17 March 2003
3 July 2014
13 January 2014
M&A Weekly Update: fraud, bribery and money laundering sentencing guidelines; limited liability partners as workers; and more
2 June 2014
24 January 2014
15 January 2014
White collar or economic crime is a major issue for businesses worldwide and as a leading offshore financial centre, the Bailiwick of Guernsey faces this ever-growing problem. A 2001 survey identified that the financial services sector appeared to be particularly at risk. The most prevalent frauds are embezzlement or breach of trust, while cybercrime is identified as a key concern of the future.
It is clear that prevention is better than cure, as the recovery rate following a fraud tends to be slow and the process painful and expensive. Whether one blames a lack of astute corporate governance or the lack of diligence of third parties, such as auditors, the result tends to be a loss to the institutional company situated outside Guernsey - where the finance centre has sometimes appeared to be attractive for the placement of funds that are the product of white collar crime.
Both the legislator and Guernsey's legal system have responded to the challenge to ensure that Guernsey continues to enjoy its reputation as one of the world's leading and well-established offshore financial centres. When the phrase 'white collar crime' was coined more than 50 years ago, it did nothing more than describe good old-fashioned crime committed by affluent individuals or businesses, but the weapons utilised in Guernsey and elsewhere to tackle this problem have included both criminal and civil legislation. Criminal cases now often involve civil, or at least quasi-civil, procedures and there are a number of examples of civil law tackling white collar crime.
The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law 1999 (The All Crimes Law)
The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law 1999, otherwise known as the 'All Crimes Law', covers the majority of cases through which the proceeds of criminal conduct are laundered. A person who is found guilty of an offence under this law is liable to a maximum of 14 years imprisonment.
The All Crimes Law is intended to complement, not replace, the previous laws covering drug trafficking and terrorism, but inevitably, as is the nature of criminal conduct and the proceeds that derive from it, there is always an element of overlap. Essentially, three offences were created under the All Crimes Law: concealing or transferring the proceeds of criminal conduct (Section 38); assisting another person to retain the proceeds of criminal conduct (Section 39); and acquisition, possession or use of the proceeds of criminal conduct (Section 40).
Under Section 38, the test is objective and the offence will be deemed to have been committed if a person should have had a suspicion, having had reasonable grounds to do so, even though he may not have had an actual suspicion. Under sections 39 and 40, the test of knowledge is a subjective one. Additionally, it is a defence to prove that the suspicion or belief had been communicated to the police.
Under Section 41 of the All Crimes Law, any person who knowingly 'tips off' another person and prejudices the investigation of the police into suspected money laundering will be guilty of an offence.
Duties of financial services businesses
Increased regulation for the prevention of money laundering imposes strict duties on persons and institutions involved in the finance industry, such as the legal profession.
The definition of a financial services business is a broad one and includes a wide range of financial, insurance, accountancy, actuarial and credit services. The definition extends to the legal profession insofar as the service provided to the client is not incidental to the provision of legal advice. This exception means that services carried out by a lawyer will be covered by the All Crimes Law, unless the service provided does not receive separate remuneration and is subordinate to the purpose for the primary service.
Specific duties imposed are enacted through the All Crimes Law in the form of regulations, the most recent being the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations 2002. The regulations require all Financial Services Businesses to comply with certain measures: to establish and maintain identification, record keeping and internal reporting procedures in relation to the business; to ensure that employees whose duties relate to financial services businesses are aware of the above procedures and relevant laws; and to provide key staff with comprehensive training in relevant laws and the anti-money laundering and anti-financing of terrorism policies and procedures in place in the business - the vigilance policy.
These procedures are taken very seriously and failure to comply with the regulations brings a maximum penalty of two years imprisonment or an unlimited fine.
The prevention of terrorism and countering the financing of terrorism
Guidance notes have been issued by the Guernsey Financial Services Commission (GFSC), Guernsey's equivalent to the FSA, which although not legally binding are regarded as highly persuasive when assessing whether a business has complied with the requirements of laws and regulations. They are treated by financial services institutions, the legal profession and the courts as a statement of best practice when adopting internal regulations to safeguard against money laundering and terrorism. They include a copy of the latest regulations and outline the types of suspicious transactions that should be carefully monitored to prevent money laundering in the Bailiwick.
The Drug Trafficking (Bailiwick of Guernsey) Law 2000
Penalties for the importation of drugs are severe in Guernsey. The courts and legal profession frequently deal with complex trafficking schemes attempting to import drugs. Due to the Bailiwick's relatively remote location, the importation of drugs has the potential for large profits. The large sums of money involved in the sale of drugs inevitably means that 'dirty money' is likely to be laundered through Guernsey's financial institutions and other organisations.
The need for effective legislation to combat the proceeds of drug trafficking being laundered through the Bailiwick is paramount.
The Drug Trafficking (Bailiwick of Guernsey) Law 2000 (DTL) came into force on 1 January 2000 and created the following offences: the concealment or transfer of the proceeds of drug trafficking (Section 57); assisting another person to retain the benefits of drug trafficking (Section 58); the acquisition, possession or use of the proceeds of drug trafficking (Section 59); failure to disclose knowledge or suspicion of money laundering (Section 60); and tipping off or prejudicing an investigation (Sections 61 and 66).
The prevention of terrorist funding
Since the events of 11 September 2001, wide-ranging regulation has been introduced to clamp down on the spread of terrorist funds. The Terrorism and Crime (Bailiwick of Guernsey) Law 2002 (T&CL) has been enacted to ensure that any suspicion of raising or holding terrorist funds must be reported to the relevant enforcement authorities. Failure to do so is an offence.
The T&CL is similar to the All Crimes Law in that the same classes or persons are included in the definition of financial services businesses for the purpose of the duties.
In response to international terrorist networks being exposed, legislation such as the Al-Qa'ida and Taliban (United Nations Measures) (Channel Islands) Order 2002, has been introduced to target specific cells and disrupt their financial arrangements in a bid to combat terrorist cells that seemingly grow ever more organised and well-funded.
Guernsey has the full range of civil remedies available to victims of a fraud, including freezing and disclosure orders that may initially be obtained without notice if the necessary requirements are met, and in any event prior to formal court proceedings of recovery being issued. The authorities in Guernsey will give assistance to fraud investigation authorities of other jurisdictions and Guernsey has no wish to be seen as a 'black hole' of the products of fraud.
Serious crime cases are dealt with by the Royal Court of Guernsey at first instance, which is constituted by a judge of the Royal Court sitting with a panel of three jurats, in much the same way as an English judge would sit with a jury. The jurats are appointed by the island's government and remain as a permanent panel until they reach retirement age.
John Greenfield is managing partner at Carey Langlois