Decoding recent amendments to the Proceeds of Crime (Jersey) Law 1999
The Proceeds of Crime (Jersey) Law (Amendment No.6) (Jersey) Law 2022, which came into force earlier this year, has sparked intense discussions within the Jersey Funds Association and market updates. The amendments have led to a flurry of activity as market participants scramble to understand their implications. To provide a comprehensive understanding, let’s delve into two crucial questions: firstly, what is the Proceeds of Crime (Jersey) Law (1999)? Secondly, what are the key changes brought about by the recent amendments?
Understanding the Proceeds of Crime (Jersey) Law (1999) and its significance
The Proceeds of Crime (Jersey) Law, or (referred to as “POCL”) serves as the cornerstone of anti-money laundering requirements in Jersey, in conjunction with the Money Laundering (Jersey) Order (“MLO”). Together, these regulations establish the framework for combating money laundering activities within the jurisdiction.
Changes introduced by the recent amendments
Amendments to the POCL have eliminated several exemptions previously granted from meeting anti-money laundering requirements. Additionally, the updated legislation has aligned the definition of entities subject to these requirements with the standards set by the Financial Action Task Force (FATF).
Impact of the amendments
It is worth noting that these amendments represent the most significant changes to financial regulation in Jersey. The effect is that more entities are caught – directly – by Jersey requirements than previously. The removal of exemptions and the broader reach of the regulatory framework signify a major shift in the landscape, prompting market participants to closely examine and adapt their practices to remain compliant.
‘I think this is the biggest change to financial regulation in Jersey since some of the basic regulatory requirements were introduced.’
Why has the Jersey Financial Services Commission (JFSC) chosen to make these amendments and what is their objective in doing so?
The JFSC has made these amendments in response to an upcoming inspection by Moneyval, a regional body of the Financial Action Task Force (FATF), scheduled for later in 2023. Moneyval evaluates how effectively countries combat money laundering and related activities. A negative outcome from this inspection can lead to a jurisdiction being placed on the FATF “grey list,” which signifies increased monitoring.
Countries currently on the grey list, such as the Cayman Islands, South Africa, and the UAE, may face challenges in attracting business and can also impact other assessments by entities like the European Union (EU).
During Jersey’s previous Moneyval inspection in 2015/16, a recommendation was made to review the exemptions in the Proceeds of Crime (Jersey) Law, ensuring they were justified by low risk of money laundering. After careful analysis, authorities concluded that, at present, there is insufficient evidence to justify these exemptions. Consequently, they are being removed to demonstrate Jersey’s proactive response to address Moneyval’s concerns.
Ideally, a longer lead-in time for the amendments would have been preferable, however, due to factors like the COVID-19 pandemic, the authorities have granted short extension periods for certain categories of affected businesses to comply with the changes.
Navigating the assessment process to determine whether a Company, Partnership, Trust, or Trustee in Jersey (or operating from there) falls within the scope of obligations related to conducting a Schedule 2 Business and specified activities
Undoubtedly, the assessment process can be complex as the guidance and FAQs provided by the authorities often fail to establish a clear “bright line” between entities that are now caught and those that are not.
In general, the assessment involves considering whether an entity:
Engages in one or more “Schedule 2” activities (the definitions of which are quite broad).
Conducts these activities “as a business.”
Provides services to customers (for trustee activities, the test is whether they are performed for a third party).
The second aspect, determining whether something is done “as a business,” tends to pose the greatest challenge. In many organisational structures, there may be factors that support both the argument for meeting this test and the argument against it.
The authorities are advocating for an inclusive approach, aiming to encompass a wide range of entities. In their published lending guidelines, they have even deemed it necessary to clarify that “parents lending their children money” would not fall within the scope of these regulations.
What factors contribute to the variance in methodologies and interpretations used by service providers and legal counsels during the initial assessment of the amendments, resulting in inconsistent outcomes?
Indeed, there is noticeable variation in approaches, some of which can be justified, while others appear to be overly rigid, which is unhelpful.
If a business determines that it is not within the scope of the regulations but later a court determines otherwise, the business may be held accountable for the criminal offense of engaging in unauthorised Schedule 2 business, along with the associated consequences.
It is our expectation that the authorities will continue to provide ongoing clarification and adopt a pragmatic stance, even if they disagree with the conclusion reached through a reasonable assessment. The focus of enforcement efforts should primarily be on more severe instances of non-compliance.
‘Drawing from my experience as a former regulator in both Jersey and the UK, I have not witnessed a regulatory framework with criminal penalties for non-compliance that is subject to such widespread disagreement regarding its scope.’
What obligations arise for a business that falls within the scope and conducts a Schedule 2 Business following the assessment? What are the necessary steps to comply?
In essence, if your business is classified as being in scope, the requirements outlined in the Money Laundering (Jersey) Order will directly apply to your operations. This entails having your own Money Laundering Reporting Officer, a Money Laundering Compliance Officer, and adhering to additional obligations such as conducting a business risk assessment.
Fortunately, we are equipped to serve as an “Anti-Money Laundering Service Provider,” offering the provision of these officers and assistance in meeting the necessary compliance measures. Regrettably, there will be initial registration fees as well as annual fees payable to the regulator.
If my business falls outside the scope, does that imply there are no further obligations? Can I confidently assume that no additional actions are required?
It is crucial to remain vigilant regarding any prospective new activities or modifications to your current business operations that could potentially bring your business within the regulatory purview. If such circumstances arise, it is imperative to refrain from commencing these activities until the business has successfully completed the registration process with the regulator, which may involve a certain duration. Altum is available to help if registration becomes necessary.
Way forward and next steps
Considering the regulatory changes, particularly in the realm of combating money laundering, no jurisdiction can claim immunity from increasing regulatory requirements. With the introduction of the AML Service Provider concept, Jersey Authorities aim to alleviate additional burdens by enabling your current service provider to assist you in achieving compliance.
Understanding these amendments and their impact on businesses and clients has undeniably posed significant challenges, and it appears that the road ahead will continue to be demanding.
Despite the conclusion of the transitional period, it is expected that a period of adjustment will be necessary to fully adapt to these new requirements. With a team that encompasses individuals with experience in both the Jersey regulator and the Government financial services sector, we are well-positioned to stay informed about developments and provide ongoing support to our clients.