Failure to Prevent Offence – A Jersey thing

In an effort to enhance its overall anti-money laundering (AML) effectiveness, Jersey introduced a new offence under Article 35A of the Proceeds of Crime (Jersey) Law 1999 (the Law). Inspired by the Financial Action Task Force’s (FATF) Methodology – Immediate Outcome 7, this is quite a significant development in the regulation of Jersey’s financial services industry. Essentially, under the new amendment, if a business is connected to certain persons who are engaged in money laundering, the business is itself at risk of committing a criminal offence unless it can demonstrate that its AML policies and procedures (both on paper and in practice) were nonetheless fit for purpose. This is of course, similar in nature to the Corporate Liability offence in the UK Bribery Act 2010.

The introduction of the Failure to Prevent Offence will make it easier for the authorities in Jersey to prosecute businesses and key persons for AML offences.  Additionally, the new offence will motivate businesses to play their part in ensuring that the Jersey Financial Services Commission (JFSC) is supported by the vigilance and co-operation of the finance sector. Therefore, it is now doubly important that businesses review the adequacy of their AML systems and controls and keep reviewing them on an ongoing basis.

How is the offence committed?

A business (B) will commit the Failure to Prevent Offence if the following conditions are met:

  1. There is a person who is:
    1. An employee of ‘B’
    1. An agent of ‘B’
    2. Another person who performs services for ‘B’ (which is to be determined by reference to all the relevant circumstances); or
    3. A customer (or their agent) of ‘B’

(each an Associated Party).

  1. The Associated Party (AP) is ‘engaged in money laundering’ – defined for these purposes as “engag[ing] in conduct which constitutes money laundering, whether or notthe person has been convicted of an offence in relation to that conduct”. (Businesses will be aware that ‘money laundering’ is a broad concept for the purposes of the Law.)
  2. In carrying on the activity in (2) above, the AP is acting in the capacity in (1) above.

To clarify, the Failure to Prevent Offence can only be committed by persons who are carrying on ‘financial services businesses’ for the purposes of the Law. Broadly speaking, this includes JFSC licensees as well as a wide range of businesses ranging from lawyers and accountants to casinos. Therefore, persons not carrying on ‘financial services business’ fall out of the scope of the new offence.

Defences

There is a defence in Article 35A (2) but the burden of proving this defence rests on the business. Businesses can only rely on the defence specified under Article 35A (2) if they have adequately maintained and applied procedures designed to prevent persons acting as an AP being engaged in money laundering.

To assist businesses in complying with the Law, the JFSC has issued detailed guidance in its AML Handbook on businesses’ AML obligations (including the Failure to Prevent Offence). Therefore, careful consideration is needed when it comes to the provisions of the AML Handbook and any subsequent changes to it. On top of that, policies and procedures need to be reviewed and amended without delay to ensure compliance with the guidance. In the event of a lack of JFSC guidance on a particular aspect of AML, businesses could consider whether there is any non-JFSC guidance (UK’s Financial Conduct Authority for example) that might be helpful. After all, if a business is at risk of prosecution it is important that it can explain why its AML prevention policies and systems of control were fit for purpose, or at the very least why it thought they were fit for purpose, even if it is due them being built against a mixture of best practices.

Penalties

The Failure to Prevent Offence is a criminal offence. On conviction, the business can be sentenced:

  • To an unlimited fine if it is a body corporate,
  • To an unlimited fine and/or imprisonment for up to two years if it is an individual.

 

Further, if the offence is proved to have been committed by a business that is a body corporate with the consent or involvement of a ‘relevant person’ (an officer such as a partner, director or general partner), then that relevant person is also guilty of the offence and liable to similar penalties.

In addition to this risk of criminal sanction, businesses should bear in mind that the JFSC may also look to take action against businesses that breach its Codes of Practice or otherwise fail to meet the minimum standards expected of supervised businesses. The JFSC might consider imposing:

  • A direction requiring the business to take or refrain from taking specified steps;
  • An order prohibiting a person from performing roles at licensed businesses in the future;
  • And/or a civil financial penalty.

Steps that businesses should consider taking

All businesses should act promptly to ensure that their AML policies and procedures are up-to-date and fit for purpose. This includes:

  • Reviewing the JFSC’s guidance on businesses’ AML obligations (including the AML Handbook), and ensuring their prevention procedures are consistent with it
  • Ensuring business’s AML prevention procedures are reviewed to ensure they are fit for purpose and compliant
  • Regularly reviewing the adequacy of the business’s prevention procedures and promptly implementing any necessary enhancements
  • Providing AML training to all employees, followed by regular ongoing training
  • Ensuring all staff know where to find the business’s AML resources
  • Implementing appropriate controls in relation to potential money laundering by non-employee Associates of the business (e.g. the business’s counter parties, agents, representatives and possibly even its customers)
  • Ensuring that reports are submitted to the business’s governing body on its AML control framework
  • Ensuring that the compliance officers have the appropriate resources to perform its role
  • Fostering a culture of compliance within the business. Avoid a ‘tick box’ mentality

Where is the UK law?

In a similar vein, a proposed “failure to prevent” amendment to the Financial Services Bill was debated by MPs, however the amendment was abandoned, and further reforms were put on hold.

The draft offence would apply to individuals and corporates authorised by or registered with the FCA. It would cover fraud, false accounting, any offence under the Proceeds of Crime Act 2002, tax evasion, insider dealing and providing false or misleading financial statements and impressions under the Financial Services Act 2012.

If proceeded with, the amendment would introduce a new criminal offence holding individuals, corporates, and their directors accountable for either facilitating or failing to prevent economic crime and would be expected to have a significant impact on all firms subject to it and would dramatically change the compliance and anti-financial crime landscape in the UK. Now that Jersey has introduced this exact offence, we need to watch this space to see if the UK picks up the baton once again.

Anti-Financial Crime Support – How can Complyport Help?

Our experienced Financial Crime and Forensics team led by Martin Schofield—one of the world’s leading specialists in the field—brings a wealth of experience to every project we are engaged in. Our highly experienced financial crime professionals and forensic experts, in subjects such as anti-money laundering, counter terrorist financing, anti-bribery and corruption and fraud and regularly help our clients navigate the complexities of the financial crime and money laundering environment. Services offered by Complyport include:

  • AML/Fraud policy & training reviews,
  • Transaction monitoring / reporting framework reviews,
  • Vulnerable Customer Management framework reviews/audits/gap analysis,
  • Financial crime health checks and audits,
  • Implementation of financial crime, AML, CTF, ABC, Fraud and market abuse controls and frameworks,
  • Ongoing advice on financial crime, AML, CTF, market abuse and fraud prevention,
  • Authoring/reviewing financial crime policies,
  • Outsourced MLRO support
  • Outsourced KYC and CDD support,
  • Assistance in identifying Politically Exposed Persons (PEPs),
  • Assistance in navigating international sanctions,
  • Support with preventing market abuse and insider dealing,
  • Expert Witness in Financial Crime cases
  • Forensics and Investigations
  • Design and/or delivery of online or face to face financial crime training

If this article has raised any questions, or you think your firm may require assistance, please contact either Martin Schofield via martin.schofield@complyport.co.uk or Jan Hagen via jan.hagen@complyport.co.uk to book in a free consultation.

About Complyport

Complyport is the City’s market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.

Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.

With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.

Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.

Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Complyport can also assist firms by providing personnel to cover all the key compliance functions including resourcing individuals to be registered as your Compliance Oversight Function (SMF16) and/or Money-Laundering Reporting Officer (SMF17).

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