Failing to prevent money laundering – Are your AML prevention procedures adequately maintained and sufficiently applied to secure a defence under the new law?

The new offence under article 35A of the Proceeds of Crime (Jersey) Law 1999 of failing to prevent money laundering was adopted by the States of Jersey on the 27^th of April and will come into force once sanctioned by order of Her Majesty in Council and Registered by the Royal Court. Arguably one of the most important articles to come into force since the introduction of the Proceeds of Crime Law in 1999 and it’s likely to have a major impact on local businesses.

The speed of introducing such a significant piece of legislation is perhaps not surprising given the Island faces a MoneyVal evaluation in 2023 and prompt introduction provides a narrow window of opportunity to demonstrate its use before the assessors arrive.

The article creates an offence of failing to prevent money laundering where a client is engaged in money laundering and is using the services of the financial services business that operates inadequate procedures to prevent and detect such money laundering.

The new law provides for a defence where the financial institution can prove that when the money laundering occurred the business adequately maintained and applied AML prevention procedures in relation to the client. A conviction for money laundering is not required. The burden of proof rests with the business to demonstrate that they have adequately maintained and applied preventative measures to avail themselves of the defence.

In determining if a business has adequately maintained and applied prevention procedures the article permits the Court to take into account any Code of Practice or Guidance issued by a supervisory body supervising the financial services business. In practice this is likely to mean the Anti Money Laundering Handbook issued by the Jersey Financial Services Commission.

Taking an example, if a high-net worth client, of previous impeccable character, suddenly becomes embroiled in a fraud, when the money laundering proceedings start and there are suggestions that the funds have been laundered through Jersey, the financial services business in Jersey handling the funds will not only be required to file a suspicious activity report but also risks being placed under investigation for failing to prevent money laundering. The financial institution will then need to demonstrate that it has adequately maintained and applied AML prevention procedures to secure access to the defence under the law. The burden of proof rests with the financial institution to evidence that they have maintained procedures that are adequate and which have been followed by their employees.

The following are just a few examples where securing such a defence is likely to be problematic:

• Procedures that have not been reviewed or updated for several years.
• Procedures that have not been formally adopted by the Board.
• Different versions of the same procedure being used.
• Procedures that are not aligned to the regulatory requirements in the AML handbook.
• A compliance monitoring program that has fallen behind schedule or fails to test the application of and adherence to the procedures.
• Backlogs of client risks reviews in breach of the business’ own procedures.
• Lack of documentation to evidence application of and training to the procedures.

If the offence is committed with the consent or connivance of a relevant person, that relevant person is also guilty of the offence. Relevant persons include directors, company secretary or any person required to be appointed under the Money Laundering (Jersey) Order 2008, for example the Compliance Officer/Money Laundering Reporting Officer. If found to be in breach of the article, such individuals face either a term of imprisonment not exceeding 2 years or to a fine or to both.

The Money Laundering (Jersey) Order 2008 has of course for many years required financial services businesses to maintain appropriate and consistent policies and procedures to prevent and detect money laundering but the onus has been on the prosecution to prove beyond reasonable doubt that they are inadequate or have not been complied with. The new article 35A is not so onerous on the prosecution with the business now having to demonstrate that procedures have been adequately maintained and applied in line with the requirements set out in the JFSC’s AML handbook.

Businesses should also be cognisant that as of the 29^th of April 2022 the JFSC may impose civil financial penalties for breaches of the Money Laundering (Jersey) Order 2008 applying the burden of proof on the balance of probabilities and using the JFSC’s decision making process rather than a Court. Such a seismic change in approach coupled with the new article 35A under the Proceeds of Crime (Jersey) Law 1999 paves the way for a marked increase in penalties being imposed on financial services businesses if they have neglected their policies and procedures.

Looking at the outcomes from the majority of themed examinations conducted and published by the JFSC, inadequate AML policies and procedures were at the root cause of most findings. Perhaps now is a good time for financial services businesses to focus attention on the adequacy of procedures and test if they are being applied correctly before the offence of failing to prevent money laundering comes into force.