to act on behalf of a customer.

5.3 IDENTIFICATION AND VERIFICATION: INDIVIDUALS OVERVIEW

23.

24.

The following requirements are relevant to situations where an individual is the applicant for business or where the applicant for business is more than one individual, such as a husband and wife.

They also apply to situations where an individual is a beneficial owner or controller of an applicant for business, is acting on behalf of an applicant for business (e.g. is acting according to a power of attorney, or who has signing authority over an account), or is a third party (underlying client) on whose behalf an applicant for business is acting (see Section 5.7 of this Handbook).

5.3.1 Establishing identity


25. A firm must collect relevant identification information on an individual.

GUIDANCE NOTES

26. A firm may demonstrate collection of relevant identification information where it requests and keeps up to date the following:

All clients

•

• •

Legal name, any former names (such as maiden name) and any other names used; Principal residential address; and Date of birth.

Standard and higher risk: additional information

• Place of birth; • Nationality; • Sex; and • Government issued personal identification number or other government

issued unique identifier.








5.3.2 Verifying identity


27.

28.

29.

A firm must verify the identity of the individual.

Where a particular aspect of an individual’s identity subsequently changes (such as following marriage, change of nationality, or change of address), a firm must take reasonable measures to reverify that particular aspect of identity of the individual.

All key documents (or parts thereof) used to verify identity must be understandable (i.e. in a language understood by the employees of the firm), and must be translated into English at the request of the JFCU or the Commission.

GUIDANCE NOTES

30. A firm may demonstrate that it has verified the identity of an individual where it verifies the following components:

Lower risk – information to be verified

• Full name; and • Principal residential address or date of birth. Minimum of 1 identification verification method.

Standard – information to be verified

• All components of identity as in Section 5.3.1 of this Handbook other than the government issued personal identification number or other government issued unique identifier.

Minimum of 2 identification verification methods (e.g. one covering general identification information and one covering residential address).

Higher risk – information to be verified

• All components of identity as in Section 5.3.1 of this Handbook. Minimum of 2 identification information sources (e.g. one covering general identification information and one covering residential address). Refer to Section 4.4 of this Handbook for enhanced due diligence requirements for higher risk relationships.

31. Components of identity may be verified using the following sources:

All clients – identification verification methods

General identification information: • Current passport - providing photographic evidence of identity; • Current national identity card - providing photographic evidence of identity;

or • Current driving licence - providing photographic evidence of identity -

where the licensing authority carries out a check on the holder’s identity before issuing.

Independent data sources (including electronic sources). (Refer to Section 5.3.3 of this Handbook).




All clients – identification verification methods

Residential address: • Correspondence from a central or local government department or agency

(egg. States and parish authorities); • A letter of introduction confirming residential address from: (i) a relevant

person regulated by the Commission; (ii) a regulated relevant person which is operating in a well-regulated jurisdiction; or (iii) a branch or subsidiary of a group headquartered in a well-regulated jurisdiction which applies group standards to subsidiaries and branches worldwide, and tests the application of and compliance with such standards;

• Personal visit to residential address; • A bank statement or utility bill; or • One of the general identification information sources listed above.

Lower risk

Where the above general identification information sources are unavailable, identity may be verified using: • A Jersey driving licence; or • A birth certificate in conjunction with:

• a bank statement or a utility bill; • documentation issued by a government source; or • a letter of introduction from a relevant person that is regulated by the

Commission.

32.

33.

34.

35.

36.

Verification methods provide evidence of identity from a number of sources. These sources may differ in their integrity, reliability and independence. For example, some identification documents are issued after due diligence on an individual’s identity has been undertaken, for example passports and national identity cards; others are issued on request, without any such checks being carried out. A firm should recognise that some documents are more easily forged than others.

Additionally, verification methods incorporating photographic confirmation of client identity provide a higher level of assurance that an individual is the person who they claim to be.

Where a firm is not familiar with the form of the evidence obtained to verify identity, appropriate measures may be necessary to satisfy itself that the evidence is genuine.

When applying reasonable measures to the re-verification of identity following a change in a particular aspect of identity, e.g. a change of address, a firm may apply a risk based approach which focuses on higher risk clients.

In determining whether a jurisdiction is well-regulated, a firm may have regard to:

• the development and standing of the jurisdiction’s regulatory framework; and

• recent independent assessments of its regulatory environment, such as those conducted by the IMF3.

3 All jurisdictions with equivalence status are deemed to be well-regulated.




37. Where components of identity are verified through use of a passport, national identity card, or driving licence, which subsequently expires, then, in the absence of other risk factors, no further verification is necessary.

5.3.3 Independent data sources

OVERVIEW

38.

39.

Independent data sources can provide a wide range of confirmatory material on an applicant for business or client, and are becoming increasingly accessible, for example, through improved availability of public information and the emergence of commercially available data sources such as electronic databases and research firms. Sources include:

• registers of electors;

• telephone directories;

• credit reference agency checks;

• business information services; and

• electronic checks provided by commercial agencies.

Where a firm is seeking to verify identity using an independent data source, whether by accessing the source directly or by using an independent third party organisation (such as a credit reference agency), an understanding of the depth, breadth and quality of the data is important to ensure that the method of verification does in fact provide satisfactory evidence of identity.


40. Where a firm intends to use independent data sources to verify components of identity, it must ensure that:

• the source, scope and quality of the data are satisfactory. At least two matches of each component of an individual’s identity (see Section 5.3.2 of this Handbook) must be obtained; and

• processes allow a firm to capture and record the information used to verify identity.

41. The level of satisfaction required will depend on the extent that a firm relies on the independent data sources to obtain satisfactory evidence of identity.

GUIDANCE NOTES

42. Where a firm intends to use data held by independent third party organisations to verify identity, the business may demonstrate that it has ensured that data is satisfactory where the organisation is registered with a data protection agency in the European Economic Area (the “EEA”) (or with an agency in a jurisdiction that has similar data protection provisions to the EEA), and where the organisation:

• uses a range of positive information sources that can be called upon to link an applicant to both current and historical data;

• accesses negative information sources such as databases relating to fraud and deceased persons;

• accesses a wide range of alert data sources; and




• has transparent processes that enable a relevant person to know what checks have been carried out, what the results of these checks were and to be able to determine the level of satisfaction provided by those checks.

5.3.4 Verification of residential address of overseas residents

OVERVIEW

43. On occasions, an individual resident abroad may be unable to provide evidence of their principal residential address using the verification methods set out at Section 5.3.2 of this Handbook. Examples of such individuals include residents of countries without postal deliveries and few street addresses, who rely upon post office boxes or employers for delivery of mail, and residents of countries where, due to social restraints, private addresses may not be verified by personal visits.

44. It is essential for law enforcement purposes that a record of an individual’s residential address (or details of how that individual’s residential address may be reached) be recorded, so that an individual may be located by law enforcement if necessary during an investigation. As a result, it is not acceptable only to record a post office box number as an address, or to fail to take steps to verify that a residential address is valid where required by this Handbook.


45.

46.

A firm must ensure that there is a valid reason for an applicant for business being unable to satisfy its more usual verification of address requirements, and must document that reason.

Where alternative methods to verify address are relied on, a relevant person must consider whether enhanced monitoring of activity and transactions is appropriate.

GUIDANCE NOTES

47. Where an individual has a valid reason for being unable to produce more usual documentation to verify residential address, satisfactory verification of address may be established by:

• verification of a “locator” address - a locator address is an address at which it would normally be possible to physically meet or contact an individual (with or without prior arrangement), for example, an individual’s place of work; or

• a written confirmation received from an individual satisfying the criteria for a suitable certifier (see Section 5.8.1 of this Handbook) that confirms residential address and that the certifier has visited the individual at that address.

5.4 IDENTIFICATION AND VERIFICATION: TRUSTEES AND EXPRESS TRUSTS OVERVIEW

48. There is a wide variety of trusts ranging from large, nationally and internationally active organisations subject to a high degree of public scrutiny and transparency, through to trusts set up under testamentary arrangements and trusts established for wealth management purposes.




49.

50.

Express trusts cannot form business relationships themselves. It is the trustee of the trust who will enter into a business relationship on behalf of the trust and who will be considered to be the applicant for business (i.e. the trustee is acting on behalf of a third party – the trust and the individuals concerned with the trust).

In forming a relationship or carrying out a one-off transaction with a trustee, a firm will be dependent on information supplied by the trustee relating to the trust and the individuals concerned with the trust. When determining the risk assessment for an express trust (see Section 4.3 of this Handbook), the risk factors set out in Section 5.10.1 of this Handbook will be relevant. In addition, the monitoring procedures maintained by a firm (see Section 6 of this Handbook) may provide additional comfort that relevant and up to date identification and relationship information has been provided.

51. The following requirements are relevant to situations where a trustee of an express trust is the applicant for business. Where the trustee of an express trust is an equivalent financial services business, the concessions provided in Section 5.9.1 of this Handbook (for trustees) and Section 5.10 of this Handbook (for the individuals concerned with the trust) will be relevant. Where the trustee of an express trust is a relevant person that is overseen for AML/CFT compliance within Jersey or is a person who carries on an equivalent business (see Section 5.9.1 of this Handbook), the concession provided in Section 5.10 of this Handbook (for the individuals concerned with the trust) will be relevant.

52.

53.

These requirements also apply to situations where a trustee is a beneficial owner or controller of an applicant for business, or is a third party (underlying client) on whose behalf an applicant for business is acting.

The requirements where an applicant for business is wishing to settle a trust are covered in the sector specific section for trust company businesses in the separate Handbook for Regulated Financial Services Business.

54. Notwithstanding the requirement to obtain and verify information in relation to the trustee, the trust and those individuals who are concerned with the trust, a firm is not expected to establish the detailed terms of the trust, nor rights of the beneficiaries.



55.

56.

A firm must collect relevant identification information on the trustee(s) and on the express trust (and any subsequent changes).

A firm must collect relevant identification information on the individuals who are concerned with the trust (and any subsequent changes).

GUIDANCE NOTES

57. A firm may demonstrate the collection of relevant identification information where it requests from the trustee(s): (i) the following information; and (ii) certain assurances.

http://www.jerseyfsc.org/pdf/Consolidated_Version_AML_HBK_June_2008_updated_for_new_Appendix_B.pdf




All clients

• Name of trust; • Date of establishment; • Official identification number (e.g. tax identification number or registered

charity number); • Identification information of trustee(s) - in line with guidance for individuals

and legal bodies; • Mailing address of trustee(s); • Identification information of settlor(s)4 - in line with guidance for individuals

and legal bodies; and • Identification information of protector(s) - in line with guidance for individuals

and legal bodies.

Standard and higher risk – additional information

• Identification information on beneficiaries with a vested right - in line with guidance for individuals and legal bodies; and

• Identification information on any other beneficiaries and persons who are the object of a power identified as presenting higher risk (as a minimum) - in line with guidance for individuals and legal bodies.

Refer to Section 4.4 of this Handbook for enhanced due diligence requirements for higher risk relationships.

58. Additionally, a firm should obtain a confirmation from the trustee(s) that it has provided all of the information requested, and that the trustee(s) will update the information provided in the event of subsequent change.



59.

60.

61.

A firm must verify the name and date of establishment of the express trust. Whilst there is no requirement for a firm to review an existing trust instrument (or similar instrument) as a whole, satisfactory evidence of the appointment of the trustee(s) and the nature of their duties must be obtained.

A firm must verify the identity of the trustee(s) of the express trust and any subsequent change in trustee(s) (in line with guidance for individuals and legal bodies).

A firm must take reasonable measures to verify the identity of the individuals who are concerned with the express trust (as set out at Section 5.4.1 of this Handbook) and any subsequent changes (in line with guidance for individuals and legal bodies).

62.

In the case of a standard or higher risk relationship, a firm must take reasonable measures to verify the identity of a beneficiary with a vested right at the time of or before distribution of trust property or income.

4 The settlors of a trust include the initial settlors and any persons subsequently settling funds into a

trust.




63.

64.

In the case of a standard or higher risk relationship, a firm must take reasonable measures to verify the identity of any other beneficiaries and persons who are the object of a power identified as presenting higher risk, at the time that the risk is identified.

All key documents (or parts thereof) used to verify identity must be understandable (i.e. in a language understood by the employees of the financial services business), and must be translated into English at the request of the JFCU or the Commission.

GUIDANCE NOTES

65. Where a firm seeks to verify the identity of individuals who are concerned with a trust on a non-face to face basis, for example, through copy documentation provided by the trustee(s), reference should be made to the requirements and guidance set out in Section 5.8 of this Handbook for non-face to face identification and verification.

66. For higher risk relationships, also refer to Section 4.4 of this Handbook for enhanced due diligence requirements.

67. Where a firm is not familiar with the form of the evidence obtained to verify identity, appropriate measures may be necessary to satisfy itself that the evidence is genuine.

5.5 IDENTIFICATION AND VERIFICATION: LEGAL BODIES OVERVIEW

68.

69.

70.

71.

The following requirements are relevant to situations where a legal body is the applicant for business.

The requirements also apply to situations where a legal body is a beneficial owner or controller of an applicant for business, or is a third party (underlying client) on whose behalf an applicant for business is acting.

A legal body includes bodies corporate, foundations, anstalts, partnerships, associations, or any similar bodies that can establish a permanent client relationship with a relevant person or otherwise own property. For the purposes of this Section, it also includes incorporated and unincorporated clubs, societies, charities, church bodies, institutes, mutual and friendly societies, co-operative and provident societies.

Where identification information relating to a legal body is not available from a public source, a firm will be dependent on the information that is supplied by the legal body. When determining the risk assessment for a legal body (see Section 4.3 of this Handbook), the risk factors set out in Section 4.3.4.1 of this Handbook will be relevant. Where the legal body has been introduced by a third party, the risk factors set out in Section 5.10.1 of this Handbook will be relevant. In addition, the monitoring procedures maintained by a relevant person (see Section 6 of this Handbook) may provide additional comfort that relevant and up to date identification and relationship information has been provided.

72. Where the legal body is fully managed by a financial services business that is a regulated Jersey trust company business, the concessions concerning verification of directors (see Section 5.5.2 of this Handbook) will be relevant.




73. Article 2 of the Order which describes those persons to be considered to be beneficial owners or controllers, excludes persons who are the beneficial owners or controllers of bodies corporate whose stock or shares are admitted to trading on a regulated market. Refer to Section 5.9.4 of this Handbook for further information.



74.

75.

A firm must collect relevant identification information on a legal body (and any subsequent changes).

A firm must collect relevant identification information on the beneficial owners and controllers of the legal body (and any subsequent changes).

GUIDANCE NOTES

76. A firm may demonstrate collection of relevant identification where it requests from the company:

• the following information; and

• certain assurances.

All clients

• Name of entity; • Any trading names; • Date and country of incorporation/registration; • Official identification number; • Registered office address; • Mailing address (if different); • Principal place of business/operations (if different); • Name of regulator, if applicable; • Names of all directors (or equivalent); • Identification information of directors (or equivalent) who have authority to

operate a relationship or to give the firm instructions - in line with guidance for individuals; and

• Identification information of individuals ultimately holding a 25% or more interest in the capital of the legal body - in line with guidance for individuals and trustees.

Standard and higher risk – additional information

• Identification information of individuals with ultimate effective control over the legal body’s assets, including the individuals comprising the mind and management of the legal body, e.g. directors - in line with guidance for individuals; and

• Identification information of individuals ultimately holding a material interest in the capital of the legal body - in line with guidance for individuals and trustees.






77.

78.

Additionally, where information is not available from public sources, a firm should obtain a confirmation from the directors (or equivalent) of the legal body that all of the information requested has been provided, and that the directors (or equivalent) will update the information provided in the event of subsequent change.

For lower risk relationships, a general threshold of 25% is considered to indicate effective control or ownership. Whilst this principle may also apply to standard and higher risk relationships, where the distribution of interests is uneven the percentage where effective control may be exercised (a material interest) may be less than 25% when the distribution of other interests is taken into account, i.e. interests of less than 25% may be material interests.



79.

80.

81.

A firm must verify the identity of the legal body.

A firm must take reasonable measures to verify the beneficial owners and controllers of the legal body and any subsequent changes in beneficial ownership and control (in line with guidance for individuals and trustees).

All key documents (or parts thereof) used to verify identity must be understandable (i.e. in a language understood by the employees of the financial services business), and must be translated into English at the request of the JFCU or the Commission.

GUIDANCE NOTES

82. A firm may demonstrate that it has verified the identity of a legal body where it verifies the following components:

All clients

• Name; • Official identification number; and • Date and country of incorporation.

Standard and higher risk – additional verification

• Registered office address; and • Principal place of business (where different to registered office).




83. Components of identity may be verified using one or more of the following verification methods:

Lower risk – minimum one verification method Standard and higher risk – minimum two verification methods

• Certificate of incorporation (or other appropriate certificate of registration or licensing);

• Memorandum and Articles of Association (or equivalent); • Company registry search, including confirmation that body is not in the process

of being dissolved, struck off, wound up or terminated; • Latest audited financial statements; • Independent data sources, including electronic sources, e.g. business

information services; or • Personal visit to principal place of business (standard or higher risk only). Refer to Section 4.4 of this Handbook for enhanced due diligence requirements for higher risk relationships.

84. A firm may demonstrate that it has taken reasonable measures to verify the beneficial owners and controllers of the legal body where it verifies the identity of the following:

All clients

• Those directors (or equivalent) who have authority to operate a relationship or to give the firm instructions concerning the use or transfer of funds or assets - in line with guidance for individuals.

Standard and higher risk

• Individuals with ultimate effective control over the legal body’s assets, including the individuals comprising the mind and management of the legal body, e.g. directors - in line with guidance for individuals; or

• Individuals ultimately holding a material interest in the capital of the legal body - in line with guidance for individuals and trustees.


85.

86.

87.

Individuals having ultimate effective control over a legal body will often include directors or equivalent. In the case of partnerships, associations, clubs, societies, charities, church bodies, institutes, mutual and friendly societies, co-operative and provident societies, this will often include members of the governing body or committee plus executives. In the case of foundations, this will include members of the governing council of a foundation and any supervisors.

Where a firm is not familiar with the form of the evidence obtained to verify identity, appropriate measures may be necessary to satisfy itself that the evidence is genuine.

Where a firm verifies the identity of beneficial owners and controllers on a remote basis, reference should be made to the requirements and guidance set out in Section 5.8 of this Handbook for non-face to face identification and verification.




88. Where a director (or equivalent) holds this role by virtue of their employment by (or position in) a regulated Jersey trust company business, a firm may demonstrate that it has taken reasonable measures to identify that person and to verify their identity where it obtains the following:

• the full name of the director; and

• an assurance from the trust company business that the individual is an officer or employee.

5.6 IDENTIFICATION AND VERIFICATION: AUTHORISED AGENT OF APPLICANTS FOR BUSINESS OVERVIEW

89. Article 13 of the Order requires a firm to identify persons authorised to act on behalf of an applicant for business and to take reasonable measures to obtain satisfactory evidence of identity of such persons. This will include account signatories and those to whom powers of attorney have been granted.

90. Articles 18(7) and (8) of the Order provides an exception to this requirement where a person authorised to act on behalf of an applicant for business is acting in the course of employment by a relevant person that:

• is regulated by the Commission; or

• satisfies the definition of an equivalent relevant person in Article 5 of the Order (see Section 5.9.1 of this Handbook).


91. A firm must obtain a copy of the power of attorney (or other authority or mandate) that provides the individuals representing the applicant for business with the right to act on their behalf.

GUIDANCE NOTES

92.

93.

For lower risk relationships a firm may demonstrate that it has taken reasonable measures where it verifies the identity of a minimum of two individuals that have purported authority to act on behalf of an applicant for business.

For standard or higher risk relationships, a firm should take into account factors such as the risk posed by the relationship and the materiality of the authority delegated to individuals.

5.7 IDENTIFICATION AND VERIFICATION: APPLICANTS ACTING FOR THIRD PARTIES (INTERMEDIARY RELATIONSHIPS) OVERVIEW

94. This section covers the scenario where the applicant for business is acting on behalf of a third party (e.g. on behalf of an underlying client(s)). Where that applicant for business is an equivalent relevant person and meets the criteria detailed in Articles 16 and 17 of the Order (see Section 5.9.1 of this Handbook) then the accepting business may be able to benefit from concessions provided by those articles (see Section 5.10 of this Handbook). Otherwise, the requirements detailed in this Section apply.

95. The specific situation of a trustee acting on behalf of a third party (the trust), where the trustee is not an equivalent relevant person and does not meet the required criteria, is addressed in Section 5.4 of this Handbook.








96. Article 13 of the Order requires a determination as to whether an applicant is acting on behalf of a third party or parties.

97. Whenever an applicant is, or appears to be, acting on behalf of a third party or parties, Article 13 of the Order requires a relevant person to identify each third party and the individuals who are its beneficial owners and controllers and to take reasonable measures to verify the identity of each third party and its beneficial owners and controllers, in addition to undertaking measures to identify and verify the identity of the applicant.

98. Where there is a subsequent change of the third party or the beneficial owners or controllers of a third party, Article 13 of the Order requires that the new third party or new beneficial owners or controllers are identified and that reasonable measures are taken to verify their identity.

5.8 NON-FACE TO FACE IDENTIFICATION AND VERIFICATION OVERVIEW

99.

100.

101.

Frequently, relationships will be established where there is no face to face contact with the individuals to be identified, for example:

• relationships established by individuals through the post, by telephone or via the internet; and

• where identification information is provided through a trustee on persons who are concerned with a trust, or by a company on the persons who are its beneficial owners and controllers.

There may also be circumstances where there is face to face contact with an individual, but where documentary evidence is to be provided at a time when the individual is not present.

Article 15(3) of the Order requires that identification and verification procedures take into account the greater risk of identity fraud in such circumstances.

102. This Section contains requirements that are relevant where there has been no face to face contact with a person, and where documentary evidence is to be provided at a time when the individual is not present.


103. Where a relationship is established or transaction conducted remotely, or where the identity of an individual is to be verified using documentary evidence when the individual is not physically present, a firm must perform an additional check to reduce the risk of identity fraud.

GUIDANCE NOTES

104.

105.

A firm may demonstrate that the specific additional check undertaken is appropriate where it takes into account the client risk assessment, matching the level of assurance given by the check to the risk presented by the client.

Additional checks to reduce the risk of identity fraud include:

• verification of identity using a further verification method listed at Section 5.3.2 of this Handbook;

• obtaining copies of identification documents certified by a suitable certifier;









• requiring payment of funds to be drawn on an account in the client’s name at a bank that is a regulated person or carries on an equivalent business (refer to Section 5.9.1 of this Handbook); and

• verifying additional aspects of identity or other CDD information from independent sources.

106. For higher risk clients where suitable certification is relied upon, a firm may demonstrate that it has obtained appropriate verification of identity where it takes steps to check that the suitable certifier is real, or alternatively, performs a further check to reduce the risk of identity fraud.

5.8.1 Suitable certifiers

OVERVIEW

107. Use of a certifier guards against the risk that copy documentation provided is not a true copy of the original document and that the documentation does not correspond to the applicant whose identity is to be verified. For certification to be effective, the certifier will need to have seen the original documentation and, where documentation is to be used to provide satisfactory evidence of identity for an individual, have met the individual (where certifying evidence of identity containing a photograph). A suitable certifier will also be subject to professional rules (or equivalent) providing for the integrity of their conduct.


108.

109.

110.

111.

A suitable certifier must be subject to professional rules of conduct, which provide comfort as to the integrity of the certifier.

A suitable certifier must certify that:

• they have seen original documentation verifying identity and/ or residential address;

• the copy of the document (which they certify) is a complete and accurate copy of that original; and

• where the documentation is to be used to verify identity of an individual and contains a photograph, the photograph contained in the document certified bears a true likeness to the individual requesting certification

or use wording to the same effect.

The certifier must also sign and date the copy document, and provide adequate information so that he may be contacted in the event of a query.

In circumstances where the suitable certifier is located in a higher risk jurisdiction, or where the firm has some doubts as to the veracity of the information or documentation provided by the applicant, the firm must take steps to check that the suitable certifier is real.




GUIDANCE NOTES

112.

113.

114.

115.

116.

117.

Acceptable persons to certify evidence of identity (suitable certifiers) may include:

• a member of the judiciary, a senior civil servant, or a serving police or customs officer;

• an officer of an embassy, consulate or high commission of the country of issue of documentary evidence of identity;

• a lawyer or notary public who is a member of a recognised professional body;

• an actuary who is a member of a recognised professional body;

• an accountant who is a member of a recognised professional body;

• a tax advisor who is a member of a recognised professional body;

• an individual that is qualified to undertake certification services under authority of the Certification and International Trade Committee (in Jersey this service is available through the Jersey Chamber of Commerce); and

• a director, officer, or manager of a regulated relevant person which is operating in a well-regulated jurisdiction, or of a branch or subsidiary of a group headquartered in a well-regulated jurisdiction which applies group standards to subsidiaries and branches worldwide, and tests the application of and compliance with such standards.

A higher level of assurance will be provided where the relationship between the suitable certifier and the subject (individual, legal body or express trust) is of a professional rather than personal nature.

An adequate level of information to be provided by a suitable certifier would include their name, position or capacity, their address and a telephone number or email address at which they can be contacted.

A firm may apply a risk based approach to applying steps to check that a suitable certifier is real, that considers factors such as the stature and track record of the certifier, previous experience of accepting certifications from certifiers in that profession or jurisdiction, the adequacy of the framework to counter money laundering and terrorist financing in place in the jurisdiction in which the certifier is located and the extent to which the framework applies to the certifier.

In determining whether a jurisdiction is well-regulated, a firm may have regard to:

• the development and standing of the jurisdiction’s regulatory framework; and

• recent independent assessments of its regulatory environment, such as those conducted by the IMF.

Where the copy document is to be used to verify identity, best efforts should be taken to ensure that the quality of the certified copy of photographic evidence is adequate.

5.9 EXCEPTIONS FROM IDENTIFICATION PROCEDURES OVERVIEW

118. Article 18 the Order provides for a number of exceptions to the general requirement to carry out identification procedures.




Article 2 of the Order provides that no individual is to be treated as a beneficial owner of a person that is a body corporate, the stock or shares of which are admitted to trading on a regulated market.

119.

120. None of the exceptions set out in Article 18 of the Order apply where a firm suspects money laundering.

5.9.1 Regulated persons and those carrying on equivalent businesses

OVERVIEW

121.

122.

Where the applicant for business is another Jersey relevant person regulated by the Commission, or is an equivalent regulated overseas business, then a firm need not apply identification and verification of identity procedures in respect of the applicant for business or its beneficial owners or controllers. However, these exemptions do not extend to any third parties (underlying clients) for whom the applicant is acting.

Article 5 of the Order defines an equivalent business as being an overseas business that:

• if carried on in Jersey would be any category of financial services business (whether or not it is referred to by that name);

• may only be carried on in the jurisdiction by a person registered or otherwise authorised under the law of that jurisdiction to carry on that business;

• is subject to requirements to forestall and prevent money laundering consistent with those in the FATF Recommendations in respect of that business; and

• is supervised for compliance with those requirements by an overseas regulatory authority.

123. The condition requiring that the business must be subject to requirements to combat money laundering and terrorist financing consistent with those in the FATF Recommendations will be satisfied where the business is located in an equivalent jurisdiction (see Section 5.9.2 of this Handbook below).


124. Under Article 18(7) of the Order a relevant person need not identify or verify the identity of an applicant for business or its beneficial owners and controllers, whether acting as principal or on behalf of third parties, where there are reasonable grounds for believing that the applicant for business is:

• a regulated person; or

• a person carrying on equivalent business to any category of regulated business.

125. Under Article 18(8) of the Order, a relevant person need not identify or verify the identity of persons authorised to act on behalf of an applicant for business where the person who is so authorised acts in the course of employment by a regulated financial services business or an equivalent regulated business.










REGULATORY REQUIREMENT

126. A firm must obtain and retain documentation establishing that the applicant for business is entitled to benefit from the exemption provided in Article 18(7) of the Order.

GUIDANCE NOTES

127. Whilst an overseas firm undertaking any category of financial services business and which is overseen for AML/CFT compliance does not need to be regulated to obtain equivalence status, there is a requirement that to qualify for an exemption from identification and verification of identity, an equivalent business must be regulated. Consequently, an overseas business that is equivalent to a specified Schedule 2 business e.g. an overseas law firm, does not qualify for this exemption unless it is also regulated as a financial services business.

5.9.2 Equivalent jurisdictions

5.9.2.1 Determining equivalence

128.

129.

130.

Requirements to combat money laundering and terrorist financing will be considered to be consistent with the FATF Recommendations only where those requirements are established by law, regulation, or other enforceable means.

In determining whether or not a jurisdiction’s requirements are consistent with the FATF Recommendations, the Commission will have regard for the following:

• whether or not the jurisdiction is a member of the FATF, a Member State of the EU (including Gibraltar), a member of the European Economic Area or, another Crown Dependency (the Bailiwick of Guernsey and the Isle of Man);

• the legislation and other requirements in place in that jurisdiction;

• recent independent assessments of that jurisdiction’s framework to combat money laundering and terrorist financing, such as those conducted by the FATF, the World Bank and the IMF;

• other publicly available information concerning the effectiveness of a jurisdiction’s framework; and

• in particular, the level of consistency with those FATF Recommendations directly relevant to concessions (FATF 5-11, 13-15, 17, 18, 21, 23, Special Recommendation IV and VII).

Where a firm seeks itself to assess whether an overseas jurisdiction not listed by the Commission as an equivalent jurisdiction may be considered to be equivalent, the financial services business must conduct an assessment process comparable to that described above, and must be able to demonstrate the process undertaken and its basis for concluding that the jurisdiction has requirements to combat money laundering and terrorist financing in place that are consistent with the FATF Recommendations.





5.9.3 Persons authorised to act on behalf of a regulated applicant for business

GUIDANCE NOTES

131. Where a person authorised to act on behalf of a regulated applicant for business holds this role by virtue of his employment by (or position in) a relevant person that is supervised by the Commission (or an equivalent financial services business), a firm may demonstrate that this exception applies where it obtains:

• the full name of the individual; and

• an assurance from the relevant person that the individual is an officer or employee.

5.9.4 Publicly listed companies

OVERVIEW

132. Where an applicant for business is a body corporate whose securities have been admitted to trading on a regulated market, or is a subsidiary of a body company whose securities have been admitted to trading on a regulated market, then, in line with Article 2 of the Order, there is no requirement to identify or verify the identity of beneficial owners and controllers of the company.


133.

134.

A firm must obtain and retain documentation establishing that the body corporate has been admitted to trading on a regulated market.

Where a subsidiary of a company admitted to trading on a regulated market is not wholly owned, identification and verification procedures must be carried out in accordance with Section 5.5 of this Handbook in respect of beneficial owners and controllers not connected with the traded parent.

5.9.5 Jersey public authorities

OVERVIEW

135. Where the applicant for business is a Jersey public authority, Article 18(2) of the Order does not require satisfactory evidence of identity to be obtained in respect of the public authority or its beneficial owners and controllers.


136. A firm must obtain and retain documentation establishing that the applicant for business is entitled to benefit from the concession in Article 18(2) of the Order.

GUIDANCE NOTES

137. The following may be considered to be public authorities in Jersey:

• a department of the States of Jersey;

• a majority States-owned company;

• an agency established by a law of the States of Jersey; or

• a parish authority.







5.9.6 Jersey property transfers

OVERVIEW

138. Article 18(8A) of the Order permits an exemption from identification and verification of identity for a law firm when an applicant is a client who is seeking, directly or indirectly, to enter into a registered contract within the meaning of the Housing (Jersey) Law 1949 i.e. where it is to be passed before the Royal Court and registered in the Public Registry of Contracts.


139. A firm must obtain and retain documentation establishing that the applicant for business is entitled to benefit from the concession in Article 18(8A) of the Order.

5.10 IDENTIFICATION AND VERIFICATION OF IDENTITY IN INTERMEDIARY AND INTRODUCED RELATIONSHIPS OVERVIEW

140. Article 13 of the Order requires a firm to take reasonable measures to ascertain whether the applicant for business is acting on behalf of any third parties (underlying clients), and if so, Article 16 of the Order requires the firm to also identify and take reasonable measures to verify the identity of the third party (underlying client) and its beneficial owners and controllers. Such relationships are referred to as intermediary relationships, as no direct relationship between the firm and the underlying client arises; the business relationship is instead between the firm and the intermediary. Intermediary relationships differ from introduced (also known as referred) relationships, as with introduced relationships, the underlying client does form a direct relationship with the firm.

141. However, in certain circumstances where the risk of money laundering and terrorist financing may be lower, such as where the intermediary (or introducer) itself is subject to legal requirements to combat money laundering and terrorist financing equivalent to those in place in Jersey, and is supervised for compliance with those requirements, the Order permits reliance to be placed on the intermediary or introducer to conduct aspects of CDD.

142.

143.

This Section sets out the two sets of circumstances where reliance may be placed:

• where the applicant for business is a certain type of regulated person or carries on an equivalent business to certain categories of regulated business; and

• where the relationship involves either an intermediary or an introducer that is a non-regulated Schedule 2 business overseen for compliance in Jersey or a person who carries on equivalent business.

Intermediary relationships

Intermediary relationships may cover a single underlying client or more than one client, including a pool of clients. Relationships established by an intermediary on behalf of a single client, including relationships involving sub-accounts for each underlying client, are described in this Handbook as designated relationships. A relationship established by an intermediary on behalf of more than one clients is described in this Handbook as pooled relationship.


http://www.jerseylaw.je/law/display.aspx?url=lawsinforce%2fconsolidated%2f18%2f18.315_HousingLaw1949_RevisedEdition_1January2007.htm







Examples of intermediary relationships may include: 144.

145.

• trustees establishing relationships on behalf of express trusts; and

• stock-brokers and investment management firms acting as nominees for underlying investors.

Introduced relationships

An introduced relationship is where an introducer has an established relationship with a client and wishes to introduce that client to a law firm. Here, it is the client who is the applicant for business, and who seeks to form a direct relationship with the firm. The client will therefore have two direct relationships, one with the introducer and one with the law firm to which they have been introduced.

5.10.1 Assessment of risk where reliance is placed on intermediaries and introducers

OVERVIEW

146. One of the factors to be taken into account in undertaking any risk assessment for a customer is whether or not the applicant or client is acting for a third party – as an intermediary. The risk factors that are set out in this Section will also be relevant to a risk assessment that is conducted under Section 4.3.4.1 of this Handbook.

147.

148.

Where it is possible to avoid applying identification procedures because these have already been conducted by an intermediary, or to place reliance on procedures that have already been conducted by an intermediary, then this reliance introduces an additional risk that must be considered. A similar risk is introduced where reliance is placed on an introducer to have conducted identification procedures. This Section considers this additional risk.


Articles 16 and 17 of the Order provide for reliance to be placed on intermediaries and introducers to have applied identification procedures in order to meet a relevant person’s obligations under Article 13 of the Order. In order to place such reliance, a relevant person must have conducted an assessment as to whether it is appropriate to place reliance.


149. In order to avoid applying identification procedures under Article 17 of the Order, or to rely on procedures that have been conducted by an intermediary or introducer under Article 16 of the Order, a firm must first assess the risk in avoiding applying such procedures or placing reliance. Where appropriate, a firm should take additional measures to manage its risk.









GUIDANCE NOTES

Risk assessment – factors to consider

150.

151.

One or more of the following factors will be relevant when conducting a risk assessment for an introducer or intermediary:

• the stature and regulatory track record of the intermediary or introducer;

• the adequacy of the framework to combat money laundering and terrorist financing in place in the jurisdiction in which the intermediary or introducer is based;

• the adequacy of the supervisory regime to combat money laundering and terrorist financing to which the intermediary or introducer is subject;

• the adequacy of the measures to combat money laundering and terrorist financing in place at the intermediary or introducer;

• previous experience gained from existing relationships connected with the intermediary or introducer;

• the nature of the business conducted by the intermediary or introducer. Relevant factors include:

• the geographic location of the client base;

• the general nature of the client base, e.g. whether institutional or private client;

• the risk appetite of the intermediary or introducer; and

• the nature of the services which the intermediary or introducer provides to its clients;

• whether relationships are conducted by the intermediary or introducer on a face to face basis;

• whether specific relationships are fully managed by the intermediary or introducer; and

• the extent to which the intermediary or introducer itself relies on third parties to identify its clients and to hold evidence of identity or to conduct other due diligence procedures, and whether such third parties are financial services businesses that are overseen for AML/CFT compliance in Jersey or carry out an equivalent business. Whether or not specific intermediary or introduced relationships involve PEPs or other higher risk relationships.

Additional measures

Where, having established a risk assessment, a firm determines that additional measures are required, these may include all, or some, of those listed below:

• making specific enquiries of the intermediary or introducer to determine the adequacy of measures to combat money laundering and terrorist financing in place;

• reviewing the policies and procedures to combat money laundering and terrorist financing in place at the intermediary or introducer;



• where the intermediary or introducer is a member of a financial services group, making enquiries concerning the extent to which group standards are applied to and assessed by the intermediary’s or introducer’s compliance function or internal audit function;

• conducting (or commissioning from an external expert) periodic sample testing of the adequacy of the intermediary’s or introducer’s policies and procedures to combat money laundering and terrorist financing, whether through onsite visits, or through requesting specific CDD information and/or copy documentation to be provided;

• requesting specific CDD information and/or copy documentation to be provided, to confirm that the intermediary or introducer is able to satisfy any requirement for such information and documentation to be available without delay at the request of the firm;

• where an intermediary or introduced relationship presents higher money laundering or terrorist financing risk, considering whether it is appropriate to rely solely upon the information provided by the intermediary or introducer, and whether additional CDD information and/or documentation is required;

• requiring that pooled relationships must not be used for higher risk clients, and that designated relationships with increased disclosure of information be put in place for such clients.

5.10.2 Intermediary relationships – reliance where the intermediary is a regulated person (Article 17 of the Order)

OVERVIEW

152. Where an intermediary meets the criteria outlined in Article 17 of the Order, a relevant person need not identify and verify the identity of the intermediary’s underlying client. whether in pooled or designated relationships. However the relevant person’s risk assessment of the intermediary may necessitate the relevant person taking additional measures, as set out in Section 5.10.1 of this Handbook above.

153. The capacity in which the intermediary is acting will be relevant. Where an intermediary that is acting other than in the course of: (a) deposit-taking business; (b) a collective investment fund functionary; or (c) a investment business, then a firm may not rely on Article 17 of the Order.


154. Under Article 17 of the Order a relevant person need not identify and verify the identity of third parties (underlying clients) for whom an intermediary is acting (or any beneficial owners and controllers of those third parties) where it establishes that there are reasonable grounds for believing that:

• the intermediary is a bank, collective investment fund functionary, an investment business, or insurance business that is a regulated business; or

• the intermediary carries on equivalent business to the categories of regulated business (see Section 5.9.1 of this Handbook).

155. A firm may not rely on the concession in the Order where it has knowledge or suspicion that the intermediary, or any third party (underlying client) on whose behalf the intermediary is acting, is engaged in money laundering.










156. A firm must be able to demonstrate that the conditions required by the Order are met.

GUIDANCE NOTES

157. Professional firms i.e. lawyers and accountants do not fall within the definition of regulated intermediaries for the purpose of Article 17 of the Order and, therefore, where such a firm is acting as an intermediary, a relevant person acting as principal in a relationship will need to rely on the Article 16 of the Order concession set out below

5.10.3 Intermediary and introduced relationships - reliance where the intermediary is a non-regulated person (Article 16 of the Order)

OVERVIEW

158. Where an intermediary or introducer meets the requirements outlined in Article 16 of the Order, a relevant person is permitted to place reliance on the intermediary or introducer to have conducted identification procedures in respect of the underlying or introduced clients. This means that a firm does not need to duplicate identification procedures that will have already been conducted by the intermediary or introducer.

159.

160.

Whilst a client information profile containing necessary CDD information on the underlying client and the beneficial owners and controllers must be obtained for both designated and pooled intermediary relationships with, and applicants introduced by, introducers, the firm accepting the relationship is not also required to obtain evidence of client identity. Evidence of identity may be held by the intermediary or introducer, so long as the firm is satisfied that the intermediary or introducer will provide the evidence on request and without delay.

In the case of a trustee that is an intermediary for a trust, the underlying client is considered to be the individuals concerned with the trust (see Section 5.4 of this Handbook).

161. When considering the relevant requirements to apply to intermediary relationships, provisions concerning lower risk products (see Section 5.10.5 of this Handbook) may also be relevant.

162. Where CDD information is passed by an intermediary to a firm in order to comply with requirements to counter money laundering and the financing of terrorism, the Data Protection (Jersey) Law 2005 restricts the use of the information to that purpose, except where another condition for processing personal data applies.


163. Article 16 of the Order permits a relevant person to rely upon an intermediary of introducer to have applied specified identification procedures where it obtains a confirmation from an intermediary or introducer on certain matters. It may also do so where:

• the applicant for business is an intermediary (i.e. is acting on behalf of underlying clients) that meets the conditions set out below; or

• the applicant for business is introduced by an introducer that meets the conditions set out below.







http://www.jerseylaw.je/law/lawsinforce/consolidated/15/15.240_DataProtectionLaw2005_RevisedEdition_1January2006.pdf




164. The relevant person must have reasonable grounds for believing that:

• the intermediary or introducer is one whose financial services business is overseen for AML/CFT compliance in Jersey; or

• the intermediary or introducer is a person who carries out equivalent overseas business that meets the conditions required by Article 5 of the Order (see Section 5.9.1 of this Handbook).

165.

166.

167.

The relevant person must obtain a confirmation from the intermediary or introducer that:

• is in writing;

• confirms that the applicant for business is an established client of the introducer (where the client relationship is introduced);

• contains adequate assurance that the intermediary or introducer has undertaken the necessary client identification procedures;

• for intermediary relationships, contains sufficient information about the third parties (underlying clients) for whom the intermediary is acting (and of any beneficial owners and controllers of the third parties);

• for introduced relationships, contains sufficient information about the applicant for business and any beneficial owners and controllers of the applicant;

• contains adequate assurance that the intermediary or introducer is required to keep and does keep records containing the evidence of identity of:

• for intermediary relationships, the third parties (underlying clients) for whom the intermediary is acting (and of any beneficial owners and controllers of the third parties); or

• for introduced relationships, the applicant for business and any beneficial owners and controllers of the applicant; and

• contains adequate assurance that the intermediary or introducer will provide the information in those records or evidence of the identity without delay at the request of the financial services business.

A relevant person may not rely on this concession where it suspects money laundering.

The ultimate responsibility for ensuring that customer identification and verification procedures are adequate remains with the relevant person. In order to place reliance on an introducer or intermediary, the introducer or intermediary must have provided consent to do so.


168. A relevant person must be able to demonstrate that the conditions required by the Order are met.







169. In order to demonstrate that a relevant person has obtained sufficient information about the underlying client, or introduced client, a firm must:

• obtain client information profiles from the intermediary or introducer on each of the intermediary’s underlying clients, or introduced clients - in line with guidance for individuals, trustees, and legal bodies – set out in Sections 5.3 to 5.5 of this Handbook. The information provided in the client information profile will depend upon the financial services business’ assessment of the risk presented by a particular individual, trustee or legal body; and

• be satisfied that the intermediary or introducer will notify the firm of any material changes to the client information profile provided.

170.

171.

All evidence of identity passed by the intermediary or introducer to a firm (on request) must be confirmed by the intermediary or introducer as being a true copy of either an original or copy document held on its file.

In the event that an introducer terminates its relationship with a client introduced to a firm, the firm must require the introducer to provide the firm with:

• copies of the relevant due diligence information and documentation; or

• an assurance that the introducer will hold the necessary information and documentation on behalf of the firm until notified by or agreed with the firm.

GUIDANCE NOTES ACCESS TO CDD INFORMATION AND DOCUMENTATION

172.

173.

A firm may demonstrate that an intermediary or introducer will provide CDD information and documentation in relation to underlying clients, and introduced clients, without delay where it requires relevant CDD information and documentation to be made available within 5 working days of a request.

Where an intermediary or introducer is located in a jurisdiction known to have restrictive secrecy provisions, a firm may demonstrate that it has adequate access to CDD information and documentation where it periodically requests such information or documentation to be provided (and it is provided), or otherwise obtains access to review the relevant information and documentation held by the intermediary or introducer.

RESPONSIBILITY FOR FAILURES IN CDD PROCEDURES

174. An accepting firm will remain responsible for the satisfactory performance of all elements of the CDD process. However, where the measures taken by the accepting firm are reasonable, it will have a defence should the intermediary or introducer fail to have performed satisfactory procedures.

5.10.4 Group intermediaries and introducers

OVERVIEW

175. Where the following criteria are met, then a firm may rely on a group intermediary or introducer to have obtained and to hold evidence of identity on its behalf in the way described in Section 5.10.3 of this Handbook, notwithstanding that the intermediary or introducer itself may not be directly subject to legal requirements to combat money laundering and terrorist financing that are consistent with the FATF Recommendations or subject to direct supervision.




176. As for other intermediary or introduced relationships, a client information profile containing necessary CDD information on the underlying client and the beneficial owners and controllers must be obtained for each group intermediary or group introduced relationship. Evidence of client identity may be held by the intermediary or introducer, so long as the firm is satisfied that the group intermediary or introducer will provide the evidence on request and without delay.

GUIDANCE NOTES

177. A group intermediary or introducer may demonstrate that it has met the criteria established in Article 5 of the Order where:

• the intermediary or introducer is a relevant person(or carries on a category of business equivalent to a category outlined in the Second Schedule of the Proceeds of Crime Law) that is a branch or subsidiary in the same group as the financial services business;

• the intermediary or introducer is subject to group requirements to combat money laundering and terrorist financing;

• the conduct of the intermediary’s or introducer’s business is subject to supervision for compliance with group requirements to combat money laundering and terrorist financing by an overseas regulatory authority; and

• the group’s parent meets the conditions required by Article 5 of the Order for equivalent businesses (refer to Section 5.9.1 of this Handbook).

5.10.5 Intermediary clients and lower risk products

OVERVIEW

178. Where an intermediary is covered by Article 16 of the Order (but not also Article 17 of the Order) a client information profile will be required for each underlying client.

179. However, the following section sets out circumstances where a relevant person provides a lower risk product or service where it may be appropriate to operate a relationship without a client information profile for each underlying client.

GUIDANCE NOTES

180. A firm may demonstrate that it has satisfied the requirement of the Order for sufficient client information to be obtained under Article 16 of the Order, where the relationship is established with an intermediary (that is covered by Article 16 of the Order or is equivalent) that has provided a written assurance in respect of one or more of the following low risk products or services:

• Contentious and non-contentious applications to the Court:

• seeking directions or approval(s) under the Trusts (Jersey) Law 1984; or

• concerning corporate transactions which require Court approval (such as schemes of arrangement).

• Trusts:

• drafting reviewing and advising (insofar as the Order is applicable) one or more of the following documents, namely:

• a trust deed ;









http://www.jerseylaw.je/law/display.aspx?url=lawsinforce%2fconsolidated%2f13%2f13.875_TrustsLaw1984_RevisedEdition_1January2007.htm

http://www.jerseylaw.je/law/display.aspx?url=lawsinforce%2fconsolidated%2f13%2f13.875_TrustsLaw1984_RevisedEdition_1January2007.htm





• deeds of: appointment; advancement; indemnity or release; appointment, retirement and indemnity; addition; exclusion; amendment; change of proper law; revocation or termination;

• a loan agreement or loan assignment or novation;

• a deed of release (of powers);

• a deed of disclaimer (by a beneficiary);

• incorporation documents, statutory forms and debentures;

• security documents;

• asset sale and purchase agreements; or

• investment management or advisory agreements;

• drafting opinions; or

• drafting of a document ancillary to a trust deed in relation to a trust administered by an intermediary that is covered by Article 16 of the Order.

• For companies and partnerships administered by trust company businesses

• drafting reviewing and advising (insofar as the Order is applicable) on one or more of the of the following documents, namely:

• incorporation documents;

• statutory forms or debentures;

• share sale agreements;

• loan assignment agreements;

• minutes and other corporate authorisations;

• stock transfer forms and share certificates;

• an asset sale agreement or loan subordination agreement;

• share or asset sale and purchase agreements;

• security agreements;

• memorandum and articles of association; or

• partnership agreements; or

• drafting opinions.

• Employee benefit schemes (including pension schemes) controlled or administered by the intermediary

• drafting one of more of the following, namely:

• a trust deed;

• a deed of: appointment; advancement; indemnity or release; appointment retirement and indemnity; addition; exclusion; amendment; change of proper law; revocation or termination;

• a loan agreement or load assignment or novation;

• a deed of release (of powers);

• a deed of disclaimer (by a beneficiary);





• incorporation documents; or

• statutory forms or debentures;

• drafting one or more of the following documents, namely:

• a deed of grant;

• scheme rules;

• option deeds;

• share supply agreements and stock transfer forms; or

• share certificates;

• drafting opinions; or

• drafting of a document ancillary to a trust deed in relation to a trust administered by an intermediary that is covered by Article 16 of the Order.

5.11 TIMING OF INITIAL IDENTIFICATION AND VERIFICATION OF IDENTITY OVERVIEW

181. To comply with the requirements of the Order, CDD procedures should normally be carried out before the start of a business relationship or prior to carrying out a one-off transaction. However, where there is little risk of money laundering and it is necessary to enter into a relationship prior to obtaining identification evidence, then a concession is provided in respect of a business relationship (but not an occasional transaction).


182. Article 13(1) of the Order requires identification and verification procedures to be applied before the establishment of a relationship or before carrying out a one-off transaction.

183. However, Article 13(4) of the Order permits identification of a person to be completed as soon as reasonably practicable after the establishment of a business relationship if that is necessary not to interrupt the normal course of business and there is little risk of money laundering occurring.

GUIDANCE NOTES

184.

185.

186.

A relationship is established once a firm undertakes to act on instructions as to the operation of that relationship, for example, by receiving and accepting signed terms of business from the client.

Where urgent advice is required in the course of conducting specified Schedule 2 business, this may be given prior to completing CDD requirements with the exception that such advice may not by given for the objective of furthering a criminal act.

Guidance as to appropriate steps to take where a firm is unable to complete CDD procedures is provided in Section 5.12 of this Handbook.









5.11.1 Delayed completion of verification requirements

OVERVIEW

187. In certain circumstances, Article 13(4) of the Order allows a relevant firm a reasonable timeframe to undertake the necessary enquiries for the completion of verification procedures after the initial establishment of a relationship. Where a reasonable excuse for the continued non-completion of verification procedures cannot be provided, then subject to Section 5.12.1 of this Handbook, a firm must terminate the relationship (see Section 5.12 of this Handbook).


188.

189.

A firm may complete verification of identity after the initial establishment of a business relationship if the following conditions are met:

• all other necessary CDD information (including information on identity) has been obtained;

• the need to perform verification of identity at a later stage is essential not to interrupt the normal conduct of business e.g. the provision of urgent advice;

• verification of identity is carried out as soon as is reasonably practicable;

• the firm highlights to its clients its obligation to terminate the relationship at any time on the basis of non-completion of verification procedures; and

• money laundering risk is effectively managed.

In any event, a firm must not permit final agreements to be signed or pay away funds to a third party (or to another account in the name of the client), other than to deposit the funds on behalf of the client, until such time as identity has been verified.

GUIDANCE NOTES

190.

191.

A firm may demonstrate that it has a right to terminate a relationship where terms of business which govern its relationships with its clients encompass the termination of relationships due to non-completion of verification procedures. Terms and conditions should clearly state that termination may lead to an applicant suffering losses – where, e.g. funds have been invested in a collective investment fund.

Money laundering risk may be effectively managed where:

• policies and procedures establish timeframes for the completion of verification procedures;

• the establishment of any relationship benefiting from this concession has received appropriate authorisation and such relationships are appropriately monitored to ensure that verification of identity is carried out as soon as is reasonably practicable; and

• appropriate limits or prohibitions are placed on the number, type and amount of transactions in respect of the relationship.




5.12 FAILURE TO COMPLETE IDENTIFICATION OR VERIFICATION OF IDENTITY OVERVIEW


192.

193.

194.

195.

Where identification procedures cannot be completed, a firm must not proceed or continue with a relationship or one-off transaction. The ease with which a relationship may be terminated, will depend upon how funds have been invested. For example, whereas a bank can close an account relatively easily and return funds to a client, it may be less straightforward for a fund to effect a compulsory redemption, particularly where it is closed ended, or where valuation dates are infrequent.

Wherever possible, when terminating a relationship where client money or other assets have been received, a firm should return the assets directly to the client, for example by returning money to the account from which it was received.

Where the client requests that money or other assets be transferred to third parties, or to a different account in the client’s name, the firm should assess whether this provides grounds for suspicion of money laundering or terrorist financing.


If a relevant person is unable to apply identification procedures before the establishment of a relationship or before carrying out a one-off transaction (except for circumstances provided for in Article 13(4) of the Order, Article 14(1) of the Order requires that a relevant person shall not establish that business relationship or carry out that one-off transaction.

196. Article 14(2) of the Order provides that if a relevant person is unable to apply identification procedures in the circumstances described in Article 13(4) of the Order, it shall terminate the relationship.

197. Article 14 of the Order provides that a relevant person must terminate a business relationship or a one-off transaction where it cannot apply ongoing identification procedures.

198. Article 14(11)of the Order provides that a business relationship or one-off transaction may proceed to continue where a suspicious activity report has been made and the relevant person is acting with the consent of a designated police or customs officer.

5.12.1 Ascertaining legal position

OVERVIEW

199.

200.

An exemption from terminating the relationship is permitted for lawyers and other professional advisers who are in the course of ascertaining the legal position for their client or performing the task of defending or representing their client in legal proceedings.

To qualify for the concession the lawyer or other professional adviser must be a member of a relevant professional body that undertakes competency testing for its members and imposes and maintains professional and ethical standards.










201. Article 14(9) of the Order provides that the prohibition from continuing a business relationship does not apply where the relevant person is a lawyer or other business falling within paragraph 1 or 2 of Part B of the Schedule 2 and is in the course of ascertaining the legal position for that person’s client or performing the task of defending or representing the client in, or concerning legal proceedings, including advice on instituting or avoiding proceedings.

GUIDANCE NOTES

202. The concession applies to litigation but not transactional work so a cautious approach should be taken to the distinction between advice and litigation work and transactional work. (See also Section 7 of this Handbook: Legal Professional Privilege).




Section 6: Monitoring Activity and Transactions

6 MONITORING ACTIVITY AND TRANSACTIONS

6.1 OVERVIEW OF SECTION 1. Sections 4 and 5 of this Handbook address the capturing of sufficient information

about a client that will allow a firm to develop a risk assessment and profile of expected activity. This will provide a basis for recognising unusual and higher risk activity or transactions, which may indicate money laundering or terrorist financing. Additional or more frequent monitoring is required for relationships that have been designated as carrying a higher risk of money laundering or terrorist financing.

2.

3.

4.

5.

6.

This Section requires firms to monitor client relationships and to put in place procedures to identify and scrutinise complex, unusual, or higher risk activity or transactions that may indicate money laundering or terrorist financing activity where there is no apparent economic or visible lawful purpose. Special attention must be paid to specific higher risk activity, so that money laundering or terrorist financing may be identified and, where possible, prevented.

An effective monitoring system requires firms to maintain up to date CDD information and to ask pertinent questions to determine whether there is a rational explanation for the activity or transactions identified. The scrutiny of activity and transactions may involve requesting additional CDD information.

For many clients of law firms, a complete profile and appropriate risk assessment may only become evident whilst acting for the client, making the updating of CDD information and monitoring of client activity and transactions key to obtaining a complete understanding of client relationships. The more a firm knows about its clients and develops an understanding of the instructions, the better placed it will be to assess risks.

Monitoring may involve both real time and post event monitoring and may involve manual or automated procedures. However, for most law firms, it is unlikely that automated transaction or activity monitoring procedures will be relevant. Monitoring is likely to be most effective when undertaken on a case-by-case basis by fee earners, administration and accounts staff.

Sufficient guidance and training of fee earners, accounts and administration staff is essential to enable them to recognise money laundering and terrorist financing activity. Requirements for training in the recognition and handling of suspicious activity are covered in Section 9 of this Handbook.

7. Where monitoring indicates possible money laundering or terrorist financing activity a report must be made to the MLRO. Reporting of knowledge, suspicion, or reasonable grounds for knowledge or suspicion of money laundering and terrorist financing is addressed in Section 8 of this Handbook.

6.2 OBLIGATION TO MONITOR


8. Article 13 of the Order requires a relevant person to scrutinise transactions undertaken throughout the course of a business relationship to ensure that the transactions being conducted are consistent with the relevant person’s knowledge of the customer.





9. Article 11 of the Order provides that policies for the application of CDD

procedures are appropriate having regard to the degree of risk of money laundering. The policies referred to include those:

• which provide for the identification and scrutiny of:

• complex of unusually large transactions;

• unusual patterns of transactions, which have no apparent economic or lawful purpose;

• business relationships and transactions with persons or jurisdictions that do not or insufficiently apply, the FATF Recommendations;

• business relationships and transactions with persons or jurisdictions that are subject to UN or EU sanctions and measures, or measures imposed by one or more countries for insufficient or non-existent application of FATF Recommendations; or

• any other activity, the nature of which causes the relevant person to regard it as particularly likely to be related to money laundering or the financing of terrorism;

• which specify additional procedures where products and transactions are susceptible to anonymity; and

• which determine whether a customer is a PEP.


10.

11.

12.

A firm must, as a part of its ongoing CDD procedures, establish appropriate client activity and transaction monitoring procedures that scrutinise the activity and transactions of its clients.

The monitoring procedures must require more intensive scrutiny of higher risk clients (including PEPs) and higher risk products/services.

The monitoring procedures must:

• involve a firm applying its understanding of its business (i.e. the outcome of its business risk assessment – see Section 3 of this Handbook) to determine the nature of usual activity and its expectations for unusual and higher risk activity and transactions;

• be designed to result in the identification of unusual and higher risk activity or transactions;

• require that, in particular, special attention is paid to specific higher risk activity and transactions (see paragraph 16 below);

• require the examination of any unusual or higher risk activity or transaction by an appropriate person to determine the background and purpose of the activity or transaction;

• in connection with the above examination, involve the collection of additional information (where appropriate);

• establish whether there is a rational explanation (an apparent economic or visible lawful purpose) for the unusual or higher risk activity or transaction, and document these findings in writing; and

• result in appropriate action being taken as a result of the findings of the above procedures.






13.

14.

When conducting monitoring procedures, the following are to be considered to be higher risk activity and transactions:

• complex transactions;

• unusual large transactions;

• unusual patterns of transactions;

• activity and transactions: (i) connected with jurisdictions which do not, or insufficiently apply the FATF Recommendations; or (ii) which are the subject of UN or EU countermeasures;

• activity and transactions that may be conducted with persons who are the subject of UN or EU sanctions and countermeasures;

• activity or transactions with PEPs or where PEPs are connected with the client; and

• activity or transactions for clients who have not been physically present for identification purposes.

A firm must have policies and procedures in place to address any specific risks associated with client relationships established where the client is not physically present for identification purposes (i.e. non-face to face).

6.3 APPROPRIATE MONITORING PROCEDURES. GUIDANCE NOTES

15.

16.

17.

In determining the nature of the monitoring procedures that are appropriate, a firm may have regard to the following factors:

• its business risk assessment;

• the size and complexity of its business;

• the nature of its legal business and services;

• whether it is possible to establish appropriate standardised parameters for unusual activity; and

• the monitoring procedures that already exist to satisfy other business needs.

Identifying unusual activity/transactions. Appropriate factors to consider in determining whether activity or transactions are unusual include:

• the expected frequency, size, and origin/destination of client funds or other activity for individual clients; and

• the presence of risk factors specific to the nature of the activity or matter undertaken for the client. A firm should determine risk factors based on its knowledge of its client and should have regard to typologies (whether external or developed from its own experiences) relevant to the nature of its business activities.

Examining unusual activity. A firm may demonstrate that it is appropriately examining unusual and higher risk activity and transactions where it:

• reviews the identified activity/transaction in light of the client risk assessment and the CDD information that it holds;




18.

19.

• makes further enquiries to obtain any further information required to enable a determination as to whether the activity/transaction has a rational explanation; and

• considers the activity or transaction in the context of any other relationships connected with the client.

For example, a firm may have acted for a client in preparing a will and purchasing a modest family home. The client may then instruct the firm in the purchase of a holiday home, the value of which appears to be outside the means of the client’s financial situation as the firm had previously been advised in earlier retainers. While the firm may be satisfied that it still knows the identity of the client, as part of ongoing monitoring obligations it would be appropriate in such a case to ask about the source of funds for this purchase. Depending on the client’s willingness to provide such information, and the answer that is provided, the firm should consider whether it is satisfied with that response, wants further proof of the source of funds, or needs to discuss with the MLRO whether a disclosure should be made to JFCU.

Examining higher risk activity. In line with enhanced due diligence requirements for higher risk clients (see Section 4.4 of this Handbook), more intensive scrutiny of client activity and transactions may involve, for example:

• more frequent review and updating of CDD information;

• more regular review of client activity and transactions against the client’s expected activity profile; and

• client reviews being conducted by persons not directly involved in managing client relationships.

20. The examination of unusual and higher risk activity or transactions may be conducted either by fee earners or by accounts or administration staff. In any case, a firm should ensure that the reviewer has access to relevant CDD information, and that the enquiries made and the conclusions reached by the reviewer are appropriate. Refer to Section 10 of this Handbook for record keeping requirements in relation to the examination of higher risk activity and transactions.

21. Appropriate follow up action may include:

• updating CDD information to record the results of the enquiries made;

• reviewing the appropriateness of the client risk assessment in light of the unusual activity and/or additional CDD information obtained;

• applying increased levels of monitoring to particular relationships; and

• where the activity or transaction does not have a rational explanation, considering whether the circumstances require a suspicious activity report to be submitted to the firm’s MLRO (see Section 8 of this Handbook).




6.3.1 Jurisdictions that do not, or insufficiently, apply FATF Recommendations

OVERVIEW

22. The risk that relationships are tainted by funds that are the proceeds of crime or are used to fund terrorism is increased where the relationship has a connection with a jurisdiction that does not apply, or insufficiently applies, the FATF Recommendations, has a weak framework to combat money laundering and the financing of terrorism increases the risk that the proceeds of crime or terrorist funding can enter the financial system, and remain undetected. For example, where the requirements for CDD procedures are weak, or where there is an absence of transparency or regulatory measures for legal bodies or express trusts.

GUIDANCE NOTES

23. In determining which jurisdictions do not, or insufficiently apply the FATF Recommendations, a firm may consider:

• findings of reports conducted by the FATF, FATF-style regional bodies, the Offshore Group of Banking Supervisors, and the IMF and World Bank; and

• its own experience or the experience of other group entities (where part of a multinational group), which may have indicated weaknesses in other jurisdictions.

6.4 WARNING SIGNS FOR THE LEGAL SECTOR GUIDANCE NOTES

24. Article 13 of the Order requires firms to conduct ongoing monitoring of business relationships and take stapes to be aware of transactions with heightened money laundering risks. The Proceeds of Crime Law requires firms to report suspicious transactions and activity (see Section 8 of this Handbook).

25.

26.

Firms should be alert in particular to alterations in instructions or who is instructing them where either instructions change or the client changes. The obligation to re-conduct CDD may well arise.

In relation to ongoing monitoring, law firms should have regards to the warning signs contained in Sections 3.3 and 4.3.4 of this Handbook, where law firms may become vulnerable to money laundering or terrorist financing. These warning signs apply just as much to ongoing relationships as to circumstances that may arise at the start of a relationship.



Handbook for the LegalSector

Section 7: Legal Professional Privilege

7 LEGAL PROFESSIONAL PRIVILEGE (“LPP”)


2.

Lawyers are under a duty to keep the affairs of their clients confidential, and the circumstances in which they are able to disclose client communications are strictly limited.

However, the Proceeds of Crime Law, Drug Trafficking Offences Law and Terrorism Law all contain provisions requiring the disclosure of confidential information in certain circumstances to the police (or a MLRO) by persons working in businesses that fall within Schedule 2 of the Proceeds of Crime Law,. The three Laws also provide individuals who work for Schedule 2 businesses with certain defences to proceedings for breaching any duty of confidentiality or for an offence such as money-laundering if they make a disclosure to the police, or to an MLRO in accordance with procedures set down by their employer.

3. This Section examines aspects of the potential tensions between a lawyer’s duty of confidentiality to his client and the disclosure requirements imposed under the Proceeds of Crime Law, Drug Trafficking Offences Law and Terrorism Law.

7.2 REQUIREMENT TO REPORT KNOWLEDGE OR SUSPICION OF MONEY LAUNDERING OR TERRORIST FINANCING


4. Under Article 32 of the Proceeds of Crime Law, a person who enters into an arrangement with another person knowing or suspecting that the other person is or has been engaged in criminal conduct or has benefited from criminal conduct commits an offence, unless they disclose that knowledge or suspicion or any matter on which it is based to a police officer or to the MLRO in accordance with their employer’s procedures. Such a disclosure is to be made: (a) before any further financial action takes place, unless that action is consented to by a police officer; or (b) as soon as is reasonably practicable after a financial action has taken place.

5. Under Article 33 of the Proceeds of Crime Law, a person commits an offence if that person acquires, uses or has possession of property knowing that the property represents another person’s proceeds of crime, unless they disclose that knowledge to a police officer or to the MLRO in accordance with their employer’s procedures. Again, such a disclosure is to be made: (a) before any further financial action takes place, unless that action is consented to by a police officer; or (b) as soon as is reasonably practicable after a financial action has taken place.

6. Articles 37 and 38 of the Drug Trafficking Offences Law and Article 22 of the Terrorism Law contain similar provisions.















7. Article 34D of the Proceeds of Crime Law, Article 40A of the Drug Trafficking

Offences Law and Article 23 of the Terrorism Law all contain comparable provisions. Those provisions provide that a person employed in a Schedule 2 business commits an offence if they come into information in the course of that business which leads them to know or suspect, or have reasonable grounds to know or suspect, that another person is money laundering, drug money laundering or committing an offence under Articles 15-18 of the Terrorism Law (Article 15 (fund-raising), Article 16 (use and possession of property), Article 17 (funding arrangements) and Article 18 (money laundering)). The offence is committed, unless the person reports their knowledge, suspicion or reasonable grounds to a police officer or to the MLRO in accordance with their employer’s procedures.

8. The Order requires that any person who conducts a financial services business in Jersey must have procedures in place for reporting such knowledge or suspicion to the JFCU.

9. However, the Proceeds of Crime Law, Drug Trafficking Offences Law and Terrorism Law also include exemptions from the requirement to make such disclosures for professional legal advisers acting in privileged circumstances (see Article 34D(5) of the Proceeds of Crime Law, as amended, for example). Legal privilege is defined in the three Laws (see Article 1(1) of the Proceeds of Crime Law, as amended, for example). The exemptions do not apply to information or other matters communicated or given with a view to furthering a criminal purpose.

10. Article 35 of the Proceeds of Crime Law, Article 44 of the Drug Trafficking Offences Law and Article 35 of the Terrorism Law prohibit disclosure of information in circumstances where a suspicious activity report has been made and/or where it would prejudice an existing or proposed investigation. However, an exception is also provided in respect of these offences where a professional legal adviser discloses any information or other matter:

(a) to or to a representative of a client of the legal adviser in connection with the giving by the adviser of legal advice to the client; or

(b) to any person –

(i) in contemplation of or in connection with legal proceedings, and

(ii) for the purpose of those proceedings.

Again, this exemption does not apply in relation to any information or other matter that is disclosed with a view to furthering a criminal purpose.

7.3 DUTY OF CONFIDENTIALITY OVERVIEW

11.

12.

13.

Lawyers are professionally and legally obliged to keep the affairs of their clients confidential. This obligation extends to all matters revealed to a lawyer, from whatever source, by a client or someone acting on the client’s behalf.

In exceptional circumstances, this general obligation of confidence may be overridden.

The most relevant instances are where a court orders disclosure or disclosure is required by statute.





















7.4 APPLICATION OF LPP OVERVIEW

14.

15.

16.

Certain confidential communications between a lawyer and his client will fall into a category known as LPP. LPP is a privilege against disclosure, ensuring clients know that certain documents and information provided to lawyers cannot be disclosed without the client’s consent. It recognises a client’s fundamental right to be candid with their legal adviser, without fear of later disclosure to their prejudice. It is an absolute right and cannot be overridden by any other public interest. LPP can, however, be waived and it can be overridden by statute (R (Morgan Grenfell & Co Ltd) v Special Comr of Income Tax [2003] 1 AC 563).

LPP does not extend to everything lawyers have a duty to keep confidential. LPP protects only those confidential communications falling under either of the two heads of privilege – advice privilege or litigation privilege.

For the purposes of LPP, lawyers include Advocates, Ecrivains, barristers, solicitors, in-house lawyers and their employees.

7.4.1 Advice privilege

GUIDANCE NOTES

7.4.1.1 Principle and scope

17.

18.

19.

Communications between a lawyer, acting in their capacity as a lawyer, and a client, are privileged if they are both:

• confidential; and

• for the purpose of seeking advice from a solicitor or providing it to a client.

(Bene Ltd. v. VAR Hanson & Partners 1997 JLR N-10)

Communications are not privileged merely because a client is speaking or writing to their lawyer. The protection applies only to those communications which directly seek or provide advice or which are given in a legal context, that involve the lawyer using their legal skills and which are directly related to the performance of the lawyer’s professional duties (Three Rivers District Council and Others v Governor and Company of the Bank of Scotland (No 6) [2004] UKHL 48).

Case law has given some examples of what advice privilege covers:

Communications subject to advice privilege:

• A lawyer’s bill of costs and statement of account (Chant v Brown (1852) 9 Hare 790); and

• Information imparted by prospective clients in advance of a retainer will attract LLP if the communications were made for the purpose of indicating the advice required (Minster v Priest [1930 AC 558 per Lord Atkin at 584).

Communications not subject to advice privilege:

• Notes of open court proceedings (Parry v News Group Newspapers (1990)140 New Law Journal 1719 and Pacific Investments Ltd. v Christensen 1996 JLR N-7) are not privileged, as the content of the communication is not confidential;




• A client account ledger maintained in relation to the client’s money (Nationwide Building Society v Various Solicitors [1999] P.N.L.R. 53);

• An appointments diary or time record on an attendance note, time sheet or fee record relating to a client (R v Manchester Crown Court, ex p. Rogers [1999] 1 W.L.R 832 and Bene Ltd. v VAR Hanson & Partners 1997 JLR N-10)); and

• Conveyancing documents are not communicated so not subject to advice privilege (R v Inner London Crown Court ex p. Baines and Baines [1988] QB 579).

7.4.1.2 Advice within a transaction

20.

21.

All communications between a lawyer and their client relating to a transaction in which the lawyer has been instructed for the purpose of obtaining legal advice are covered by advice privilege, notwithstanding that they do not contain advice on matters of law and construction, provided that they are directly related to the performance by the lawyer of their professional duty as legal adviser of their client. (Three Rivers District Council v the Bank of England [2004] UKHL 48 at 111).

This means that where a lawyer is providing legal advice in a transactional matter (such as conveyancing) the advice privilege will cover all:

• communications with;

• instructions from; and

• advice given to

the client, including any working papers and drafts prepared, as long as they are directly related to the lawyer’s performance of their professional duties as a legal adviser.

7.4.2 Litigation privilege

GUIDANCE NOTES

22.

23.

This privilege, which is wider than advice privilege, protects confidential communications made in pursuance of, or contemplation of, litigation, between either:

• a lawyer and a client;

• a lawyer and an agent, whether or not that agent is a lawyer; or

• a lawyer and a third party.

(Bene Ltd. v VAR Hanson & Partners 1997 JLR N-10)

Such communications must be for the sole or dominant purpose of litigation, either:

• for seeking or giving advice in relation to it;

• for obtaining evidence to be used in it; or

• for obtaining information leading to obtaining such evidence.




7.4.3 Important points to consider

GUIDANCE NOTES

24.

25.

26.

An original document not brought into existence for privileged purposes and so not already privileged, does not become privileged merely by being given to a lawyer for advice or another privileged purpose.

Furthermore, where a lawyer has a corporate client, communication between the lawyer and the employees of the corporate client may not be protected by LLP if the employee cannot be considered to be ‘the client’ for the purpose of the retainer. As such, some employees will be clients, while others will not. (Three Rivers District Council v the Governor and Company of the Bank of England (no 5) [2003] QB 1556).

It is not a breach of LPP to discuss a matter with your MLRO for the purpose of receiving advice on whether to make a disclosure. Privilege will continue to apply whilst such a determination is being made.

7.4.4 Crime/fraud exception

GUIDANCE NOTES

27.

28.

LPP protects advice a lawyer gives to a client on avoiding committing a crime (Bullivant v Att-Gen of Victoria [1901] AC 196) or warning them that proposed actions could attract prosecution (Butler v Board of Trade [1971] Ch 680). LPP does not extend to documents which themselves form part of a criminal or fraudulent act (Hume v Attorney General 2006 JLR N-36), or communications which take place in order to obtain advice with the intention of carrying out an offence (R v Cox and Railton (1884) 14 QBD 153). It is irrelevant whether or not the lawyer is aware that they are being used for that purpose (Banque Keyser Ullman v Skandia [1986] 1 Lloyds Rep 336).

Articles 32 and 33 of the Proceeds of Crime Law, Articles 40A and 41 of the Drug Trafficking Offences Law, and Article 22 of the Terrorism Law provide that, if a lawyer discloses information under those laws, that the disclosure will not be treated as a breach of any restriction on disclosure contained in any statute, contract or otherwise.

29. It is not just a client’s intention which is relevant for the purpose of ascertaining whether information was communicated for the furtherance of a criminal purpose. It is also sufficient that a third party intends the lawyer/client communication to be made with that purpose (e.g. where the innocent client is being used by a third party) (R v Central Criminal court ex p Francis & Francis [1989] 1 AC 346).

7.5 DETERMINING WHEN TO SUBMIT A SUSPCIOUS ACTIVITY REPORT GUIDANCE NOTES

30. The direct reporting obligations contained in Article 34D of the Proceeds of Crime Law, Article 40A of the Drug Trafficking Offences Law and Article 23 of the Terrorism Law do not apply to a lawyer’s knowledge or suspicion, or reasonable grounds for knowledge or suspicion, arising from information obtained in privileged circumstances (as defined by the three Laws). A lawyer may, however, wish to consider making a joint report with his client. The agreement of the lawyer’s client to waive LPP is necessary in order for this to be possible.












31.

32.

If information leading to a knowledge, suspicion or reasonable grounds for knowledge or suspicion is obtained in circumstances that are not covered by LPP, a disclosure should be made to avoid the commission of an offence of failing to disclose. Lawyers will not be in breach of their professional duty of confidentiality when they do so.

If a lawyer commits an offence under Articles 32 or 33 of the Proceeds of Crime Law, Articles 37 or 38 of the Drug Trafficking Offences Law, or Article 22 of the Terrorism Law they should make a disclosure to a police officer, otherwise they will not be able to avail themselves to the defences which operate under those Articles.

33. As the application of LPP is complex, it is recommended that firms consider requiring that reports be made to the MLRO on each occasion that there is knowledge, suspicion, or reasonable grounds to suspect money laundering or terrorist financing. The MLRO can then discuss the situation with the fee earner concerned and, as necessary, take advice from an appropriate partner.

CDD AND LPP

34. It would be prudent, and would facilitate a firm’s compliance with the requirements of the Proceeds of Crime Law, for consideration to be given to the need to separate all material on client files so that it is clear what material is non-privileged and the material for which privilege is claimed.

35. CDD and risk assessment documents should be completed, where possible, in a way which distinguishes privileged and non-privileged information. It would be prudent where possible, to include guidance to this effect in internal procedure manuals. This will assist in ensuring that the Commission can undertake audits of firms with the minimum disruption to business and that firms comply with their obligations to the Commission.







Section 8: Reporting Money Laundering and Terrorist Financing Activity and Transactions


8 REPORTING MONEY LAUNDERING AND TERRORIST FINANCING ACTIVITY AND TRANSACTIONS

8.1 OVERVIEW OF SECTION 1. Under the Proceeds of Crime Law, Drug Trafficking Offences Law and Terrorism

Law, where any person conducting financial services business in or from within Jersey forms a knowledge, suspicion, or has reasonable grounds to suspect money laundering or terrorist financing activity relating to business that is conducted in Jersey, then it must report its knowledge or suspicion to the JFCU.

2. Under the Order, a law firm undertaking specified Schedule 2 business must have procedures in place for reporting knowledge or suspicion of money laundering or terrorist financing activity to the JFCU.

3.

4.

5.

This Section outlines the statutory provisions concerning disclosure of information where a firm has knowledge, suspicion, or reasonable grounds for knowledge or suspicion that the business itself, or another person, is involved in money laundering or financing terrorism, and the requirements for reporting procedures. It also provides guidance on making internal and external suspicious activity reports (“SARs”).

This Section describes disclosures made under the relevant statutes as suspicious activity reports. However, depending on the circumstances the reports may involve knowledge of money laundering or terrorist financing, rather than suspicion (or reasonable grounds for knowledge or suspicion).

There are three situations in which a firm, or one of its employees, will make a suspicious activity report:

• where the firm (or one of its employees) believes that the business may have, itself, committed a money laundering or terrorist financing offence, for example by becoming concerned in an arrangement facilitating money laundering or terrorist financing;

• where legislation contains an offence of failure to make a suspicious activity report to the JFCU that another person is connected with either money laundering or terrorist financing; and

• as a result of obligations under the Order for a relevant person (including law firms undertaking financial services business) to have procedures in place to disclose that another person is engaged in money laundering or terrorist financing.

6. Often, a single report may cover two separate provisions. For example, a firm’s internal reporting procedures may lead to a suspicious activity report (under Article 21 of the Order) that another person (“person A”) is engaged in money laundering. Where the same firm knows or suspects that it has become concerned in an arrangement with person A, then the SAR may also relate to Article 32 of the Proceeds of Crime Law - so that it does not commit an offence under that Article.











8.1.1 Reporting knowledge or suspicion of money laundering and terrorist financing activity on business conducted outside Jersey

7.

8.

9.

The requirement to report knowledge or suspicion of money laundering or terrorist financing, or where there are reasonable grounds for suspicion, also applies where a Jersey company or Jersey limited liability partnership conducts business outside Jersey.

Where business is conducted outside Jersey, for example through a permanent branch or office in another jurisdiction, through business trips to another jurisdiction, or where functions are outsourced to another jurisdiction and knowledge of suspicion of money laundering or terrorist funding arises in respect of that non-Jersey business, a report must be made to the JFCU in the same way as for business conducted in Jersey.

Under the Order, where a firm conducts specified Schedule 2 business in Jersey, but outsources aspects of its activities to another jurisdiction, whether to a group entity or to a third party, its money laundering and terrorist financing reporting procedures must also cover those outsourced activities.

10. It is likely that there will also be a requirement to report the knowledge or suspicion of money laundering or terrorist financing to an overseas financial intelligence unit to avoid the commission of an offence in that jurisdiction. This is known as a dual reporting requirement.

8.2 REQUIREMENT TO DISCLOSE KNOWLEDGE OR SUSPICION WITHIN A FIRM


11. Article 32 (assisting another to retain the benefit of criminal conduct) and Article 33 (acquisition, possession or use of proceeds of criminal conduct) of the Proceeds of Crime Law states that where a person is concerned in an arrangement involving the proceeds of crime, or has possession of the proceeds of crime, they will not have committed an offence if they disclose knowledge or suspicion of their involvement in money laundering to a police officer (or to the MLRO in accordance with their employer’s procedures):

• before any further actions, and if any further actions are done with the consent of a police officer; or

• after an action, so long as the disclosure is made as soon as is reasonably possible.

12. Articles 37 and 38 of the Drug Trafficking Offences Law contain similar provisions. Articles 22 and 23 of the Terrorism Law contain similar provisions in circumstances where offences would otherwise be committed under Article 15 (fund-raising), Article 16 (use and possession of property), Article 17 (funding arrangements) and Article 18 (money laundering).

13. Article 40 of the Drug Trafficking Offences Law also contains an offence where any person fails to report to a police officer (or to the MLRO in accordance with their employer’s procedures) knowledge or suspicion that another person is involved in drug money laundering, where that person acquired the knowledge or suspicion in the course of their trade, profession, business or employment. Article 20 of the Terrorism Law contains a similar offence of failure to report knowledge or suspicion of terrorist financing or money laundering, where the knowledge or suspicion arose during the course of a trade, profession, business or employment, other than that of a financial services business.










14. Article 23 of the Terrorism Law contains a further offence, where a person fails to

report another person’s involvement in terrorist financing or money laundering, where they have knowledge, suspicion, or where there are reasonable grounds for knowledge or suspicion (the objective test), and where this arose during the course of financial services business.

8.2.1 What constitutes knowledge or suspicion

GUIDANCE NOTES

15. The three mental elements of knowledge, suspicion, and reasonable grounds for suspicion, which are relevant to statutory offences are not terms of art and are not defined within the statutes. However, case law has provided some guidance on how they should be interpreted.

8.2.1.1 Knowledge

16. Knowledge means actual knowledge. There is some suggestion that wilfully shutting one’s eyes to the truth may amount to knowledge. However, the current general approach from the criminal courts is that nothing less than actual knowledge will suffice.

8.2.1.2 Suspicion

17.

18.

19.

20.

21.

22.

The term ‘suspects’ is one which the court has historically avoided defining; however because of its importance in English criminal law, some general guidance has been given. In the case of Da Silva [1996] EWCA Crim 1654, Longmore LJ stated:

’It seems to us that the essential element in the word “suspect” and its affiliates, in this context, is that the defendant must think that that there is a possibility, which is more than fanciful, that the relevant facts exist. A vague feeling of unease would not suffice.’

There is no requirement for the suspicion to be clear or firmly grounded on specific facts, but there must be a degree of satisfaction, not necessarily amounting to belief, but at least extending beyond speculation.

The test for whether a person holds a suspicion is a objective one. If someone thinks a transaction is suspicious, they are not expected to know the exact nature of the criminal offence or that particular funds were definitely those arising from the crime. They may have noticed something unusual or unexpected and, after making enquiries, the facts do not seem normal or make commercial sense. There does not have to be evidence that money laundering is taking place for there to be a suspicion.

The meaning of suspicion detailed above was also confirmed by the Court of Appeal in the case of K v NatWest [2006] EWCA Civ 1039.

If someone has not yet formed a suspicion, but they have cause for concern, a firm may choose to ask the client or others more questions. This choice depends on what is already known, and how easy it is to make enquiries.

If there is a belief that a client is innocent, but there are suspicions that another party to a transaction is engaged in money laundering, a firm may need to consider referring the client for specialist advice regarding the risk that they may be a party to one of the principal offences.






23. Sections 3.3 and 4.3.4 of this Handbook contains a number of standard warning signs which increase the vulnerabilities of law firms and which may give cause for concern. However, whether someone has a suspicion is a matter for their own judgement.

8.2.1.3 Reasonable grounds to suspect: the objective test of knowledge or suspicion

24. Article 34 of the Proceeds of Crime Law, Article 30 of the Drug Trafficking Offences Law and Articles 15 to 18 of the Terrorism Law provide for an offence to be committed where there are reasonable grounds to know or suspect that property represents the proceeds of crime or terrorist property.

25. This means that a person would commit an offence even if they did not know or suspect that a money laundering offence was being committed, if they had reasonable grounds for knowing or suspecting that it was. In other words, were there factual circumstances from which an honest and reasonable person, engaged in a similar business, should have inferred knowledge or formed the suspicion that another was engaged in money laundering, or was there knowledge of circumstances which would put an honest and reasonable person on enquiry.

8.2.2 Internal reporting procedures

OVERVIEW

26.

27.

28.

The requirement to report knowledge or suspicion, or where there are reasonable grounds for knowing or suspecting money laundering or terrorist financing applies to firms and their employees. Failure to report is itself an offence. The reporting obligation also covers attempted money laundering regardless of whether the business or transaction has been turned away, or has otherwise not proceeded.

Once employees have reported their suspicions under internal procedures to the MLRO, they have fully satisfied their statutory obligations.

A firm’s MLRO is responsible for ensuring that, when appropriate, the information or other matter leading to knowledge or suspicion or reasonable grounds for knowledge or suspicion of money laundering or terrorist financing is reported to the JFCU. The decision to report or not to report must not be subject to the consent of anyone else.


29. A firm must ensure that:

• where an applicant for business or an existing client fails to supply adequate CDD information, or adequate documentation verifying identity (including the identity of any beneficial owners and controllers), consideration is given to making a SAR;

• internal reporting procedures encompass the reporting of attempted transactions and business that has been turned away;

• employees make internal SARs containing all relevant information to the MLRO (or a deputy MLRO) as soon as it is reasonably practicable after the information comes to their attention – in writing;








30.

• SARs include as full a statement as possible of the information giving rise to knowledge, suspicion or reasonable grounds for knowledge or suspicion of money laundering or terrorist financing activity and full details of the client;

• reports are not filtered out by supervisory staff or managers such that they do not reach the MLRO (or deputy MLRO); and

• reports are acknowledged by the MLRO (or a deputy MLRO).

A firm must establish and maintain arrangements for disciplining any member of staff who fails, without reasonable excuse, to make an internal SAR where they have knowledge, suspicion or reasonable grounds for knowledge or suspicion of money laundering or terrorist financing.

GUIDANCE NOTES

31.

32.

Firms, but not sole practitioners, need to have a system clearly setting out the requirements for making an internal SAR. These may include:

• the circumstances in which a disclosure is likely to be required;

• how and when information is to be provided to the MLRO or deputies;

• resources which can be used to resolve difficult issues around making a disclosure;

• how and when a disclosure is to be made to JFCU;

• how to manage a client when a disclosure is made whilst waiting for consent; and

• the need to be alert to tipping-off issues.

A firm may demonstrate that it has established and maintained appropriate arrangements for disciplining staff, where employment contracts and employment handbooks provide for the imposition of disciplinary sanctions for failing to report knowledge, suspicion or reasonable grounds for knowledge or suspicion without reasonable excuse.

8.2.3 Evaluation of SARs by the MLRO


33. A firm must ensure that:

• all relevant information is promptly made available to the MLRO (or deputy MLRO) on request to ensure that internal SARs are properly assessed;

• each SAR is considered by the MLRO (or deputy MLRO) in light of all relevant information; and

• the MLRO (or deputy MLRO) documents the evaluation process followed and reasons for the decision to report or not to report to the JFCU.



GUIDANCE NOTES

34. In order to demonstrate that a report is considered in light of all relevant information when evaluating a suspicious activity report, the MLRO (or deputy MLRO) may:

• review and consider transaction patterns and volumes, previous patterns of instructions, the length of the business relationship and CDD information; and

• examine other connected accounts or relationships. Connectivity can arise through commercial connections, such as transactions to or from other customers or common introducers, or through connected individuals, such as third parties, common ownership of entities or common signatories. However, the need to search for information concerning connected accounts or relationships should not delay the making of a report to the JFCU.

8.3 REPORTING TO THE JFCU


35. Article 37 of the Proceeds of Crime Law enables the Treasury and Resources Minister to prescribe reporting procedures to be followed by a relevant person.

36. The reporting procedures have been set down in Part 5 of the Order.

37. Article 21 Order requires that a relevant person must establish and maintain reporting procedures which:

• communicate the identity of the MLRO (and any deputy MLROs) to the employees of the financial services business;

• require that a report is made to the MLRO (or to a deputy MLRO) of any information or other matter coming to the attention of any member of staff in the course of their business activity which, in the opinion of that person, gives rise to knowledge, suspicion or reasonable grounds for knowledge or suspicion that another person is engaged in money laundering or terrorist financing;

• require that a report is considered promptly by the MLRO (or a deputy MLRO) in the light of all other relevant information for the purpose of determining whether or not the information or other matter contained in the report gives rise to knowledge, suspicion or reasonable grounds for knowledge or suspicion of money laundering or terrorist financing;

• allow the MLRO (or a deputy MLRO) to have access to all other information which may be of assistance in considering the report; and

• ensure that the information or other matter contained in a report is disclosed as soon as is reasonably practicable by the MLRO (or deputy MLRO) to a designated police or customs officer in writing, where the MLRO (or deputy MLRO) knows, suspects or has reasonable grounds to know or suspect that another person is engaged in money laundering or terrorist financing.

38. Article 21(i) of the Order requires that a law firm must provide that the requirement to report knowledge or suspicion of money laundering need not apply where the information or other matter has been received in the course of ascertaining the legal position of a client, or giving advice on the institution or avoidance of legal proceedings, or representing the client in legal proceedings.








39. Article 22 of the Order states that if a deputy MLRO, on considering a report,

concludes that it does not give rise to knowledge, suspicion or reasonable grounds for knowledge or suspicion that another person is engaged in money laundering, the deputy MLRO need not forward it to the MLRO. If a deputy MLRO, on considering a report, has concluded that it does give rise to knowledge, suspicion or reasonable grounds for knowledge or suspicion that another person is engaged in money laundering, the MLRO need not consider that question.

8.3.1 Procedures for reporting to the JFCU


40. A firm must ensure that the MLRO makes external SARs containing all relevant information directly to the JFCU as soon as is reasonably practicable, in a format approved by the JFCU. Relevant information includes:

• Full details of the client and as full a statement as possible of the information giving rise to knowledge or reasonable grounds for suspicion;

• If a particular type of criminal conduct is suspected, a statement of this conduct;

• Where a financial services business has additional relevant evidence that could be made available, the nature of this evidence; and

• Statistical information to assist the JFCU in its analysis of reports.

GUIDANCE NOTES

41.

42.

A SAR must be made as soon as it is reasonably practicable to do so once knowledge or suspicion, or reasonable grounds to know or suspect, has been formulated. As such it must be made either before a transaction occurs, or afterwards, if knowledge or suspicion is formulated with the benefit of hindsight after a transaction or activity occurs.

The exemption from submitting a SAR when a law firm is representing, or advising, a client in respect of legal proceedings does not apply to transactional work (but see also the application of legal professional privilege in Section 7 of this Handbook).

43.

44.

The reception point for SARs is the JFCU who can be contacted:

• by post at PO Box 789, Police Headquarters, Rouge Bouillon, St Helier, Jersey JE4 8ZD;

• by telephone, on 01534 612250; or

• by facsimile, on 01534 870537.

Firms should keep comprehensive records of suspicions and disclosures because disclosure of a suspicious activity or transaction is a defence to criminal proceedings. Such records may include notes of:

• ongoing monitoring undertaken and concerns raised by fee earners and staff;

• discussions with the MLRO regarding concerns;

• advice sought and received regarding concerns;





• why the concerns did not amount to a suspicion and a disclosure was not made;

• copies of any disclosures made;

• conversations with JFCU, insurers, supervisory authorities etc regarding disclosures made; and

• decisions not to make a report to JFCU which may be important for the MLRO to justify his position to law enforcement.

8.4 TIPPING-OFF


45. Article 35 of the Proceeds of Crime Law and Articles 41 and 44 of the Drug Trafficking Offences Law make it an offence for any person to disclose to a third party any information likely to prejudice an investigation where that person knows or suspects that a SAR has been made, or that an investigation is under way or proposed. Under Article 35 of the Terrorism Law, the offence is committed where the person discloses information likely to prejudice an investigation when they have reasonable grounds to know or suspect that either a SAR has been made or will be made, or that an investigation is proposed or under way.

GUIDANCE NOTES

46. In order to prevent the commission of a tipping-off offence, at the time of acknowledging receipt of an internal SAR, the MLRO (or deputy MLRO) may provide a reminder to the member of staff submitting the report of the risk of communicating information that might prejudice law enforcement enquiries.

8.4.1 Avoiding tipping-off during the CDD process

OVERVIEW

47. Article 13 of the Order requires identification information to be obtained and verified during the establishment or course of a business relationship or one-off transaction. This Article further requires that evidence of identity should be reviewed and reconfirmed or reobtained if necessary, where a firm has knowledge, suspicion or reasonable grounds for knowledge or suspicion that a person is engaged in money laundering or terrorist financing. Section 5 of this Handbook requires scrutiny of client activity and for special attention to be paid where activity is unusual or higher risk.

48.

49.

Where a firm undertakes enquiries as a result of its CDD procedures, and where this due diligence leads the firm to gain knowledge, suspicion, or reasonable grounds for suspicion of money laundering or terrorist financing, there is a risk that the contact between the firm and the client (or his advisors) could unintentionally lead to the client being tipped-off, where the process is managed without due care.

Where a SAR has been filed before identification procedures or other due diligence procedures required by the Order or this Handbook have been completed, ordinarily a financial services business is required to complete those CDD procedures.











GUIDANCE NOTES

50.

51.

52.

53.

There is nothing in the legislation which prevents a firm from making normal enquiries about a client’s instructions, and the proposed retainer, in order to remove, if possible any concerns and enable a firm to decide whether there is a suspicion. Firms may also need to raise questions during a retainer to clarify such issues.

It is not tipping-off to include a paragraph about a firm’s obligations under the money laundering legislation in a firm’s standard client care letter.

In circumstances where a SAR has been filed with the JFCU, but CDD procedures are incomplete, the risk of tipping-off a client (and its advisers) may be minimised by:

• ensuring that employees undertaking due diligence enquiries are aware of tipping-off provisions and are provided with adequate support, such as specific training or assistance from the MLRO;

• obtaining advice from the JFCU where a financial services business is concerned that undertaking any additional due diligence enquiries will lead to the customer being tipped-off; and

• obtaining advice from the JFCU when contemplating whether or not to ask for non-routine information or questions in relation to such customers.

Completion of CDD procedures can be waived with the consent of JFCU following the submission of a SAR.

8.5 CONSENT TO ACTIVITY AND ACKNOWLEDGEMENT OF REPORTS OVERVIEW

8.5.1 Pre-transaction consent

54.

55.

Where a SAR is made before a suspected transaction or event takes place, JFCU consent must be obtained before the transaction or event occurs. Consent will only be given in respect of that particular transaction or activity and future transactions or activity should continue to be monitored and reported as appropriate.

In the vast majority of instances in which a SAR for consent is made to the JFCU, consent to continue an activity or to process a suspected transaction will be provided within seven days of receipt of a report. Whilst this is what generally occurs in practice, the JFCU is not obliged under the legislation to provide consent within a particular timeframe, or at all. In particular, consent may be delayed where information is required by the JFCU from an overseas financial intelligence unit.

GUIDANCE NOTES

56. Where a firm is refused consent it should contact the JFCU for guidance on what, if any, information can be provided to the client. It should be noted that the JFCU is not obliged to provide such guidance. In circumstances where consent is withheld, the JFCU may expressly allow the firm to notify the client of the fact that they are the subject of a police investigation without the risk of committing a tipping-off offence. Such notification will not be sanctioned by the JFCU where it might prejudice a domestic or overseas investigation.




57. There may be circumstances in which the JFCU advises a disclosing firm to find a means of exiting a reported relationship. In such circumstances, the act of exiting such a relationship will not, of itself, constitute a tipping-off offence.

8.5.2 Acknowledgment of post-transaction reports

OVERVIEW

58. Where a SAR report is made after the transaction or event, this will be acknowledged by the JFCU. In the absence of any instruction to the contrary from the JFCU, a firm will be free to maintain the client relationship under normal commercial circumstances. However, receipt of an acknowledgment from the JFCU in these circumstances does not indicate that the knowledge or suspicion is with or without foundation, and future transactions or activity should continue to be monitored and reported as appropriate.

8.5.3 Avoiding tipping-off during the JFCU consent process

OVERVIEW

59.

60.

While waiting for the JFCU to provide consent to proceed with an activity or transaction (where it is necessary for consent to be provided), or in the event that the JFCU notifies a firm that consent will not be given, a firm may risk committing a tipping-off offence if it fails to act on a client’s instruction.

Refusal to act upon a customer’s instruction (for example, as a result of the JFCU refusing to give consent for a transaction to proceed) may also lead to civil proceedings being instituted by the customer.

GUIDANCE NOTES

61.

62.

The risk of tipping-off a customer (or its advisers) whilst waiting for JFCU consent to proceed (or where consent has been refused by the JFCU) may be minimised by promptly notifying the JFCU of a client’s instruction and seeking its advice on the information that can be disclosed to the client.

It may be necessary in circumstances where a client has instigated civil proceedings for a firm to seek the directions of the court.

8.6 TERMINATING A RELATIONSHIP OVERVIEW

63.

64.

A firm is not obliged to continue relationships with clients if such action would place them at commercial risk. However, to avoid prejudicing an investigation, JFCU may request that a relationship is not terminated.

As stated in Section 5.12 of this Handbook, a relationship must be terminated if CDD procedures cannot be completed within a reasonable timescale. However, an exemption from terminating the relationship is permitted for lawyers and other professional advisers who are in the course of ascertaining the legal position for their client or performing the task of defending or representing their client in legal proceedings (see Section 5.12.1 of this Handbook).




GUIDANCE NOTES

65. If a firm, having filed a SAR, wishes to terminate a relationship or transaction, and is concerned that, in doing so, it may prejudice an investigation resulting from the report, it should seek the consent of the JFCU to do so. This is to avoid the danger of tipping-off.

8.7 INVESTIGATION AND THE USE OF COURT ORDERS OVERVIEW

66.

67.

Following the receipt of a disclosure and initial enquiries by the JFCU, reports are allocated to financial investigation officers for further investigation. Intelligence from reports submitted to the JFCU is then disseminated to other intelligence agencies, as appropriate.

Where additional information is required from a reporting institution following a SAR, it will generally be obtained pursuant to a production order issued by the Royal Court under Proceeds of Crime Law, Drug Trafficking Offences Law, Terrorism Law, Investigation of Fraud (Jersey) Law 1991 and the Criminal Justice (International Co-operation) (Jersey) Law 2001, or a customer monitoring order under the Terrorism Law. It is a criminal offence to fail to comply with the terms of any order.

68.

69.

70.

During the course of an investigation, a firm may be served with an order designed to restrain particular funds or property pending the outcome of an investigation. It should be noted that the restraint order may not apply to all funds or assets involved within a particular business relationship and a firm should consider what, if any, property may be utilised subject to having obtained the appropriate consent from the JFCU.

Upon the conviction of a defendant, a court may order the confiscation of their criminal proceeds or the confiscation of assets to a value representing the benefit of their criminal conduct, which may require the realisation of legitimately obtained assets. A firm may be served with a confiscation order in relation to any funds or property belonging to that defendant. For example, if a person is found to have benefited from drug dealing to a value of £100,000, then the court may order the confiscation of any assets belonging to that person to a value of £100,000. Confiscation of the proceeds of criminal conduct is becoming common place within many jurisdictions, and legislation in place in Jersey provides a mechanism by which overseas criminal confiscation orders may be recognised. Overseas civil confiscation orders may also be recognised in Jersey.

Property may also be forfeited in Jersey utilising civil proceedings under the Terrorism Law.

71. From time to time, with a view to obtaining additional intelligence, the JFCU will issue general liaison notices to all relevant persons, or to a particular category of business. The JFCU will ensure that the requests contained within such notices are proportionate and reasonable in the circumstances. Firms are requested to respond with any relevant information as soon as is reasonably practicable.


http://www.jerseylegalinfo.je/Law/display.aspx?URL=lawsinforce%5cconsolidated%5c08%5c08.640_InvestigationofFraudLaw1991_RevisedEdition_31August2004.htm

http://www.jerseylegalinfo.je/Law/display.aspx?URL=lawsinforce%5cconsolidated%5c08%5c08.300_CrimJusticeInt'lCo-operationLaw2001_RevisedEdition_31August2004.htm

http://www.jerseylegalinfo.je/Law/display.aspx?URL=lawsinforce%5cconsolidated%5c08%5c08.300_CrimJusticeInt'lCo-operationLaw2001_RevisedEdition_31August2004.htm






8.7.1 Feedback from the JFCU

OVERVIEW

72. Because a significant proportion of SARs received by the JFCU relate to the accounts or transactions of non-Jersey residents and so are disseminated to overseas intelligence agencies, it may not be possible for the JFCU to provide regular feedback on individual disclosures. However, on a regular basis, the JFCU will provide statistics, trends and advice to enhance the quality of disclosures, or issue periodic newsletters. In addition the States of Jersey Police Annual Report contains some information on disclosures, prosecutions and confiscations.


Section 9: Vetting, Awareness Raising and Training

9 VETTING, AWARENESS RAISING AND TRAINING

9.1 OVERVIEW OF THE SECTION 1.

2.

3.

One of the most important controls over the prevention and detection of money laundering and terrorist financing is to have appropriately vetted staff who are: (i) alert to money laundering and terrorist financing risks; and (ii) well trained in the identification of unusual or higher risk activities or transactions, which may indicate money laundering or terrorist financing activity.

The effective application of even the best designed control systems can be quickly compromised if staff lack competence or probity, are unaware of or fail to apply systems and controls, and are not adequately trained.

It is essential that a firm has a clear and well articulated policy for ensuring that appropriate staff are:

• competent and have probity;

• aware of their obligations under the money laundering legislation and the Order (and by extension, also this Handbook); and

• trained in the identification of unusual or higher risk activities or transactions, which may indicate money laundering or terrorist financing activity (see Section 5 of this Handbook), and in the business’ CDD, reporting and record keeping procedures.

4.

5.

In particular, fee earners and those who handle or are responsible for the handling of client transactions will provide the business with its strongest defence, or its weakest link.

A firm should also encourage its fee earners and other staff to “think risk” as they carry out their duties within the legal and regulatory framework governing money laundering and terrorist financing.

9.2 OBLIGATION TO PROMOTE AWARENESS AND TO TRAIN OVERVIEW

6. The Order’s requirements concerning both training and awareness apply to employees whose duties relate to the provision of relevant business (hereafter referred to as “relevant employees”), and not to all employees of a firm. However, primary money laundering and terrorist financing offences are wider in scope, and all employees will need to have a basic understanding of money laundering and terrorist financing and an awareness of internal reporting procedures (including the identity of the MLRO).


7. Article 37 of the Proceeds of Crime Law enables the Treasury and Resources Minister to prescribe training procedures to be followed by a financial services business.

8. The procedures have been laid down in Articles 11(9) to 11(11) of the Order.








9. Articles 11(9) to 11(11) of the Order require that a relevant person must, in

relation to employees whose duties relate to the provision of financial services:

• take appropriate measures from time to time for the purposes of making them aware of:

• the identification, record keeping and internal reporting procedures, and such other procedures of internal control and communication as may be appropriate for the purposes of forestalling and preventing money laundering or terrorist financing; and

• the enactments in Jersey relating to money laundering and terrorist financing;

• provide those employees from time to time with training in the recognition and handling of transactions carried out by or on behalf of any person who is or appears to be engaged in money laundering or terrorist financing; and

• establish and maintain procedures that monitor and test the effectiveness of the financial services business’ systems, employees’ awareness and the training provided to employees.


10. The term employee must not be limited to individuals working under a contract of employment, but must also include temporary and contract staff, and the staff of any third parties fulfilling a function in relation to specified Schedule 2 business under an outsourcing agreement.

GUIDANCE NOTES

11.

12.

When determining whether an employee is a relevant employee, a firm may take into account the following:

• whether the employee is undertaking any relevant Schedule 2 business and is responsible for client relationships or undertaking client facing functions, or handles or is responsible for the handling of client transactions;

• whether the employee is directly supporting a colleague who carries out the above activity; and

• whether an employee’s role has changed to involve the above activities.

Relevant employees will normally include, for example, fee earners, accounts and administration staff. Relevant employees will also include the MLRO, the MLCO, partners and other members of senior management

9.3 VETTING OF RELEVANT EMPLOYEES REGULATORY REQUIREMENTS

13. A firm must vet and monitor the competence and probity of relevant employees.






GUIDANCE NOTES

14. A firm may demonstrate that vetting procedures are appropriate where (at the time of recruitment or subsequent change in role) it carries out one or more of the following activities, as appropriate for the nature of the employee’s role and responsibilities:

• obtains and confirms references;

• obtains and confirms employment history and qualifications disclosed;

• obtains details of any regulatory action taken against the individual (or absence of such action); and

• obtains and confirms details of any criminal convictions5 (or absence of such convictions).

9.4 AWARENESS OF EMPLOYEES REGULATORY REQUIREMENTS

15. A firm must have appropriate measures in place to make relevant employees aware of:

• the firm’s business’ systems and controls (including policies and procedures) designed to prevent and detect money laundering and terrorist financing;

• the statutory obligations under which the business operates and under which employees may be held personally liable; and

• the implications of failing to report information in accordance with procedures, and that as well as criminal or regulatory sanctions, disciplinary proceedings can also arise.

9.4.1 All relevant employees

GUIDANCE NOTES

16. A firm may demonstrate that it has appropriate measures in place where it:

• provides relevant employees with a copy of, or intranet access to, the firm’s procedure manual for AML/CFT;

• provides relevant employees with a document outlining the firm’s and their own obligations and potential criminal liability under the money laundering legislation and the Order (and by extension, also this Handbook);

• requires employees to acknowledge that they have received and understood the business’ procedures manual and document outlining statutory obligations; and

• periodically tests employees’ awareness of policies and procedures and statutory obligations.

5 Enquiries into an individual’s criminal record must be subject to the Rehabilitation of Offenders (Jersey)

Law 2001, which prevents a financial services business requesting information from its directors, senior managers and other employees (and prospective directors, senior managers and other employees) about convictions that are "spent", except where provided for by the Rehabilitation of Offenders (Exceptions) (Jersey) Law 2002.


http://www.jerseylaw.je/law/display.aspx?url=lawsinforce%2fconsolidated%2f08%2f08.840_RehabilitationofOffendersLaw2001_RevisedEdition_1January2006.htm

http://www.jerseylaw.je/law/display.aspx?url=lawsinforce%2fconsolidated%2f08%2f08.840_RehabilitationofOffendersLaw2001_RevisedEdition_1January2006.htm

http://www.jerseylaw.je/law/display.aspx?url=lawsinforce%2fconsolidated%2f08%2f08.840.50_RehabiliationofOffenders(Exceptions)Regs2002_RevisedEdition_1January2006.htm

http://www.jerseylaw.je/law/display.aspx?url=lawsinforce%2fconsolidated%2f08%2f08.840.50_RehabiliationofOffenders(Exceptions)Regs2002_RevisedEdition_1January2006.htm




17. It is not sufficient solely to provide employees with a copy of this Handbook, as this Handbook is designed to provide a base from which a firm can design and implement systems and tailor its own policies and procedures appropriate to its business.

9.4.2 Non-relevant employees

18. A firm may demonstrate that it has appropriate measures in place where it:

• informs staff of the identity of the MLRO and the procedures to make internal SARs;

• provides staff with a document outlining the firm’s and their own obligations and potential criminal liability under the money laundering legislation and the Order (and by extension, also this Handbook);

• requires employees to acknowledge that they have received and understood the business’ procedures for making internal SARs and document outlining statutory obligations.

9.4.3 Ongoing awareness (all employees)

OVERVIEW

19. With the passage of time between training initiatives, the level of employee awareness of the risk of money laundering and terrorist financing decreases. The utilisation of techniques to maintain a high level of awareness can greatly enhance the effectiveness of a firm’s defences against money laundering and terrorist financing.

GUIDANCE NOTES

20. A firm may demonstrate that it has appropriate measures to maintain awareness where it:

• keeps employees aware of anti-money laundering and terrorist financing developments (such as updates issued by the Commission or JFCU, or developments in international standards) as they occur;

• provides employees with case studies illustrating how products or services provided by the financial services business may be abused;

• advises employees of current news stories involving money laundering and terrorist financing activity; and

• sends e-mail reminders of employee obligations and the need to remain vigilant.

9.5 TRAINING OF EMPLOYEES OVERVIEW

21. The guiding principle of all anti-money laundering and terrorist financing training should be to encourage employees, irrespective of their level of seniority, to understand and accept their responsibility to contribute to the protection of the business against the threat of money laundering and terrorist financing.





22. There is a tendency, in particular on the part of more junior employees, non-client facing staff, and support staff to mistakenly believe that the role that they play is less pivotal than, or secondary to, that of more senior colleagues or customer facing colleagues. Such an attitude can lead to failures to report important information because of mistaken assumptions that the information will have already been identified and dealt with by other colleagues.


23. A firm must provide employees with adequate training at appropriate frequencies to ensure that employees are kept informed of new developments and risk factors connected with money laundering and terrorist financing. Such training must:

• be tailored to the business and relevant to the employees to whom it is delivered;

• highlight to employees the importance of the contribution that they can individually make to the prevention and detection of money laundering and terrorist financing; and

• cover key aspects of legislation to prevent and detect money laundering and the financing of terrorism.

9.6 ADEQUACY OF TRAINING

9.6.1 All relevant employees

GUIDANCE NOTES

24. A firm may demonstrate the provision of adequate training to relevant staff where it addresses:

• the money laundering legislation and the Order;

• vulnerabilities of services and products offered by the firm, and subsequent money laundering and terrorist financing risk;

• policies and procedures, and employees’ responsibilities;

• application of risk based CDD policies and procedures;

• recognition of and dealing with unusual or higher risk activity and transactions, such as activity outside of expected patterns, unusual settlements, abnormal payment or delivery instructions and changes in the patterns of business relationships;

• money laundering and terrorist financing developments, including techniques, methods, trends and typologies; and

• management of client relationships which have been the subject of a SAR, e.g. risk of committing the offence of tipping-off, and dealing with questions from such customers, and/or their advisers.

9.6.2 Senior management

GUIDANCE NOTES

25. A financial services business may demonstrate the provision of adequate training where (in addition to training for relevant employees) it addresses the evaluation of the effectiveness of systems and controls (and policies and procedures) in place to prevent and detected money laundering and the financing of terrorism.





9.6.3 The MLCO

GUIDANCE NOTES

26. A firm may demonstrate the provision of adequate training where (in addition to training for relevant employees) it addresses:

• the design and implementation of systems and controls to counter money laundering and terrorist financing; and

• the design and implementation of compliance testing and monitoring programmes.

9.6.4 The MLRO and deputy MLROs

GUIDANCE NOTES

27. A firm may demonstrate the provision of adequate training where (in addition to training for relevant employees) it addresses:

• the handling and validation of internal disclosures;

• liaising with the JFCU and law enforcement;

• management of the risk of tipping-off; and

• the handling of production and restraint orders.

9.6.5 Non-relevant employees

GUIDANCE NOTES

28. A firm may demonstrate the provision of adequate training where the training promotes an awareness of the threat of money laundering and terrorist financing and the reporting procedures that should be followed in the event that unexplained unusual, or higher risk activity or transactions are spotted.

9.7 TIMING AND FREQUENCY OF TRAINING GUIDANCE NOTES

29. A firm may demonstrate the provision of training at appropriate frequencies by:

• providing all employees with induction training within 10 working days of the commencement of employment and, when necessary, where there is a subsequent change in an employee’s role;

• delivering training to all employees at least once every two years, and otherwise determining the frequency of training for relevant employees on the basis of risk, with more frequent training where appropriate.

9.8 MONITORING THE EFFECTIVENESS OF PROMOTION AND AWARENESS AND OF TRAINING GUIDANCE NOTES

30. A firm may demonstrate that it has assessed the effectiveness of training provided by:

• testing employees’ understanding of the business’ policies and procedures to combat money laundering and terrorist financing, and also their ability to recognise money laundering and terrorist financing activity;




• monitoring the compliance of employees with systems and controls (including policies and procedures) to prevent and detect money laundering and terrorist financing, and taking any action that may be necessary;

• monitoring internal reporting patterns, and taking any action that may be necessary; and

• the routine supervision of employees.


Section 10: Record Keeping

10 RECORD KEEPING

10.1 OVERVIEW OF SECTION 1. The record keeping obligations of the Order and additional regulatory

requirements are essential to facilitate effective investigation, prosecution and confiscation of criminal property. If law enforcement agencies, either in Jersey or elsewhere, are unable to trace criminal property due to inadequate record keeping, then prosecution for money laundering and confiscation of criminal property may not be possible. Likewise, if the funds used to finance terrorist activity cannot be traced back through the financial system, then the sources and the destination of terrorist funding will not be identified.

2. Records may be kept:

• by way of original documents;

• by way of photocopies of original documents (certified where appropriate);

• in scanned form; or

• in computerised or electronic form.

10.2 RECORDING EVIDENCE OF IDENTITY AND OTHER CDD MEASURES


3. Article 37 of the Proceeds of Crime Law enables the Treasury and Resources Minister to prescribe record keeping procedures to be followed by a financial services business.

4. Article 19(2) of the Order requires a relevant person to make and retain the following records:

• copies of evidence of identity or information that enables a copy of such the evidence can be obtained; and

• all supporting documents, data and information in respect of a business relationship or one-off transaction which is the subject of CDD procedures.

Article 19(2A)(b) of the Order advises that the records referred to in Article 19(2) are those, if any, that a relevant person held (a) before 4 February 2008 under the Money Laundering Order 1999 and (b) immediately before 19 February 2008.

5.

6. Article 19(4) of the Order requires a relevant person to keep records in such a manner that they can be made available on a timely basis to the Commission, police or customs officer for the purpose of complying with a requirement under any enactment, e.g. a production order under Article 40 of the Proceeds of Crime Law.

7. Article A19 of the Order defines ‘relevant person’ for the purpose of the record retention requirements as including a person who was formerly a relevant person.

8. Article 20 of the Order requires a relevant person to retain records in relation to evidence of identity for at least five years from the end of the relationship with the customer (or the completion of the one-off transaction.






http://www.jerseylaw.je/law/display.aspx?url=lawsinforce%2fconsolidated%2f08%2f08.780.30_MoneyLaunderingOrder1999_RevisedEdition_1January2006.htm








9. Article 20(5) of the Order provides for the Commission to require a relevant person to retain CDD information for a period that is more than five years.

REGULATORY REQUIRMENTS

10. A firm must make and retain orderly records of CDD information for at least five years from the end of the relationship with the client (or the completion of the transaction, for one-off transactions). This must include information and evidence of identity obtained in line with the requirements of Sections 4 and 5 of this Handbook and any client files and business correspondence relating to the relationship.

11. A firm must ensure that the way in which CDD information is recorded and stored facilitates periodic updating of the information.

GUIDANCE NOTES

12. A firm may demonstrate adequate recording and storage of CDD information by ensuring that updated information relating to a client that is obtained through meetings, discussions, or other methods of communication with the client is recorded and retained.

10.3 RECORDING TRANSACTIONS


13. Article 37 of the Proceeds of Crime Law enables the Treasury and Resources Minister to prescribe record keeping procedures to be followed by a financial services business.

14. Article 19(2)(b) of the Order requires a financial services business to make and retain a record containing details of every transaction carried out with or for the customer in the course of financial services business. In every case, sufficient information must be recorded to enable the reconstruction of individual transactions.

15. Article 19(4) of the Order requires a relevant person to keep records in such a manner that they can be made available on a timely basis to the Commission, police or customs officer for the purpose of complying with a requirement under any enactment, e.g. a production order under Article 40 of the Proceeds of Crime Law.

16. Article 20(3) of the Order requires a relevant person to retain records relating to transactions for at least five years from the date when all activities relating to the transaction was completed.

17. Article 20(4A) of the Order confirms, for the avoidance of doubt, that the commencement date for records that must be retained may occur before 4 February 2008.

18. Article 20(5) of the Order provides for the Commission to require a relevant person to retain records of transactions for a period that is more than five years.















19.

20.

Records must contain the following details of each transaction carried out with or for a client in the course of specified Schedule 2 business:

• name and address of the customer;

• if a monetary transaction, the kind of currency and the amount;

• if the transaction involves a client’s account, the number, name or other identifier for the account;

• date of the transaction;

• details of the counterparty, including account details;

• nature of the transaction; and

• details of the transaction.

The records prepared and retained by a firm in relation to client transactions and activity must be orderly and such that the audit trail for incoming and outgoing funds or asset movement is clear and complete.

GUIDANCE NOTES

21.

22.

Adequate recording of details of transactions may be demonstrated by including (where appropriate):

• valuation(s) and price(s);

• the form (e.g. cash, cheque, electronic transfer) in which funds are transferred;

• memoranda of instruction(s) and authority(ies);

• memoranda of purchase and sale;

• custody of title documentation; and

• other records in support of transaction records where these are necessary to enable a clear and complete audit trail of fund or asset movements to be established.

Adequate recording of details of transactions may be demonstrated by recording all transactions undertaken on behalf of a client within that client’s records, enabling a complete transaction history for each client to be easily constructed.

10.4 OTHER RECORD KEEPING REQUIREMENTS

10.4.1 Compliance monitoring procedures


23.

24.

A firm must keep for at least five years adequate and orderly records to enable the Commission, internal and external auditors and other competent authorities to assess the effectiveness of systems and controls that are maintained by a financial services business to prevent and detect money laundering and the financing of terrorism.

A firm must keep adequate and orderly records documenting its policies and procedures to prevent and detect money laundering and the financing of terrorism for at least five years from the date those policies and procedures are superseded.




GUIDANCE NOTES

25.

26.

A firm may demonstrate that it has retained adequate records where it keeps:

• its business risk assessment;

• compliance reports to senior management; and

• the working papers of the MLCO to the extent that these provide details of the testing programmes conducted.

This does not necessitate the retention of all compliance testing working papers.

10.4.2 SARs


27. A firm must keep, for a period of five years from the date that a business relationship ends, or, if in relation to a one-off transaction, for five years from the date that a transaction was completed, orderly records containing:

• internal SARs and supporting documentation;

• the decision of the MLRO (or designated person) concerning whether to make an external suspicious activity report and the basis of that decision; and

• any external SARs

in relation to that business relationship or one-off transaction.

10.4.3 Records relating to higher risk activity and transactions


28.

29.

A firm must keep adequate and orderly records containing the findings of reviews of:

• complex transactions;

• unusual large transactions; and

• unusual patterns of transactions which have no apparent economic or visible lawful purpose,

for a period of five years from the date the business relationship ends, or, if in relation to a one-off transaction, for five years from the date that the transaction was completed.

A firm must keep adequate and orderly records containing the findings of reviews of clients and transactions:

• connected with jurisdictions which do not or insufficiently apply the FATF Recommendations, where the business relationship or transaction has no apparent economic or visible lawful purpose; or

• which are the subject of international countermeasures - for a period of five years from the date the business relationship ends, or, if in relation to a one-off transaction, for five years from the date that the transaction was completed.




10.4.4 Training and awareness


30. A firm must keep adequate and orderly records for five years detailing the dates on which training on the prevention and detection of money laundering and the financing of terrorism was provided, the nature of the training and the names of employees who received the training.

10.5 ACCESS TO AND RETRIEVAL OF RECORDS REGULATORY REQUIREMENTS

31. A firm must ensure that the way in which CDD information (including transaction information) is recorded facilitates ongoing monitoring of each relationship - in order to meet obligations that are set out in Section 5 of this Handbook.

32.

33.

34.

35.

36.

For all other purposes, the records retained by a firm must be readily accessible by the business. Unless otherwise specified, records relating to evidence of identity, other CDD measures, and transactions must be accessible within 5 working days (whether held in Jersey or outside Jersey), or such longer period as agreed with the Commission. Other records must be accessible within 10 working days (whether held in Jersey or outside Jersey), or such longer period as agreed with the Commission.

A firm must periodically review the accessibility of, and condition of, paper and electronically retrievable records and ensure adequate consideration of the safekeeping of records.

A firm must periodically test procedures relating to retrieval of records.

A firm that undergoes mergers, take-overs, or internal reorganisations, must ensure that records remain readily retrievable for the required period when rationalising computer systems and storage arrangements.

Records must be maintained in a format that can be made readily available. Where records are kept other than in legible form, they must be maintained so as to be readable at a computer terminal in Jersey - so that they may be produced in legible form.

10.5.1 External record keeping

OVERVIEW

37.

38.

39.

Where documentation is held overseas or by third parties, such as under outsourcing arrangements, or where reliance is placed on introducers or intermediaries, this will present additional factors for a financial services business to consider.

Where record keeping is outsourced, a firm remains responsible for compliance with all requirements.

Where an introducer ceases to trade or have a relationship with a client that it has introduced to a firm, particular care needs to be taken to retain, or hand over, the appropriate client records. Section 5 of this Handbook sets out the steps to be taken for introduced business.





40. A firm must not enter into outsourcing arrangements or place reliance on third parties to retain records where access to records is likely to be impeded by confidentiality or data protection restrictions.

10.5.2 Requirements on closure or transfer of business

OVERVIEW

41. Where a firm terminates activities, or disposes of business or a block of client relationships to other law firms or service providers, record keeping requirements are unaffected by the termination or disposal.


42. Record keeping arrangements must be agreed with the Commission where a firm terminates activities, or disposes of business or a block of customer relationships to another law firm or service provider.

handbook for the prevention and … for the prevention and ... proceeds of crime, ... will face the...

Documents