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Jersey Financial Services Commission
STEP seminar – AML/CFT update
Andrew Le Brun
Hamish ArmstrongFinancial Crime Policy
→ MONEYVAL
- Where are we now?
→ Electronic CDD (“E-CDD”)
- Guidance on the use of E-CDD
→ Beneficial ownership and control
- Application of the “three-tier test”
Overview
Introduction
MONEYVAL
MONEYVAL
Council of Europe body
→ “Peer review” organisation
Fourth round mutual evaluation (“MER”)
→ January 2015: onsite and key findings report
→ Before 24 March 2015: changes to legislation, Codes and guidance
→ June and July 2015: pre-meetings to discuss first draft of MER
→ End of October 2015: second draft of MER
→ December 2015: plenary discussion
MONEYVAL
Fourth round MER
→ September 2015: plenary discussion of Guernsey MER
Fifth round MER
→ April/May 2016: Isle of Man
→ 2019: Guernsey
→ 2021: Jersey
→ National risk assessment
Key findings?
Accumulation of risk – “over-arching” ML/TF risks
→ Properly reflected in business risk assessments and customer risk assessments?
Exemptions from Schedule 2 of Proceeds of Crime Law
→ Too many? High risk?
→ Individuals acting as director for less than 6 companies
Definition of “beneficial ownership and control”
→ Too great a focus on control through ownership
Key findings?
Application of identification measures to customers who are trustees
→ Sight of trust deed in entirety?
→ Sight of letter of wishes?
Application of simplified identification measures
→ Still too generous?
→ Discretion to refrain entirely from application of certain measures in defined
circumstances
→ Application to T&CSPs and lawyers outside Jersey?
→ Request information on beneficial ownership and control of corporate
trustees?
Key findings?
Application of enhanced CDD measures
→ Too much flexibility: when and what?
Reliance on obliged persons
→ Apply outside Channel Islands?
→ Use of “alternatives” – e.g. Sections 4.4.5 and 4.5.7 of AML/CFT Handbooks
Supervision of use of exemptions, simplified measures, enhanced measures and reliance
→ Looking in the right areas?
Key findings?
Transparency of legal persons and legal arrangements
→ Insufficient measures to ensure beneficial ownership information is available for:
→ Persons and arrangements that are not administered by a licensed T&CSP; and
→ Collective investment funds that apply simplified identification measures to
investors
Awareness of terrorist financing risks
→ Patchy?
Key findings?
Money laundering and other offences
→ Limited number of cases involving “third party” money laundering
→ Failure to report
E-CDD
Use of smart phone and tablet applications
Innovative technology
→ New ways of collecting information and obtaining evidence of individuals’
identities
Requirement to find out identity
→ Article 3(4) of Money Laundering Order
→Obtaining evidence on basis of documents, data or information from
reliable source, that is reasonably capable of verifying that an individual to
be identified is who the person is said to be
- Sight of passport, national identity card or driving licence
- Use of suitable certifier
- Independent data sources
Use of smart phone and tablet applications
Other requirements
→ Article 11 of Money Laundering Order
→Policies and procedures for identification and assessment of risks that
arise from use of new or developing technology for new or existing
products
→ AML/CFT Code
→Assess, record and monitor risk where any element of CDD process is
outsourced
Senior management responsibility
→ Clarity of what application does and does not do
Use of smart phone and tablet applications
Guidance
→ Risks that arise when documents not physically presented to relevant person or
suitable certifier
→Documents tampered with or forged
→ Images of individual or documents tampered with before or during
transmission
→Documents or images captured are stolen or use unauthorised
Use of smart phone and tablet applications
Guidance
→ Measures that might be taken to mitigate such risks
→ Documents tampered with or forged
→Use very high level of clarity and resolution
→Access biometric and other data coded on document
→Compare against document “templates”
→Examine security features (e.g. watermarks, holograms, micro-text, etc.)
→Examination by trained analysts/examiners
Use of smart phone and tablet applications
Guidance
→ Measures that might be taken to mitigate such risks
→ Images or documents tampered with before or during transmission
→The application itself controls the copying of the document, photography,
and transmission process
→A highly secure connection is used to transmit documents and images
→Application security is regularly tested in order to guard against hacking or
other security breaches
Use of smart phone and tablet applications
Guidance
→ Measures that might be taken to mitigate such risks
→ Documents or images captured are stolen or use unauthorised
→A "selfie" is biometrically matched to identity document
→A video or stream of photographs is taken
→A code or password is sent to the customer to display in photograph
→Use of a location matching
Use of smart phone and tablet applications
Risk Assessment is key
→ What will you use the application for?
→ What are the risks?
→ What are your mitigants?
(may be features of the application or others)
Guidance may be relevant in other circumstances
Speak to Financial Crime Policy team
Beneficial ownership and control
Beneficial ownership and control
Money Laundering Order→ Article 2 – definition → Article 3(7) – definition (legal arrangements)
AML/CFT Handbooks→ Section 4 – explanation of who is to be considered the beneficial owner and
controller of a customer→ Section 13 – explanation of who is to be considered the customer of a trust
and company service provider
Beneficial ownership and control
Money Laundering Order→ Article 2 – no change→ Article 3(7) – new reference to “other person exercising ultimate
effective control”
AML/CFT Handbooks→ Sections 4 and 13
→ New three-tiered approach where: (i) customer is a legal person; or (ii) legal person in ownership structure
→ New references to “dummy settlors” for trusts and “other person exercising ultimate effective control” for all legal arrangements
→ Definitions for “beneficiary” and “object of power” to be added
Beneficial ownership and controlML/CFT Handbooks
Based on revised FATF R.10 and recent guidance on transparency and beneficial ownership
→ Identify individuals with a material controlling ownership interest (25% benchmark) or who exercise control via other ownership interests
→ If none, or if these individuals aren’t really exercising control, identify individuals who exercise control by other means
→ If still none, identify senior managing officials
Fourth ML Directive
Definition of “beneficial ownership”
→ Corporate entities: three tiers→ Control through ownership; control through other means; and natural
persons holding position of senior managing official
→ Trusts: settlor, trustee, protector, beneficiaries (when “determined”) and any other natural person exercising ultimate effective control
Jersey Financial Services Commission
Q&A Thank you for listening
Please contact us if you have any
questions/comments…
Jersey Financial Services Commission
STEP seminar – AML/CFT update
Andrew Le Brun
Hamish ArmstrongFinancial Crime Policy
Example 1: customer is a trustee
Identify:
→ Settlor (direct and indirect)→ Protector→ Beneficiary with vested right – definition to be added→ Other beneficiaries and objects of a power – definitions to be added→ Other person exercising effective control
Example 1: customer is a trustee
Where any person identified is not an individual, identify:
→ Individuals with a material controlling ownership interest in the capital of the person (through direct or indirect holdings of interests or voting rights) or who exert control through other ownership means
→ Where doubt as to whether the individuals exercising control through ownership are beneficial owners, or there are none - any individual exercising control over the person through other means
Example 1: customer is a trustee
Where any person identified is not an individual, identify:
→ Where none - individuals who exercise control of the person through positions held (who have strategic decision-taking powers or executive control via senior management positions)
Example 2: customer is a company
Identify:→ Individuals holding a material controlling ownership interest in the capital of
the company (through direct or indirect holdings of interests or voting rights) or who exert control through other ownership interests, e.g.
→ Shareholders’ agreements → Power to appoint senior management→ Holding convertible stock or any outstanding debt that is convertible
into voting rights
Example 2: customer is a company
Identify:
→ To the extent that there is doubt as to whether the individuals exercising control through ownership are beneficial owners, or where no individual exerts control through ownership - individuals who exercise control through other means, e.g.
→ Personal connections→ Participate in financing→ Close and intimate family relationships, historical or contractual
associations→ Default on certain payments
Example 2: customer is a company
Identify:
→ Where no individual is otherwise identified under tiers 1 or 2 - individuals who exercise control through positions held (who have and exercise strategic decision-taking powers or have and exercise executive control through senior management positions, e.g. directors)
NB: in any case where a person in an ownership structure is not an individual, apply the three-tiered approach to find an individual(s) controlling the company
