Guernsey: Anti-Money Laundering Procedures In Guernsey

Over the past few decades Guernsey has developed into one of the foremost offshore finance centres in Europe offering the full range of financial services required by our worldwide clientele. As a consequence Guernsey is viewed as an attractive gateway by money launderers to introduce their ill-gained profits into the international banking system. For decades the Channel Islands have been viewed as the "soft underbelly" of the United Kingdom in relation to financial services.

There are a number of potential gateways that money launderers can use in introducing funds to the banking system, such as bank deposits in all the major currencies, the setting up of Guernsey companies and trusts, investments in mutual funds, insurance and pension products. These varied facilities offer the potential for layering and other devices used by money launderers.

To meet these dangers the local authorities have introduced strict legislation to deter the use of Guernsey for illegitimate transactions. The great importance of the offshore finance industry to Guernsey as its main export earner and largest industry makes it essential for the industry to retain its good name internationally.

As Guernsey is a British Crown dependency its external relations are conducted through the United Kingdom government. International conventions are extended to Guernsey by registration locally. Following the ratification by the UK of the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the UN Convention) and the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime (The Council of Europe Convention) and the implementation of the European Union Directive on the Prevention of Use of the Financial System for the Purpose of Money Laundering (The Money Laundering Directive), Guernsey has adopted these international conventions. Guernsey also applies the regulations issued by the Basel Committee on Banking Regulations and Supervisory Practices. The Financial Action Task Force (FATF) set up by the seven major industrial nations and other developed countries to combat money laundering, supports various regional organisations in implementing its recommendations and dealing with local requirements. One such organisation is the Offshore Group of Banking Supervisors, of which Guernsey is a member.

Guernsey has established a two tiered structure to deal with the threat from money launderers. This consists of legislation passed by the States of Guernsey and explanatory guidance notes produced by the Guernsey Joint Money Laundering Steering Group, a group set up by the Guernsey Financial Services Commission, which is the statutory body with responsibility to regulate the finance industry.

At the time of writing laws in force mainly cover drug trafficking and the prevention of terrorism. New, all-crime money laundering legislation, extending the scope of the laws to other serious crimes, is still at the draft stage. However, to protect institutions (and others) against any litigation arising out of reports voluntarily made to the authorities in connection with other crimes, the States of Guernsey enacted the Money Laundering (Disclosure of Information)(Guernsey) Law, 1995. With this protection in place it is expected of all financial institutions in the Bailiwick of Guernsey that they will make no distinction between one kind of serious crime and another and consequently they will exercise vigilance in respect of the possible money laundering of the proceeds of all serious crime.

Provisions against money laundering are contained in the following laws, which are of general public application and are not specifically targeted at financial institutions.

1. The Drug Trafficking Offences (Bailiwick of Guernsey) Law, 1988;
2. The Prevention of Terrorism (Bailiwick of Guernsey) Law, 1990;
3. The Drug Trafficking (Amendment) (Bailiwick of Guernsey) Law, 1992; and
4. The Money Laundering (Disclosure of Information) (Guernsey) Law, 1995.

In March 1997 the Guernsey Joint Money Laundering Steering Group issued Guidance Notes based on similar guidance notes issued by the Joint Money Laundering Steering Group in the United Kingdom, modified to accord with the laws and commercial environment of Guernsey. In the interests of standardisation of vigilance systems for institutions which are members of groups based in countries where comparable anti-money laundering laws and regulations are in force, the Group drew extensively on the guidance notes issued by the UK group and also sought to align its own Guidance Notes with those issued by the authorities in Bermuda, the Isle of Man and Jersey.

The Guidance Notes are not mandatory but they do represent good industry practice and all institutions are required to adopt internal procedures which are at least of an equivalent standard. In any proceedings under the relevant laws the Courts in Guernsey may take into account whether an institution can show that its internal systems and procedures measure up to the standard indicated by the GJMLSG Guidance Notes.

In giving directions to the GJMLSG in the preparation of the Guidance Notes the Guernsey Financial Services Commission informed the Group that as a body set up under Guernsey law "to take such steps as the Commission considers necessary or expedient for the development and effective supervision of finance business in the Bailiwick" it took the following view:

1. As regards institutions supervised by the Commission under its statutory functions, although the primary consequences of any significant failure to measure up to the Guidance Notes would be legal ones, the Commission was entitled to take such failure into consideration in the exercise of its supervision and particularly in the exercise of its judgment as to whether directors are fit and proper persons; and
2. As regards institutions (and their directors and managers) carrying on finance business but not yet subject to the Commission's supervision (such as trust companies), such failure may be recorded and taken into consideration at a later date.

Accordingly the Guidance Notes are a statement of the standard expected of all financial institutions in the Bailiwick. The Steering Group actively encourages all institutions to develop and maintain links with the Joint Police and Customs Financial Investigation Unit (FIU) to ensure that their vigilance systems are effective and up-to-date.

The Guidance Notes which came in force on 1 March 1997 describes the phrase "Money Laundering" as covering "all procedures to conceal the origins of criminal proceeds so that they appear to have originated from a legitimate source. This gives rise to three features common to persons engaged in criminal conduct, namely that they seek (1) to conceal the true ownership and origin of criminal proceeds, (2) to maintain control over them and (3) to change their form."

The Guidance Notes, unlike the primary legislation, are targeted specifically at institutions and businesses engaged in the finance sector. Institutions are required to be constantly vigilant in deterring criminals from making use of them for the purpose of money laundering. While the task of detecting crime falls to law enforcement agencies (although financial institutions may on occasion be required under due process of law to assist them in that task) the duty of vigilance is only to avoid assisting the process of laundering and to react to possible attempts at being used for that purpose.

Financial institutions in Guernsey take very seriously their responsibilities in countering money laundering activities. The appointment of an increasing number of compliance officers in financial institutions and the increased emphasis on training in recognising and dealing with illicit transactions has been effective, but continual vigilance needs to be, and is being, exercised to deter traffickers from utilising the financial services available in Guernsey.