Executive Summary
On 30 January 2023, legislation came into force that amended the Proceeds of Crime (Jersey) Law 1999 ("the POCL") and expanded the scope of Jersey's anti-money laundering, counter-terrorist financing, and counter-proliferation financing ("AML/CFT/CPF") regime in order to align it with international standards.
These changes are significant and require all entities within Jersey's jurisdictional nexus to conduct an analysis on their relevant activities to determine whether they are now in-scope and, if so, consider how they will comply with their obligations under the new regime.
This article explains what has changed and why, how to determine whether an entity is now within the scope of the regime and what an in-scope entity needs to do to comply with its obligations under the regime.
If you would like assistance in determining whether an entity is within scope, what the obligations are under the regime, or any other guidance in relation to the regime, please contact a member of our Corporate or Regulatory and Risk advisory teams.
Timing
All entities established after 30 January 2023 will need to undertake an analysis on their activities prior to commencing business, as they are required to comply with the regime as soon as they commence an in-scope activity.
Existing entities that were carrying on a relevant activity before 30 January 2023 were required to register with the JFSC and ensure that they complied with the new regime by 30 June 2023.
However, directors and family offices that do not use a private trust company ("PTC") administered by a regulated trust company business have been granted an extension, allowing them to register with the JFSC by 31 August 2023 if in scope.
Recast and Expanded List of In-Scope Activities
The Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 ("the SBJL") requires every entity that carries on an activity listed in Schedule 2 of POCL to register with Jersey's AML regulator, the Jersey Financial Services Commission ("the JFSC"). Following the amendment legislation coming into force, Schedule 2 of POCL was recast and now sets out four broad categories of activities that potentially fall within the scope of the regime:
- 1.Financial Institutions;
- Designated Non-Financial Businesses and Professions ("DNFBPs");
- Virtual Asset Service Providers ("VASPs"); and
- Express Trusts.
These broad categories are further divided into 24 specific activities including lending, trading, issuing securities, portfolio management, and acting as a trustee of an express trust.
Three-part scope test –scope analysis under the new regime
For many of these activities, the JFSC has issued a more detailed description and guidelines. However, in order to ascertain whether an entity is within the scope of the new regime an analysis must be undertaken to determine whether each activity carried on by an entity meets each element of a three-part scope test ("the Scope Test").
At a high-level, the Scope Test is as follows:
- Step 1: Is the person carrying on an activity/operation listed in Schedule 2 of the POCL?
- Step 2: Is the person and/or its activity within the jurisdictional scope?
- Step 3: Is the activity "conducted as a business" and
provided for an on behalf of:
- a "customer", if the activity of the person is that of a financial institution;
- "third parties" (if the activity of the person is that of a designated non-financial business or profession); or
- "another person" (if the activity of the person is that of a virtual asset service provider).
How to comply with the obligations and how we can help
Whilst it will be simple in most cases to assess whether an entity is carrying on a relevant activity (for example, "lending" if it is the lender under a loan agreement), a more detailed analysis is required to assess whether it is carrying on that activity for the purposes of POCL and within the scope of the regime (considering several factors, including, for example, who the borrower is, the purpose of the loan and its terms).
Furthermore it is highly recommended that each entity clearly documents the analysis undertaken in relation to its activities. In the example given above for "lending" documented consideration should be given as to whether the activity is carried on "as a business". It is also important to document the analysis undertaken to determine whether an entity was out-of-scope and monitor this on an on-going basis to ensure the rationale used to come to this decision remains accurate (as the entity's activities or the guidance on interpretation may change over time).
Undertaking analysis under the Scope Test can be difficult and requires a subjective judgement and reference to the changes to the POCL, the SBJL, the Money Laundering (Jersey) Order 2008, the AML Handbook, the JFSC's guidelines on interpretation, and several other guidance documents and notices published by the JFSC.
To date, we have undertaken analysis and advised clients on a wide variety of entities, structures and arrangements. We have been deeply engaged with the changes to this regime, regularly liaising with the JFSC and industry in order to shape views on interpretation of each step of the Scope Test as well as providing submissions to the Government of Jersey on Jersey's AML/CFT/CPF regime. We are happy to assist you in undertaking analysis on whether an activity conducted by an entity falls within the scope of the regime.
Documentation
Once a determination has been reached as to whether an entity is in or out of scope, the directors of the entity should address the obligations at a board meeting.
The basis on which it was concluded that the entity was within or outside the scope of the regime should be clearly documented and the fitness and propriety of those persons proposed to be appointed as money laundering compliance officer ("MLCO") and money laundering reporting officer ("MLRO") should be discussed. If required, we can provide you with appropriate board minute riders for this purpose. Several entities will require a more in-depth analysis on each activity carried on by the entity set out in a memorandum of advice, which can be tabled and approved by the directors.
Given the extent to which certain activities undertaken by an entity should be included as being in-scope remains unclear and the guidance and industry views are still forming, the view of legal counsel will likely provide an additional layer of comfort for clients.
Obligations – consequences of being in scope
Entities that fall within the scope of the regime are required to comply with certain obligations under Jersey's AML regime. Whilst these consequences will depend on the type of entity and activity, the obligations on in-scope entities include:
- registering with the JFSC under the SBJL and paying the necessary application and annual fees;
- complying with the requirements of legislation and guidance
within Jersey's AML regime, including (among other things) by:
- appointing an MLCO and MLRO;
- conducting an AML business risk assessment ("BRA") and maintaining appropriate and consistent AML policies and procedures for the prevention of AML/CFT/CPF;
- applying customer due diligence measures and maintaining records of information collected relating to customer due diligence;
- maintaining reporting and disclosure procedures and making appropriate reports relating; to AML/CFT/CPF; and
- notifying the JFSC of relevant changes of any principal person, MLCO or MLRO of the entity.
AML Service Providers
In order to provide a pragmatic and cost-effective way to achieve compliance with relevant obligations, a new regulatory concept of an AML Service Provider ("AMLSP") has been created under the new regime. If appointed, an AMLSP is able to effect compliance with most obligations under the new regime on an entity's behalf, including by submitting an application for registration, appointing one or more employee(s) as MLCO and MLRO, preparing a BRA, and providing and maintaining the policies and procedures for the entity. In most cases, this role will be provided by the entity's existing corporate service provider on the Island.
The entity that appoints an AMLSP is known as the "AMLSP Direct Customer" under the new regime. Despite the ability to appoint an AMLSP, entities should be aware that they still bear ultimate responsibility for the activities undertaken in their name and are required to determine that their AMLSP has in place satisfactory systems and controls (including policies and procedures) and that those systems and controls are kept up to date. Please feel free to contact us if you require guidance on:
- the obligations of an AMLSP Direct Customer prior to the appointment of an AMLSP as well as its ongoing obligations in respect of such an appointment; and
- certain "reserved activities" (i.e. activities that only the AMLSP Direct Customer can undertake), for example, approving a new business relationship (and continuation thereof) or one-off transaction where there is a connection to an enhanced risk state.
Penalties and enforcement
The failure of an in-scope entity to make a POCL Registration is a criminal offence under the SBJL. Under Jersey law, if an offence is committed by a body corporate with the consent, connivance of, or is attributable to neglect on the part of a director, secretary or other similar officer of the body corporate, or of any person purporting to act in such capacity (collectively a "Director"), then the Director is also guilty of the offence and liable in the same manner as the body corporate to the penalty provided for the offence. The maximum penalty applicable for this offence is 7 years in prison and/or a fine.
Accordingly, it is important to thoroughly analyse all potentially relevant activities that an entity carries on by applying the Scope Test and ensure that the entity is either out of scope or, if in-scope, is registered with the JFSC and compliant with all relevant obligations applicable to it.
In the case of any doubt, we recommend seeking specific legal advice and ensuring that all relevant analysis and rationale is appropriately documented.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
