The Handbook on Countering Financial Crime and Terrorist Financing issued by the Guernsey Financial Services Commission is a statement of the standards which the commission expects of all financial services and specified businesses.(1) It also contains rules and guidance to assist firms in complying with the relevant legislation concerning the countering of money laundering, terrorist financing, financial crime and related offences (anti-money laundering (AML)/countering financial crime and terrorism (CFT) legislation). The AMT/CFT legislation aims to prevent the Bailiwick's financial system and operations from being abused for money laundering and financial crime.
Following the Committee of Experts on the Evaluation of AML Measures and the Financing of Terrorism (MONEYVAL) evaluation in 2016, the AML/CFT legislation was fully overhauled. Further, the Bailiwick undertook a national risk assessment (NRA) to identify jurisdiction-wide and systemic risks to which its financial system is deemed particularly vulnerable, which was published in January 2020. Individual specified businesses were initially given until the end of May 2020 to update their business risk assessments (BRAs). In response to the impact of the COVID-19 pandemic on specified businesses, the commission has extended some of the timeframes contained in the handbook. As such, each specified business must now:
- review and approve its BRAs and revise its policies and procedures in light of the risks identified by the NRA by 30 September 2020; and
- subsequently re-evaluate its existing business relationships in light of the above by 31 December 2021 (although the commission recommends that specified businesses aim to complete this process by 30 June 2021).
The details of these revised deadlines are contained in the transitional provisions in the handbook (Chapter 17).
This article examines the contents of the NRA and the implications for specified businesses in the Bailiwick.
In 2016 Guernsey's AML/CFT Advisory Committee commenced work on the NRA as part of the jurisdiction-wide undertaking to strengthen Guernsey's AML/CFT regime in conjunction with the island's continuing efforts to maintain compliance with international standards following the receipt of comments from the peer review undertaken by MONEYVAL. The NRA builds on previous risk assessment work conducted to produce by far the most comprehensive assessment of the money laundering and terrorist financing risks present in Guernsey to date. The Policy and Resources Committee published the results of the NRA in January 2020.
Specific areas of risk identified in NRA
Money laundering
In relation to money laundering risk, the NRA identified that the greatest risk comes from the laundering of the proceeds of foreign criminality. This is likely to take the form of offences such as bribery, corruption and fraud (including tax evasion), as well as drug trafficking and insider dealing or other forms of market manipulation. As such, the sectors most at risk of being involved in this activity are considered to be the private banking sector and the parts of the trust and corporate service provider sectors which deal with legal persons and legal arrangements. In all such circumstances, the AML/CFT Advisory Committee noted that there is likely to be a chain of transactions across several jurisdictions involved in the money laundering process, with Guernsey being at the end, or near to the end, of that chain.
Terrorist financing
The risks presented by terrorist financing were assessed to be substantially lower than those presented by money laundering, with the greatest of these coming from cross-border business being used to support foreign terrorism via funds being passed through or administered from Guernsey. The NRA indicates that terrorist financing within Guernsey is most likely to arise in the context of secondary terrorist financing (ie, where criminal proceeds are used to fund terrorism). An additional risk has been identified from funds raised in Guernsey for legitimate purposes being diverted subsequently to support foreign terrorism. Unlike money laundering, the AML/CFT Advisory Committee was unable to identify any particular sector or product as standing out in relation to terrorist financing risks, although it did indicate that certain sectors carried a lower risk than others. These include:
- e-casinos;
- real estate;
- domestically focused legal persons and arrangements;
- registered non-profit organisations;
- emerging technologies; and
- cash and trade.
Domestic risks
From a domestic perspective, the NRA identifies much lower risks in relation to money laundering. Those that do exist mainly take the form of domestic criminality arising primarily from drug trafficking and fraud. The AML/CFT Advisory Committee believes that the proceeds of these crimes are most likely to involve the retail banking sector and the use of cash. The risk of funds being used in Guernsey to support domestic terrorist activity was assessed to be extremely low across all sectors and products due to Guernsey's demographic, geographic, political and cultural profile.
Methodology
The NRA was undertaken in such a way such that it is designed to complement the BRAs and risk profiling of client relationships that entities which are licensed by the commission or carry out other specified activities must already undertake as part of their statutory or licensing requirements. These requirements are for the most part set out in Schedule 3 of the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law 1999 (as amended) and the handbook. As an overview, these require specified businesses to:
- understand the money laundering and terrorist financing risks present within the jurisdiction; and
- implement effective policies, procedures and controls to identify, assess, mitigate, manage, review and monitor the risks relevant to them in a way that is consistent with the law and the handbook.
Revised timings
With effect from 29 April 2020, the commission has made certain amendments to the handbook in response to the NRA's publishing, with which businesses should familiarise themselves. These mainly relate to adjustments to the dates by which businesses subject to the handbook must carry out certain actions in view of the operational adaptions that firms are underdoing. The commission has also reinforced businesses' obligation to take the NRA into account when considering their AML and CFT policies and procedures.
As an overview, businesses must now review their BRAs in light of the findings of the NRA and have the board approve any necessary adjustments to their money laundering and terrorist financing assessments by 30 September 2020. Specified businesses must also review and revise their policies, procedures and controls in light of the risks identified by the NRA and have these formally approved by their respective boards by 30 September 2020. Finally, the boards of each specified business must ensure that all business relationships are reviewed by 31 December 2021 within the context of the NRA. Although the commission's rules allow specified businesses the flexibility to best manage the review of these relationships, it strongly encourages specified businesses to adopt a risk-based approach in order to ensure that due diligence measures, including enhanced due diligence and other enhanced measures as required, are applied to high-risk business well in advance of this deadline. The commission goes on to suggest a target of 30 June 2021 for completing the review of high-risk business relationships.
Other changes in 29 April 2020 update
Aside from the above deadline extensions, the most notable change to the handbook introduced by the commission as part of these amendments is the removal of Iceland from the list of equivalent jurisdictions contained in Appendix C of the handbook. Businesses should therefore also take this into account when conducting their reviews.
The commission has advised that it does not envisage the NRA having a significant impact on its current supervision regime. As such, it will continue to apply risk-based supervision across all sectors, with high-risk sectors being the primary focus of that supervision. The main change will likely be an enhancement to the commission's current data collection regime through the imposition of additional periodic financial flows returns and enhancements to the existing financial crime risk returns taking into account the NRA and the updated handbook. As part of its supervision, the commission will also check to ensure that businesses have taken into account the relevant money laundering and terrorist financing risks raised in the NRA, and which apply to the sector in which that business operates, in their BRAs. This will include a consideration of the actions that businesses have taken to mitigate such risks.
To ensure continued compliance with the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law 1999 (as amended), the handbook and any licence that they may hold, specified businesses should:
- familiarise themselves with the NRA and its findings, paying particular attention to those sectors within which they operate;
- conduct a full review of the systems and controls employed by them to mitigate these risks in the context of the NRA;
- review the specific money laundering and terrorist financing risks applicable to them and the potential exposure created by their customers, products and services in light of the NRA and update and formally approve their policies and procedures by 30 September 2020;
- review all existing customers – preferably by 30 June 2021 but in any event no later than 31 December 2021 –applying a risk-based approach based on the NRA and their revised policies and procedures; and
- ensure that all relevant employees are aware of, and fully briefed on, any amendments made to their policies and procedures in light of the NRA.
Endnotes
(1) The handbook concerns specified businesses in accordance with Paragraph 1(1), Schedule 3 of the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law 1999 (as amended).
