New laws combat money laundering and terrorist financing - International Law Office

Pre-2008
New Regulations
Impact on Funds and Investments
Guidance Notes
Registration Deadline

Pre-2008

Bermuda has longstanding obligations to have effective procedures in place on anti-money laundering and anti-terrorist financing to detect and prevent such activity. Money laundering was included in the Proceeds of Crime Act 1997 and obligations to combat terrorist financing were set out in the Anti-Terrorism (Financial and Other Measures) Act 2004. The original obligations for regulated institutions were established in the Proceeds of Crime (Money Laundering) Regulations 1998, which were supported by guidance notes issued in January 1998.

New Regulations

Following the International Monetary Fund Review in 2007, Bermuda's legislature finalized and passed new initiatives. The Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008 came into effect on January 1 2009 and repealed the 1998 regulations. The Proceeds of Crime Regulations (Supervision and Enforcement) Act 2008 established a new regulatory regime, designating the Monetary Authority as the supervisory body for securing compliance with the regulations by relevant institutions and detailing the obligations and powers related to this duty.

Impact on Funds and Investments

Institutions subject to the regulations are now known as anti-money laundering/anti-terrorist financing (AML/ATF) regulated financial institutions. The Monetary Authority must monitor all AML/ATF regulated financial institutions for compliance with the regulations. The regulations require the authority to establish, maintain and publish a register of AML/ATF regulated financial institutions, comprising both licensed persons and non-licensed persons. 'Licensed persons' are defined as persons who are for the time being licensed under relevant regulatory acts, which include, among others, those AML/ATF regulated financial institutions that:

• carry on investment business under Section 3 of the Investment Business Act 2003;
• carry on the business of a fund administrator under Section 2(2) of the Investment Funds Act 2006; or
• operate an investment fund under Section 2 of the Investment Funds Act.

Both acts are deemed by the authority to be 'regulatory acts'. 'Non-licensed persons' are any AML/ATF regulated financial institutions which are not licensed under a regulatory act and include companies which may be exempt or excluded from registering under the acts.

AML/ATF regulated financial institutions that fall within the scope of the Investment Funds Act that are not licensed, registered or authorized under any of the regulatory acts must be registered. The authority treats the term 'authorized' under the Investment Funds Act as synonymous with 'licensed' (as defined by the regulations), and has extended the authorization granted to an investment fund to include its operator. The act defines 'operators' as either:

• a unit trust to mean the trustee;
• a mutual fund company to mean the company; or
• a partnership fund to mean the general partner.

Therefore, investment funds and their operators that are exempt under or excluded from the Investment Funds Act are deemed to be 'non-licensed persons'. These include the operators of an investment fund which is exempt from authorization under Section 7 of the Investment Funds Act and operators of private or excluded funds under Section 6. A financial institution which carries on investment business under Section 3 of the Investment Business Act, but which is exempt from licensing pursuant to the operation of the Investment Business (Exemptions) Order 2004, is similarly obliged to be registered.

Pursuant to the regulations, AML/ATF regulated financial institutions are required to appoint a reporting officer who is responsible for receiving disclosures from others within the institution that have a knowledge or suspicion that a person is engaged in money laundering. The officer must submit a suspicious activity report to the Financial Intelligence Agency. Institutions must also appoint a compliance officer who is responsible for monitoring the institution's compliance with Bermuda's anti-money laundering and anti-terrorist financing legislation, related regulations and guidance notes.

While it is possible to delegate these responsibilities to another entity, it is in the interests of the delegating institution to ensure that outsourcing does not result in reduced standards. Institutions should ensure that the provider of the outsourced services has in place satisfactory AML/ATF systems, controls and procedures, and that those policies and procedures are updated to reflect changes in requirements. Delegating institutions cannot contract out their legal responsibilities and remain responsible for systems and controls in relation to the delegated activities.

Guidance Notes

Pursuant to the Investment Funds Act, the Proceeds of Crime Act 1997 and the Anti-Terrorism (Financial and Other Measures) Act 2004, in March 2009 the authority produced and issued the Guidance Notes for AML/ATF Regulated Financial Institutions on Anti-Money Laundering & Anti-Terrorist Financing (AML/ATF).

The notes set out what is expected of AML/ATF regulated financial institutions and their staff in relation to the prevention of money laundering and terrorist financing, but afford some discretion as to how they apply the requirements of Bermuda's AML/ATF regime according to the particular circumstances of the institution and its products, services, transactions and customers by tailoring information to meet their particular business risk profiles.

To determine whether a person is in breach of a relevant provision of any of the acts or the regulations relating to AML/ATF activities, the courts (or the authority) must consider whether the person has followed relevant guidance issued by the authority and approved by the minister of justice, which includes the guidance notes. Departures from the guidance notes (and the rationale for so doing) should be documented and institutions should be prepared to justify any departures.

Registration Deadline

The regulations require all non-licensed persons to register with the authority if they wish to carry on business activities in Bermuda. The deadline for registration was June 30 2009, after which it became an offence for an AML/ATF regulated financial institution to continue to carry on business if it is not appropriately registered.

Companies formed after January 1 2009 must include this application for registration as part of their standard incorporation and registration process.

For further information on this topic please contact George Jones at Appleby by telephone (+1 441 295 2244), fax (+1 441 292 8666) or email (gjones@applebyglobal.com).