It was reported in the JEP on 09/03/2015 that –

MORE than 20 major fraud cases involving millions of pounds being allegedly laundered through Jersey banks by people from all over the world are being actively investigated by financial crime detectives, the States police have revealed.

The operations department of the Joint Financial Crimes Unit are working on 23 ‘major’ investigations, some of which have been active for up to six years. All allegedly involve millions of pounds.

Detective Inspector Dave Burmingham, head of the unit, said the cases involved jurisdictions, people and financial institutions across the globe.

An average of ten reports concerning the potential financing of terrorism every year were also received by the JFCU, he added, and all were thoroughly investigated. However, nothing had ever been found.

In 2013 a report found that Jersey contributed more – £118 billion – to the UK economy that it lost through its financial operations. The same report from Capital Economics concluded that the amount of tax evasion ‘plausibly’ facilitated through Jersey has been no more than £150m a year.

However Det Insp Burmingham could not rule out the possibility that funding for terrorist organisations such as Islamic State and Al Qaeda could pass through Jersey in the future.

‘We have got 23 major investigations going on at the moment. These are multi-million pound investigations involving very complex structures from all around the world across most of the continents,’ Det Insp Burmingham said.

‘We have investigations going on in the operations department at the moment that have been gong on for six years.’

He added that due to the Island’s proximity to Europe and London it was an attractive location for money launderers and possibly those financing terrorism too.

‘We have not had any[major] terrorist finance investigations so far in Jersey,’ he said. ‘But we do stay extremely alert to it. The same reason Jersey is attractive to legitimate investors – it is highly respected, it has close links to London and Europe – also makes it attractive to money launderers.

‘We are always vigilant to the threat and all of the staff in our team are trained in London by the National Terrorist Financial Investigation Unit. We treat it very seriously and we are not complacent.’

Asked if money passing through Jersey could be used to fund terrorist activities around the world Det Insp Burmingham said: ‘You can never say never.’

The detective also revealed that his department had received an increased number of Suspicious Activity Reports – notifications that are presented to the police by a financial institution if they come across a suspicious transaction. However he stressed that it did not mean that there had been an increase in financial crime.

‘We receive about 2,300 SARs a year,’ he said. ‘They have increased over recent years but I think this is due to a change in landscape of tax matters around the world. General awareness has increased and so has Jersey’s regulatory and legal framework. For financial institutions, reporting something to us gives them protection from the law. We have certainly had an increase in reports but I would not say there had been an increase in crime.’

The JFCU, which has grown to become one of the largest departments in the force with 28 staff, is connected to 147 jurisdictions and global crime-fighting agencies – including Europol – worldwide through the Egmont Group of Financial Intelligence Units.

http://bit.ly/1KLWanZ

Civil Liability for Breaches of the JFSC codes

1. On 20 February 2015, the Financial Services Commission (Amendment No. 6) (Jersey) Law 2015 was registered (Amendment Law).
2. The Amendment Law makes changes to the Financial Services Commission (Jersey) Law 1998 to include Provisions to enable the Jersey Financial Services Commission to impose civil financial penalties for material contraventions of the Codes of Practice and the AML/CFT Handbook and
3. The provisions comes into force on 20 March 2015.

Who will be affected?

4. All entities registered under the
   1. Banking Business (Jersey) Law 1991,
   2. the Insurance Business (Jersey) Law 1996 and
   3. the Financial Services (Jersey) Law 1998

What Is Required?

5. Must adhere to the relevant Codes of Practice and the AML/CFT Handbook published by the JFSC.

What will be the level of penalties?

6. The JFSC’s consultation paper on the level of civil penalties indicates that there will be three levels of penalty, depending on the seriousness and circumstances of the breach of the Codes of Practice.

7. The highest level of financial penalty would be up to 8% of ‘relevant income’.

8. ‘Relevant income’ is proposed to be income derived from licensed business activities.

9. There is proposed to be no cap (similar to the £200,000 cap on civil penalties that may be imposed by the Guernsey Financial Services Commission) on the level of penalty that can be imposed for more serious breaches.

10. The consultation period on the level of civil penalties ended on 2 March 2015.

Consultation on processes and principles

11. The JFSC has published a consultation paper on the proposed JFSC statement on the principles and processes it will adopt under the civil penalties regime.

12. The consultation paper indicates that the JFSC intends to amend its existing Guidance Note on the JFSC Decision Making Process so that it can be used in the context of civil penalties.

The existing four stage decision-making process will be retained.

A discounted penalty scheme would be included so that where a settlement agreement is entered into before Stage Four of the process has been reached then a discount in penalties is available.

The earlier that a settlement agreement is entered into, the larger the maximum discount.

The Guidance Note: Decision Making Process will also be amended to include a statement of principles.

1. It is proposed that these will include certain principles that the JFSC must take into account under the Amendment Law (such as the seriousness of the contravention and whether it was voluntarily reported)
2. as well as a list of aggravating and mitigating factors (for instance a poor compliance record on the one hand and co-operation with the JFSC on the other).

13. The consultation period on the JFSC statement on the principles and processes ends on 16 March 2015.

Are you ready for civil liability?

14. Registered persons SHOULD confirm that they comply with the Codes and AML/CFT Handbook in good time before civil penalties for breaches are implemented.
    1. In particular, the Codes were amended with effect from 1 July 2014 and further requirements imposed.
    2. The AML/CFT Handbook was amended with effect from 1 January 2015.

15. Registered persons SHOULD conduct a thorough gapping analysis to ensure that they comply to the higher standards.

Martin Wheatley has given a speech entitled “From intellectual certainty to debate”

Mr Wheatley discussed the changes in the regulatory landscape in the last ten years and examined the FCA’s current approach to

1. foreign exchange (FX) remediation,
2. the Fair and Effective Markets Review (FEMR),
3. MiFID II implementation and
4. wholesale markets competition.

http://bit.ly/1MmuhjJ

The FCA has published an occasional paper on behaviour economics to explore how consumers have significantly overestimated the expected returns on structured deposits.

The findings highlight the importance of firms designing structured products that are suitable for their clients’ levels of financial sophistication and note a number of areas for improvement including:

1. putting customers at the forefront of firms’ approaches to product governance;
2. providing customers with clear and balanced information on each product and the risks associated with it; and
3. manufacturers should strengthen how products are monitored throughout the lifecycle.

Copies of the

1. paper;  http://bit.ly/1wj1NDH
2. technical appendix;  http://bit.ly/1EuAyc5
3. webpage; http://bit.ly/1EuAyc5
4. thematic review report; http://bit.ly/1wj1E2V
5. Ignition House qualitative research; http://bit.ly/1Hlyod1
6. and press release http://bit.ly/1CUauGO 

Over recent months, international 
sanctions and export controls have 
featured heavily in the news; the recent escalation of tension in the Korean peninsula, the ongoing conflict in Syria
and Iran’s continued attempts to develop nuclear weapons are all examples of international situations where sanctions or trade controls are in force.

Even 
though these are examples that attract headlines, there are multiple pitfalls in 
other less high-profile countries and industries in which an unaware company can slip up and which can result in serious implications for the company and the individuals involved.

It therefore seems 
like a sensible time to provide an introduction to those unfamiliar with the area as well as identify key areas of potential concern for those in an
in-house/compliance role.

At the risk of being overly simplistic, sanctions and embargoes are political 
trade restrictions put in place against 
target countries with the aim of 
maintaining or restoring international 
peace and security.

Sanctions commonly take the form of:

1. financial sanctions on government officials or former officials and their families, government bodies and associated companies and terrorist groups and individuals associated 
with those groups;
2. embargoes on exporting or supplying arms and associated technical assistance, training and financing;
3. a ban on exporting equipment 
that might be used for internal repression; and
4. bans on imports of raw materials 
or goods, such as oil, from the 
sanctions target.
5. In addition, export controls are aimed at categories of goods and are a vital tool of the British government in performing the function of ensuring that UK citizens who are involved in the trade of controlled goods are fit and proper people to do so, as well as to gather intelligence so the UK authorities are aware of what controlled goods other countries are buying.

This article is solely focused on the UK aspects of sanctions and export controls, but companies should be aware of the extremely long reach of the US authorities and legislation, under which severe penalties can be imposed if jurisdiction can be obtained.

EXPORT CONTROLS

By way of background, the trade in strategic goods and technology is governed by the Export Control Act (ECA) 2002 and various regulations made under it.

The most important of these is the Export Control Order 2008 (the 2008 Order) but it should be noted there are a number of additional territory-specific orders that are made under the ECA 2002 which are also currently in force.

The goods and technology which the legislation covers are detailed in a document titled the Military List [1] but for the purposes of this article we assume that companies involved in the trade of military hardware are familiar with the relevant provisions of the legislation.

Of more concern for non-defence industry businesses is that a number of commercial goods with potential uses in industry also have the potential to be used for military purposes or terrorism.

Examples are components from

1. the aviation or telecommunications industries;
2. certain chemicals;
3. information security products like encryption software; and
4. radioactive materials.

These items are commonly known as ‘dual use’ items.

It is these items that require particular care and attention.

The legislation applies to the export of dual use goods from the UK or, if going directly or indirectly to a specific prohibited destination, then the transfer of dual use software or technology by electronic means.

The important thing to note about UK export control legislation is that it applies equally to persons carrying out activities in the UK and to the activities of UK persons, wherever in the world they may be.

A UK person is a UK national or a body incorporated under the law of any part of the UK. A UK national is defined, inter alia, as an individual who is a British citizen, whether or not they also hold another nationality and irrespective of where 
they reside.

Once it has been determined that the legislation bites on an individual or company and the type of goods, then any intended transaction can only lawfully take place under the authority of a valid UK licence. Licences are obtained from the Export Control Organisation (ECO), but this can 
be a time-consuming and complicated process which, in our experience, can take weeks and in some cases months. This can be damaging to a business when a client wants to obtain the goods urgently. Sometimes additional delays are incurred because ‘end-user’ undertakings need to be obtained, confirming the ultimate destination of the goods.

Breach of the export control legislation is a criminal offence which usually takes one of two forms.

Most of the export control prosecutions in relation to dual use goods have proceeded with an offence under the Customs and Excise Management Act 1979, which makes it an offence for a person to export goods in circumstances where the export is restricted or prohibited regardless of a company’s ignorance of the relevant export control. If found guilty, the maximum fine is up to three times the retail value of the goods or £1,000, whichever is the greater. There is also the more serious offence of deliberate evasion of the export control legislation, which can lead to a term of imprisonment of up to ten years.

In addition to any sentence imposed by a court and the reputational damage that a conviction can attract, the other often overlooked issue is that, following a successful prosecution, the government could seek to obtain a confiscation order for the benefit of the criminal conduct. This is a complicated area but, depending on the value of the goods, could be a significant amount of money and be financially very damaging for a company.

As would be expected, some countries 
have stricter controls if they are 
embargoed destinations.

These countries change but at present include Armenia, Azerbaijan, Belarus, Burma, Democratic Republic of Congo, North Korea, Eritrea, Iran, Lebanon, Iran, Ivory Coast, Lebanon, Libya, Syria, Sudan and Zimbabwe. Extreme caution should be taken in relation to trade in controlled or dual use goods with these countries.

By way of an example,

• Christopher Tappin, a UK business man, was extradited to the US to face charges of supplying batteries for surface-to-air missiles to Iran. In November 2012 Mr Tappin pleaded guilty and received a 33-month jail sentence.

The message is clear in relation to exporters or traders of dual use goods; if there is any doubt at all about the status of an item then the company must contact the ECO and confirm whether or not a licence is needed. Ignorance of the relevant control is not a defence and, as can be seen above, lack of compliance could have serious implications on both the business and individuals.

SANCTIONS


While export controls are very broad in the way they are targeted, sanctions are intended to be more focused, whether that be on specific countries or specific individuals.

Sanctions are imposed at individual state level following a UN Security Council resolution and, as appropriate, EU regulations. In the UK, sanctions are then generally applied by way of secondary legislation, such as statutory instruments.

In the UK, HM Treasury is responsible for the implementation and administration of international financial sanctions that are in effect. The relevant statutory instruments apply to any person in the UK and to any person elsewhere who is a British citizen or is a body incorporated or constituted under the law of any part of the UK including banks, financial institutions, charitable organisations and non-governmental organisations. The UK statutory instruments do not apply to subsidiaries operating wholly outside the UK and which do not have legal personality under UK law.

Once sanctions have been imposed on a designated person, then their funds and property are frozen and may not be 
dealt with in any way unless a licence 
has been obtained from HM Treasury. If an individual makes any funds, economic resources or, in some circumstances, financial (or related) services available directly or indirectly to or for the benefit 
of persons listed under the relevant statutory instrument or EC regulation, 
then they would be guilty of a criminal offence which carries a potential maximum prison sentence of seven years.

Following the Arab Spring, both the UN and EU imposed wide-ranging sanctions on both former government officials and their families and connected businesses and financial institutions. Similar restrictive measures have been imposed on Iranian institutions in order to apply pressure on the Islamic Republic of Iran to end nuclear proliferation and the development of nuclear weapon delivery systems. In broad terms, these restrictive measures are incredibly onerous as the asset freeze applies to all assets including family trust funds and UK subsidiaries. On an individual level the sanctions can be damaging as it is suddenly not possible to pay bills, manage stock portfolios or pay mortgages. On a corporate level these measures can be crippling.

From a designated company’s point 
of view, a significant area of concern 
in relation to restrictive measures is 
the lack of specific evidence that the Council of the European Union have when applying the measures. A recent European Court judgment2 criticised the Council 
and held that the fact that the bank 
was part-owned by the Iranian state 
was not of itself a ground for designation, and could not justify the imposition of restrictive measures as support for an allegation that the bank provided support for Iranian nuclear proliferation. In addition, the Court said the Council’s reasons were ‘excessively vague’. Similar criticism has been made in relation to the evidence produced against individuals.

A perhaps more relevant issue relates to companies which hold or deal in funds or other economic resources for a designated person or company. If that is the case, then it is essential that a company does not deal, use, alter, move, allow access to or transfer the funds unless a licence is obtained from HM Treasury.

The restrictions also apply to brokers and portfolio management. The only exception to this is that funds, such as interest payments, may be credited to a designated person or company.

In practical terms, a company that holds or deals in funds belonging to a designated person or company should work with the designated person and their professional advisers to draft licences for submission and approval from HM Treasury. This is particularly important when the funds may also belong to a non-designated person, for example where there is a trust of which a designated person is one beneficiary but the other beneficiaries are not the subject of the restrictive measures. In situations like this, tension can arise between the trustees and the non-designated beneficiaries, and this is where working together to obtain the appropriate licences is a sensible and pragmatic course of action.

NOTES


Schedule 1 to the Export of Goods, Transfer of Technology and Provision of Technical Assistance (Control) Order 2003 which should be cross-referenced with the Department for Business, Innovation & Skills document titled ‘The UK Military List of Items That Require Export Authorisation’.

Bank Saderat Iran v Council.

Case T-494/10 Bank Saderat Iran v Council (5 February 2013)

http://bit.ly/18Xp1oO

Billions of pounds of corruptly gained money has been laundered by criminals and foreign officials buying upmarket London properties through anonymous offshore front companies – making the city arguably the world capital of money laundering.

Some 36,342 properties in London have been bought through hidden companies in offshore havens and while a majority of those will have been kept secret for legitimate privacy purposes, vast numbers are thought to have been bought anonymously to hide stolen money.

The flow of corrupt cash has driven up average prices with a “widespread ripple effect down the property price chain and beyond London”, according to property experts cited in the most comprehensive study ever carried out into the long-suspected money laundering route through central London real estate, by the respected anti-corruption organisation Transparency International.

Some sources claim it has skewed developers towards building high-priced flats and houses rather than ones ordinary people can afford.

While corruption and tax evasion are likely to be the biggest sources of the illicit money, drug dealing, people trafficking and sanctions busting are also common, police say.

TI’s research, which includes previously unreleased internal figures from the Metropolitan Police Proceeds of Corruption Unit, found that 75 per cent of properties owned by people under criminal investigation for corruption are held through secret offshore companies.

London has become a global magnet for corrupt funds, TI said, due to the high prices of property – enabling millions of pounds to be laundered at a time – and Britain’s notoriously lax rules on the disclosure of property ownership. Any anonymous company in a secret location, such as the British Virgin Islands, can buy and sell houses in the UK with no disclosure of who the actual purchaser is. Meanwhile, TI said, estate agents only have to carry out anti-money-laundering checks on the person selling the property, leaving the buyers bringing their money into the country facing little, if any scrutiny.

Anti-corruption activists including Boris Nemtsov, the Russian opposition figure murdered in Moscow last Friday, have repeatedly expressed frustration that the UK does so little to stem the flow of money stolen from their countries.

Robert Barrington, executive director of TI, said: “This has a devastating effect on the countries from which the money has been stolen and it’s hard to see how welcoming the world’s corrupt elite is beneficial to communities in the UK.”

Over £180m of UK property has been investigated by police in the past decade, but this is likely to be only a small proportion of the actual amount, the report says. UN figures suggest only 1 per cent of money laundering flows are   detected.

Detective Chief Inspector Jon Benton, director of operations at the Proceeds of Corruption Unit, said: “Properties that are purchased with illicit money, which is often stolen from some of the poorest people in the world, are nearly always layered through offshore structures.

“In nearly all the grand corruption cases we investigate, we find – what we suspect is – proceeds of corruption being used to purchase high-value properties.”

Preferred option: the British Virgin Islands Preferred option: the British Virgin Islands

Companies set up in the Crown Dependencies and British Overseas Territories such as Jersey, British Virgin Islands and Gibraltar are the preferred option for concealment of corrupt property purchases.

More than a third of company-owned London houses are held by effectively anonymous firms in the British Virgin Islands. Jersey companies own 14 per cent and the Isle of Man and Guernsey 8.5 per cent and 8 per cent.

Mr Benton said: “The lack of access to beneficial ownership information about offshore companies that hold property in the UK is a major barrier for our investigations.”

The TI report highlights how little reporting of potential corruption there is from estate agents.

Along with financial services firms, lawyers and art dealers, they are designated as “gatekeepers” who must file reports to the National Crime Agency if they see anything suspicious.

However, property agents only filed 0.05 per cent of all such Suspicious Activity Reports last year – a mere 179 across the whole of the UK.

The average selling price over the past three years of the vast mansions that dot this suburban street was £16m. The most recent sale registered on the Zoopla tracking website was for £33.7m.

Carlton House on The Bishops Avenue in north-west London, owned by Mukhtar Ablyazov (Susannah Ireland) Carlton House on The Bishops Avenue in north-west London, owned by Mukhtar Ablyazov (Susannah Ireland)

Yet one property, Carlton House, has remained unsold for years at £14m. Perhaps buyers are put off by the 10-person Turkish bath, the flashy 50ft ballroom or the place’s passing resemblance to a souped-up Barratt home.

More likely is the fact that this is part of the chattels of the alleged money launderer and fraudster Mukhtar Ablyazov. The property is being sold to repay the Kazakh bank BTA part of the $6bn (£3.9bn) it claims he embezzled – a charge that he denies.

Mr Ablyazov, currently awaiting extradition in France to Russia, Ukraine and Kazakhstan, claimed the property was not his, and that he was only renting it. But the High Court in London, after scrutinising the network of offshore companies used to buy it, concluded he was the buyer.

As with most such cases, the hugely complex task of tracing the owner was undertaken by a law firm working on private court actions.

Money laundering is rarely prosecuted by the UK criminal authorities.  However, a rare criminal action was taken against James Ibori, a Nigerian politician who stole millions of pounds of oil revenues from Delta State, where he was the governor.

He was found guilty of fraud and money laundering in the UK criminal courts in 2012. A massive police investigation here found that, using offshore companies in secretive locations, he had bought a host of London properties including a six-bedroom house with an indoor pool in Hampstead for £2.2m and a flat opposite the nearby Abbey Road recording studios. The court heard he also owned a property in Dorset, a £3.2m mansion in South Africa and further real estate in Nigeria.

Saadi Gaddafi, the playboy son of the Libyan ruler, had his £10m Hampstead Garden Suburb mansion seized as the post-revolutionary government there sought to capture the billions of dollars believed to have been plundered by his family and laundered abroad.

As would be expected, his ownership of the eight-bedroom house, featuring a suede-lined private cinema, was not simple to prove. He had bought it in the name of a British Virgin Islands company with the typically meaningless name Capitana Seas Ltd

http://ind.pn/1AGYykL

British fraud prosecutors expect a speedy investigation into the possible rigging of efforts to support the financial system during the credit crunch after they moved to start a formal inquiry, a source familiar with the investigation said.

The Serious Fraud Office has said it is looking into liquidity auctions held by the Bank of England in 2007 and 2008 — which aimed to help banks to weather the onset of the financial crisis — after receiving material from an inquiry commissioned by the central bank.

The source said the investigation is unlikely to be as lengthy and costly as some of the large and complex cases handled by the SFO, such as the continuing investigation into alleged manipulation of Libor interest rate benchmarks, which began in 2012.

For its biggest cases, the SFO has had to request so-called “blockbuster funding” from the government to prop up its meagre annual budget, around 35 million pounds ($53 million).

The BoE said late on Wednesday that it had carried out an internal investigation into the auctions and passed the information to the SFO in November last year.

The SFO said on Thursday that it had begun an in-depth, criminal investigation in December, less than a month after receiving the material from the BoE.

The source told Reuters that the material raised sufficient concerns that a prompt investigation was merited without the need to first seek further information or search warrants.

It is not known if the investigation is focused on BoE staff or employees, on banks that took part in the auctions, or both.

The inquiry remains in the early stages and has yet to pass the prosecutorial “code test”. The test means prosecutors need to decide whether there is sufficient evidence to provide a realistic prospect of conviction and that a prosecution is in the public interest, the source said.

The Bank said last week it had made a series of changes to how it gathered information from markets after it was drawn into a scandal over the alleged manipulation of foreign exchange markets last year.

It also said it had improved record-keeping and provided more training for staff once a separate inquiry found its chief foreign exchange dealer failed to escalate his concerns about possible currency market-rigging.

In recent months, the Bank has passed on more than 40 cases of possible misconduct for investigation by Britain’s Financial Conduct Authority, the main regulator of financial markets.

http://reut.rs/1BO8crg

Draft of UN report shows U.S., Ireland responded to UN inquiries over sanctions breach

Dennis Rodman and betting company Paddy Power appear to have escaped punishment following charges they breached UN sanctions prohibiting the transfer of luxury goods to North Korea, a draft of a forthcoming UN Panel of Experts (PoE) report shows.

The former NBA basket baller and Irish gambling giant were investigated last year by the PoE over items they had presented to North Korean leader Kim Jong Un during a much publicized visit to Pyongyang in December 2013.

Yet despite evidence of the gifts from multiple sources, the PoE report said Washington had insufficient information to confirm Rodman had breached sanctions, though noting items he gifted were “likely to be considered luxury goods” according to Department of Commerce regulations.

The luxury goods list detailed in Supplement No. 1 to part 746 of the Export Administration Regulations of the U.S. Department of Commerce includes alcoholic beverages – and the PoE’s last two reports said Rodman had brought unspecified bottles of wine and five bottles of American vodka to North Korea.

According to the draft report seen by NK News, Washington told the panel “that appropriate measures were taken in response” to the case, though  details of those measures remain unclear. A Department of Treasury spokesperson told NK News on Friday that as a rule, they are unable to comment on possible or pending investigations.

Following an NK News investigation in January 2014, the 2014 PoE report confirmed Paddy Power as having taken a bottle of whiskey, two whiskey glasses, a whiskey decanter and a Mulberry handbag as gifts into North Korea, seemingly in breach of the EU’s own luxury good list.

While the EU list bans the transfer of “high quality…spirits and spirituous beverages…handbags and similar articles, …[and] … lead crystal glassware,” the Irish government told the PoE that the total value of the goods transferred was low, that it was a “once-off” arrangement, and that it would not be pursuing a case against Paddy Power.

NK News attempted to reach Paddy Power for comment but did not receive a response by publication.

The PoE concluded by saying that “None of the parties involved intended to evade or violate the luxury goods ban.”

“This case illustrates the potential risk of travelers inadvertently violating the luxury goods embargo should they take gifts or other items into the Democratic People’s Republic of Korea,” it added.

http://bit.ly/1aPItUW

http://bit.ly/1BNLlfB