Guernsey: Law of Offshore
Money Laundering Law
In its Annual Report for 2003, the Guernsey Financial Services Commission (GFSC) drew attention to the publication during the year of the International Monetary Fund's (IMF) report on the Bailiwick's financial regulation and criminal justice framework, revealing that Guernsey was assessed by the IMF to have a high level of compliance with international standards of regulation in banking, insurance, securities, trust and company service provision, anti-money laundering and combating the financing of terrorism.
Additionally, the report announced that during 2003, the Commission was involved in a number of initiatives with industry, working to ensure that the Bailiwick maintains its competitive edge whilst adhering to recognised standards. Director general of the GFSC, Peter Neville observed that: "2003 was a very good year for the Commission. We received an excellent IMF report, which commended our high regulatory standards. These same standards were cited by Robert Finch, the Lord Mayor of the City of London, as good reason to do business with the Island and he acknowledged that we stand alongside the City in terms of our integrity, innovation and standards of service."
In March, 2004, the Financial Services Commission issued a statement on anti-money laundering standards for existing customers following the issue of revised Recommendations by the Financial Action Task Force in 2003. The statement requires financial services businesses to assess the risk of each business relationship and to make sure that they have customer due diligence information appropriate to the level of risk.
It allows businesses in the financial services sector to consider whether simplified or reduced information is appropriate for low risk businesses and lower risk customers. This could mean for example, locally resident retail customers who have a relationship which is understood by the financial services business.
"The Commission has worked with the Guernsey Joint Money Laundering Steering Group, which contains representatives from across the finance sector, in developing this new statement," explained Peter Neville. "The statement extends the existing flexibility provided by the Commission's Guidance Notes on the Prevention of Money Laundering and emphasises that unnecessary demands on lower risk customers should be avoided," he added.
The Commission said that it was not issuing more detailed recommendations at that stage on how the FATF standard should be applied in practice. It further announced that it intended to consult with industry by way of observation during on-site visits and by way of discussions, to develop such recommendations for inclusion in the revised Guidance Notes. A revised version of the Guidance Notes was to be issued only after full consultation with industry and the other Crown Dependencies.
Following discussions between the IMF and the Commission at the end of 2008, it was agreed that the IMF would undertake its assessment of the Bailiwick of Guernsey late in 2009. This assessment was originally scheduled to take place in January 2009, but the IMF took into account the severe effects of the global crisis, including the problems experienced at Northern Rock Guernsey and Landsbanki Guernsey.
The areas to be covered by the assessment were unchanged. A significant aspect was to do with the stability of Guernsey’s financial sector. It was also to cover banking, insurance and investment sector supervisory legislation and practice, together with anti-money laundering and counter terrorist financing legislation and its implementation.
Peter Neville, Director General of the Commission said: “The Commission is eager to participate in the IMF’s assessment process and looks forward to the broader perspective a later assessment will bring. For substantially more than a year we have been presented with significant challenges in crisis management. We have met these challenges. The very positive findings of the inquiry by Michael Foot of the Promontory group into the role played by the Commission in the Landsbanki Guernsey case should stand Guernsey in good stead."
He added: "We hope that one of the outcomes of the IMF’s future assessments will be the pulling together of the lessons learned by supervisors around the world during the crisis. Here in Guernsey the response has already included the introduction of a depositor compensation scheme. The hard look that Guernsey will be taking at the nature of its banking sector and the relationship between the financial industry in Guernsey and its counterparts in the UK will also be relevant to the IMF’s assessment. The IMF will want to gauge the effects of the financial crisis and the global economic downturn on the shape of the finance industry and the products and services it offers.”
In December 2008, a new regulation was introduced in Guernsey to prevent money laundering, which restricts the sale or purchase in the course of certain businesses of precious metals, precious stones or jewellery, where the payment is made in cash and exceeds GBP10,000. These regulations were proposed by the Guernsey Financial Services Commission, which sought to extend the Bailiwick’s anti-money laundering regime in order for it to meet international standards.
The Regulations are made under Sections 49A and 54 of the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 and are titled The Criminal Justice (Proceeds of Crime) (Restriction on Cash Transactions) (Bailiwick of Guernsey) Regulations, 2008 and were effective from December 1, 2008. Any person who contravenes the restriction commits an offence and is liable, for a first offence, to a fine of up to twice the value of the cash involved. The Guernsey government has asked that dealers in precious metals, precious stones or jewellery should report any attempted transactions in excess of GBP10,000 as suspicious to Guernsey’s Financial Intelligence Service.
In December 2009, the Guernsey Financial Services Commission proposed changes to its AML/CFT that will require postage stamp dealers, bullion dealers, firms of accountants which are currently not registered with the Commission, and firms (including sole practitioners) of insolvency practitioners, auditors and tax advisors to register with the Commission and to comply with the AML/CFT regulations, and with the rules in the Commission’s handbooks.
On February 22, 2010 the Policy Council signed the Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008 (Schedule 1 Amendment) Regulations, 2010. The changes to the law came into effect on 31 March 2010 and extended the list of financial services businesses.
As the Commission is conscious that the requirements of the regulations may appear complex and onerous, especially to firms which have not previously been subject to any form of AML/CFT regulation or supervision, the guidance note provides information to assist such firms.
The guidance paper, available on the Commission’s website, provides a simplified overview of the requirements of the regulations and the rules in the Handbooks.
On January 14, 2011 the IMF published six reports arising from its evaluations in March and May 2010 of the Bailiwick’s financial supervision and criminal justice frameworks. The reports commend Guernsey as having financial sector regulation and supervision of a high standard across all sectors, and a legal framework which provides a sound basis for an effective AML/CFT regime, with preventive measures being largely in line with the FATF Recommendations.
Nik van Leuven, Director General of the Guernsey Financial Services Commission, said:
“We are pleased with the IMF’s ratings of our framework and its conclusions on the quality of our supervision. Guernsey, like Jersey and the Isle of Man, has emerged well from the IMF’s evaluations of our financial supervision and criminal justice frameworks. It is apparent that Guernsey’s finance sector is robust. The quality of the standards which apply to supervised firms in Guernsey, the effectiveness of our supervision and the reality of what firms do in practice reflect the importance and commitment the Bailiwick attaches to effective supervision, and deterring economic criminals, money launderers and terrorist financiers.
It is particularly pleasing that the IMF’s evaluations reflected the experience of supervision, firms and markets in the economic and financial crisis. That experience has made the IMF’s comments and recommendations especially valuable as a basis to further develop our risk-based approach to supervision in the years to come.”