Quashing laundry

Since 11 September, the law has been cracking down on money laundering and terrorist funding. Stephen Hellman discovers what Guernsey is doing to meet the requirements

It has been said that 11 September 2001 was the first day of the 21st century. The terrorist attacks on the World Trade Center and the Pentagon marked the end of the post-cold war era and the start of a new and uncertain chapter of geopolitical history. But what of the impact of 11 September on the bailiwick of Guernsey, and in particular on the laws and regulations dealing with money laundering and terrorist funds?
A fruitful approach is to look at some of the measures taken by international bodies and individual states in the wake of 11 September and examine how these measures have affected Guernsey, or may do so in the future.
The international bodies in question are the United Nations, the Financial Action Task Force (FATF) and the European Union. Guernsey is not a member of any of them. Nevertheless, they are bodies which set the norms by which reputable jurisdictions judge themselves and by which they are judged by others.
The UN has had a direct impact on Guernsey through the Terrorism (United Nations Measures) (Channel Islands) Order 2001. This came into force on 10 October 2001. It was passed pursuant to UN Security Council Resolution 1373, which was adopted on 28 September 2001. The resolution contained a set of anti-terrorist measures to be taken by all states and the order implemented them in Guernsey. These included measures criminalising the collection of funds and the making of funds available to terrorists, and providing for the freezing of terrorist funds and the obtaining of information by the Guernsey authorities to enable them to police the order.
These measures could be readily adapted to deal with funds relating to other areas of criminal activity. What is good for the war against terrorism, for example, might be thought equally good for the war against drugs. This is how legislation in Guernsey targeting the proceeds of crime has tended to evolve.
The Financial Action Task Force (FATF) is an independent international body which develops and promotes policies to combat money laundering. Its secretariat is housed at the Organisation for Economic Cooperation and Development (OECD).
A plenary meeting of the FATF was held in Washington DC on 29 and 30 October 2001, at which the FATF expanded its mission to combat terrorist financing. Terrorist financing and money laundering are not identical. Money laundering is concerned with the proceeds of criminal conduct whereas terrorist financing may include funds from legitimate sources. The FATF agreed eight special recommendations. These are binding only on its member states but the FATF called on all countries to adopt and implement them, and they set the international standard for combating terrorist financing.
The special recommendations included strengthening customer identification measures in international and domestic wire transfers, and ensuring that entities, in particular non-profit organisations, cannot be misused to finance terrorism.
The FATF agreed that its members would come into compliance with the special recommendations by June 2002. Guernsey will no doubt take the necessary steps, although it remains to be seen whether they will be completed by June.
The European Council met in an extraordinary session on 21 September 2001 in order to analyse the international situation following the terrorist attacks in the US and to give the necessary impetus to the actions of the EU. It issued a Statement of Conclusions and a Plan of Action.
This led to Directive 2001/97/EC, a joint directive of the European Parliament and the Council, which amended Council Directive 91/308/EC on the prevention of the use of the financial system for the purpose of money laundering.
The amended directive requires member states to ensure that the anti-money laundering obligations laid down in the directive are imposed on a wide range of institutions including credit institutions and financial institutions, and the professional activities of auditors, external accountants and tax advisers.
Guernsey has in place a stringent set of anti-money laundering obligations. They are contained in the Rules and Guidance Notes to the Criminal Justice (Proceeds of Criminal Conduct) (Bailiwick of Guernsey) Law 1999, commonly known as the All Crimes Law, and apply to all financial services businesses. These are defined in the All Crimes Law to include financial institutions. The definition of financial services businesses has been expanded to include credit institutions by an amendment to the All Crimes Law which comes into force on 28 June. However, it does not include accountancy advice or services provided by accountants. Because of this, Guernsey does not yet fully comply with the amended directive.
In his address to Congress in the wake of 11 September, President Bush vowed that the US would bring its enemies to justice,or justice to its enemies, but that justice would be done. With this in mind, Congress enacted the USA Patriot Act, which was signed into law by President Bush on 26 October 2001. Of particular interest are the provisions in Title III of the act relating to correspondent bank accounts held in the US for foreign nationals. A correspondent account is an account established by a bank in one jurisdiction – the correspondent bank – to provide banking services for a bank in another jurisdiction – the respondent bank.
The US correspondent bank is required to adopt special due diligence measures for such accounts with effect from 23 July. However, the due diligence procedures put in place by Guernsey financial institutions should enable them, with the consent of their customers, to provide US banks with any due diligence material they may require.
The foreign respondent bank may be required to provide records held overseas when served with a summons or subpoena by the appropriate authorities in the US. It is required to nominate someone in the US to accept service. Failure to comply with the summons or subpoena will lead to termination of the correspondent relationship. This threat is a powerful incentive for a bank in Guernsey or elsewhere to provide the documents sought.
The UK Parliament has enacted the Anti-Terrorism Crime and Security Act 2001, which received the Royal Assent on 12 December 2001. The Proceeds of Crime Bill, which was announced in the Queen's Speech in June 2001 and introduced in Parliament on 18 October 2001, contains analogous provisions regarding money laundering offences generally. The 2001 act simply fast-tracked them in relation to terrorist offences.
Guernsey is enacting legislation to give effect to some of these anti-terrorist provisions. Among other things they will deal with the seizure of terrorist cash, account monitoring orders, freezing orders, and the reporting of suspicion by financial services businesses.
The events of 11 September 2001 have stimulated a number of measures by international bodies and individual states to tackle money laundering and terrorist funds. Some of these measures have had a direct impact on Guernsey, while others may point the way towards future legislation here. Most of them would probably have happened anyway but 11 September meant that they happened more quickly. Thus, 11 September is likely to prove a catalyst for evolutionary rather than revolutionary change to Guernsey's laws and regulations dealing with money laundering and terrorist funds.
Stephen Hellman is a barrister at Carey Langlois