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In May the EU published a white paper detailing the countries it considered to have in place anti-money laundering controls the equivalent to the EU’s own. The list, which is still in draft phase, has caused uproar in the offshore profession, for while it highlights Russia and Mexico as having top-quality controls, other key offshore centres have received less palatable reviews.
Jersey, Guernsey and the Isle of Man have been placed by the EU on an ‘intermediate’ list of financial centres that “may” meet compliance regulations. This has angered the three Crown dependencies, which claim they have done everything possible to put their houses in order.
Meanwhile, the EU Committee on the Prevention of Money Laundering and Terrorist Financing, which drew up the list, named 13 territories (see box, page 26) as having EU-equivalent money laundering standards.
The white list of approved ;countries allows companies operating in EU states to waive some checks they would normally be required to carry out on financial transactions carried out with companies abroad to ensure they do not involve the proceeds of crime.
The inclusion of the Russian Federation has prompted senior offshore lawyers to question the motives behind the list.
Jersey-based BakerPlatt published its own report in response to the paper, showing that Jersey has been given a high compliance rating by several independent reports, including the International Monetary Fund (IMF).
“Whether the decision was a political one or not, it must be considered unlikely that the decision to omit Jersey was based on a record of compliance with international standards,” the report said.
The IMF’s 2003 assessment of supervision and regulation of the jurisdiction noted that “the financial regulatory and supervisory system of Jersey complies well with international standards”.
The IMF also said Jersey had responded positively to the recommendations of an earlier Financial Action Task Force (FATF) on anti-money laundering and that Jersey complied, or largely complied, with every recommendation made by FATF.
Australia and Canada, by contrast, had achieved low levels of compliance (20 and 23 per cent respectively) with the FATF recommendations, yet are included on the white list.
As BakerPlatt chairman Stephen Platt points out: “It makes it difficult for the EU to justify their inclusion on the white list on the grounds of equivalence.”
“It’s politically driven and there’s no good reason why the Crown dependencies are not on the list,” says one senior Guernsey-based partner. “It’s an outrageous statement.”
Maples and Calder managing partner Charles Jennings has also come out in defiance of the list. In this Offshore Special Report he highlights the discrepancies between assessment standards of the various supervisory committees and warns that EU countries may come across significant challenges when trying to assess the anti-money laundering standards in various countries.
Jennings ;writes: ;“Questions ;of impartiality, fairness and accuracy aside, EU countries may have to confront a more fundamental, practical concern
in relation to their use of the list. How can members credibly rely on the white list for anti-money laundering equivalence when it includes countries such as Argentina, Brazil, Mexico, the Russian Federation and South Africa, which are known to have inferior systems and controls? Moreover, how can EU members rely on each other when countries such as Greece (12), Finland (20), Iceland (22) and Denmark (24) meet less than half of the FATF recommendations?”
By FATF standards, the Cayman Islands ranks above all these countries and the UK for anti-money laundering controls.
It is worth noting that the white list is still in draft form and currently it is understood that offshore regulatory authorities are working with the EU committee to see what can be done to improve standards further.
One method could be to increase significantly reporting of suspicious financial activity in offshore jurisdictions.
In November 2007, a report by the National Audit Office (NAO), ‘Managing Risk in the Overseas Territories’, said the IMF had reported “that the number of suspicious activity reports appears to be low”.
The NAO added: “Global experience shows that, as tougher requirements are imposed and enforced, and effective awareness programmes implemented, the number of valid suspicious transaction reports rises substantially.”
The most recent figures (for 2005) show that Cayman made 244 reports of suspicious activity, compared with the British Virgin Islands’ (BVI) 101 complaints. Nevertheless, this is substantially fewer than the 1,162 complaints made by Jersey, or the 1,652 made by he Isle of Man.
If the EU fails to amend the draft list when it finalises the white paper it will be faced with an international backlash and could reasonably be expected to offer some justifications for its reasoning.
The inclusion of Russia and Mexico, the omissions of Cayman and the BVI and the minimal recommendation on Jersey rightly raises some questions about the methodology used by the EU.