Chief Minister, Ian Gorst, has told Ed Miliband he was disappointed to read his statement in the papers earlier this month.

UK Labour leader Ed Miliband’s threatened that if his party is voted into power in the next elections, he will give British tax havens six months to open their books.

Miliband had said he could put Jersey and Guernsey on a tax black-list unless measures are made to improve transparency.

Read the Chief Minister’s response here:

I am responding to your recent statement to the media that you have written to leaders in Jersey, Guernsey and the Isle of Man, as well as the UK Overseas Territories, about tax transparency and disclosure.

As Jersey Ministers and officials have reiterated many times in past discussions with the Labour shadow team, and as I discussed with you in Glasgow, the Island is fully committed to compliance with international standards of financial regulation, anti-money laundering, transparency and information exchange.

Although Jersey is largely autonomous from the United Kingdom, the Island has enjoyed a close and mutually beneficial relationship with successive UK Governments for many years, working collaboratively to fight financial crime and raise international standards. In addition, we have worked co-operatively with the UK government in recent years to deal with aggressive tax avoidance practices.

It was, therefore, with disappointment that I read your statement in press reports over the weekend.

I am therefore taking this opportunity to restate Jersey’s position regarding international information exchange, a central registry of beneficial ownership, and our other, extensive efforts to tackle financial crime:

Jersey is one of only a few jurisdictions with an effective, fit-for-purpose central registry of beneficial ownership already in place. The information contained within the register is subject to strict and robust validation, enabling Jersey to provide law enforcement and tax authorities with comprehensive, accurate and timely data. The register provides crucial information to authorities, ensuring they have the material they need to fight tax evasion, whilst also protecting the personal financial information of individuals and businesses. Most, if not all, G20, OECD and EU members have only a central register of legal ownership and do not have a central register of beneficial ownership as Jersey has. In addition, it would require an agreed change in international standards to require public registries of beneficial ownership. Jersey is a long-standing participant in global efforts to increase cooperation in tax affairs: Jersey is vice chair of the OECD Working Group on a global standard for automatic tax exchange and is a member of the Multilateral Convention on Mutual Assistance in Tax Matters. We joined over 50 other countries, known as the early adopter countries, in signing a Multilateral Competent Authority Agreement in Berlin in October last year. Jersey is able to provide law enforcement and tax authorities with the most up-to-date and comprehensive information to tackle tax evasion, including beneficial ownership information from our central registry, and information from our regulated trust and company service providers. The World Bank has recognised Jersey as a leader in this area. We share the same OECD rating as the UK, the US and Germany for our application of international standards on information exchange, supported by the signing of some thirty six tax information exchange agreements, and by our participation in the Multilateral Convention. In addition, I announced in July 2014 a new package of actions to tackle abusive tax avoidance. These measures have helped to deter individuals and businesses from using the Island for abusive tax avoidance activity that Jersey neither wants nor needs. I wrote to you in 2013 to make you aware of Jersey’s Value to Britain report, which outlined how the Island’s financial services sector is a significant contributor to the UK economy, adding over £9bn a year, and supporting some 180,000 jobs.

It is important that we continue to work with UK Governments to ensure Jersey’s financial services industry can remain competitive on a global scale, whilst actively supporting international efforts to prevent misuse and abuse of the offshore financial system. This is a dialogue we are keen to continue with future UK Governments.

As I have said in the past, and most recently in my letter to you last August, I would be happy to meet you, your shadow Treasury team and economic advisors to discuss tax transparency and disclosure. I should also like to renew my invitation to visit Jersey to see for yourself how the financial services industry operates and is regulated here. I look forward to hearing from you with a date for a meeting.

The FCA and PRA have published a joint consultation paper (FCA CP15/5 and PRA CP7/15) on the revised position of Non-Executive Directors (NEDs) of UK banks in respect of the Senior Managers Regime (SMR), as well as the application of the presumption of responsibility provisions introduced by the Financial Services (Banking Reform Act) 2013 to senior managers in banking firms.

The joint consultation paper sets out the regulators’ revised approach to NEDs, under which the following NEDs will be in scope of the SMR:

• chairman;
• senior independent director; and
• chairs of the risk, audit, remuneration and nominations committees.

The individuals performing these roles will be subject to all aspects of the SMR, including regulatory pre-approval, conduct rules and the presumption of responsibility.

The joint consultation sets out the regulators’ approach to NEDs in the pre-approval and individual accountability regime for Solvency II firms, and the PRA’s proposed fitness and propriety and notification requirements for NEDs outside the scope of the SMR (standard NEDs). The PRA proposes to make standard NEDs subject to the conduct rules.

As part of the consultation the PRA has issued a draft supervisory statement setting out how the PRA intends to apply the presumption of responsibility and the reasonable steps defence. The PRA proposes that in order for the presumption of responsibility to arise, it must be satisfied that:

• the individual is (or was) a senior manager;
• there was a contravention of the relevant requirement by the firm; and
• the senior manager was responsible for managing any of the activities in relation to which the contravention occurred.

The PRA states that the first and third elements are statement of fact. In respect of the second element, the fact that the PRA may have reached a bilateral settlement with a firm in relation to some or all of its breaches does not bind the PRA or the individual in considering whether this element is satisfied.

In relation to the reasonable steps defence, the PRA will not apply standards retrospectively or with the benefit of hindsight. The PRA sets out examples of the considerations the PRA may consider when assessing what steps are relevant.

Next steps. The joint consultation closes on 27 April 2015. The FCA and PRA will publish policy statements in spring 2015.

Copies of the joint consultation paper, 

the PRA’s consultation webpage, 

the FCA’s consultation webpage, 

the PRA’s press release and

the FCA’s press release

The Hong Kong Securities and Futures Commission (SFC) has banned Mr He Zhi Hua, former chief executive officer of Ping An of China Securities (Hong Kong) Company Limited (Ping An), for 12 months from any regulated activities due to his role in contributing to serious internal control deficiencies and other matters at Ping An between August 2010 and April 2011.

An SFC investigation concluded that Mr He acted as a nominee and was complicit in a number of suspicious transactions that should have been, but were not, reported to the SFC and the Joint Financial Intelligence Unit in a timely manner.

In addition the SFC found that Mr He failed to ensure that:

• Ping An had in place sufficient anti-money laundering internal control procedures and training to its staff; and
• appropriate and effective procedures existed to
  • (i) protect client assets in effecting payments; and proper communication and
  • (ii) enforce Ping An’s internal policies on employee dealings and account opening procedures.

The SFC noted that Mr He, who was the most senior person at Ping An, and in a position of authority in managing its business at the relevant period, tried to abdicate responsibility and to blame to subordinates when these deficiencies were uncovered.

The management conflict with his subordinates aggravated the internal control deficiencies.

Mr Mark Steward, Executive Director of Enforcement, SFC, said

“The SFC will hold senior management accountable for internal control deficiencies where it is clear they are involved and responsible”.

A copy of the SFC press release is available.

The FCA has published a note on how it handles disclosures from whistle-blowers. The note explains how the FCA engages with whistleblowers, what it does with information received from whistleblowers, and the impact of whistleblowers on the FCA’s work.

The note explains that:

1. in 2014, 1,367 people blew the whistle to the FCA, from which it produced over 1,100 intelligence reports;
2. whistleblowers commonly disclose information relating to the financial advice and intermediary sector, and frequently express concerns about the culture of a firm;
3. in 2014, the FCA shared intelligence with a wide range of UK and overseas law enforcement and regulatory bodies; and
4. the FCA recorded 79 cases in 2014 where whistleblowers claimed they had suffered detriment as a result of making an internal disclosure to their firm.

A copy of the note is available.

The FCA and the PRA have published a joint consultation paper (FCA CP15/4 and PRA CP6/15) on whistleblowing in deposit-takers, PRA-designated investment firms and insurers.

The joint consultation paper sets out proposed changes to the Senior Management Arrangements, Systems and Controls sourcebook (SYSC), which would require that firms:

1. put in place internal whistle-blowing arrangements;
2. inform UK-based employees about their whistleblowing arrangements;
3. offer protection to whistleblowers;
4. include provisions in new employment contracts to confirm that nothing in these agreements prevents an employee from making protected disclosures; and
5. allocate the prescribed responsibility for whistleblowing under the senior managers regime and senior insurance managers regime to a so-called “whistleblowers’ champion”.

Next steps. The deadline for comments is 22 May 2015.

Copies of the joint consultation paper, 

the PRA’s consultation webpage, the  

FCA’s consultation webpage and 

response form  

The Commission has today published Consultation Paper No. 4 2015 on revisions to the Money Laundering (Jersey) Order 2008 and Commission AML/CFT Handbooks.

The consultation has a much reduced comment period as the proposed amendments are as a result of the recent assessment of the Island’s compliance with some of the former FATF Recommendations by MONEYVAL evaluators.

The Island has a limited time period in which it is able to make amendments to the regulatory framework which must be taken into account by the assessors – this period finishes on 24 March 2015.

The consultation paper is available by clicking here.

The comment period closes 20 March 2015.

The leaked revelations about the tax-evading activities of the Swiss subsidiary of HSBC Bank rumble on. Britain’s Chancellor of the Exchequer has faced questions as to why, despite evidence of 1,100 tax-evading accounts being passed to the government in 2010, there has been only one prosecution—and why the chairman of HSBC was subsequently made a government minister.

The scandal is a reminder that the global institutions which try to prevent money laundering are not just ineffective—they’re also incredibly expensive to maintain. It’s time to cut them down to size.

The multilateral Financial Action Task Force (FATF), which ostensibly regulates money laundering, emerged as a response to the war on drugs and has expanded during the war on terror. The rules now officially cover almost every country. Not only banks but also lawyers, car dealers, currency exchanges, casinos, and realtors are required to report “suspicious” customers who appear to have more money than they can account for through legal transactions. If laundering activities that banks fail to report are subsequently uncovered, banks may get heavily sanctioned: HSBC itself was previously forced to pay $1.92 billion in fines related to laundering Mexican drug cartel proceeds.

Michael Levi of Cardiff University and Peter Reuter of the University of Maryland have studied the global anti-money-laundering system (PDF http://bit.ly/1AFwSjt) and conclude that it has helped facilitate some criminal investigations and prosecutions. But at best, it snares just a fraction of 1 percent of criminal income flows. A lower-end estimate for global laundering transactions is 2 percent of global gross domestic product—or about $1.5 trillion. Global money laundering convictions involve at the most hundreds of millions. In the U.S., a generous estimate of seizures would amount to a mere 0.2 percent of all laundered funds.

In a later study commissioned by the International Monetary Fund, Levi and Reuter along with Terence Halliday conclude that “[t]here is substantial skepticism about the efficacy of global systems and national regimes to control money laundering and the financing of terrorism,” and no demonstration of its benefits. In part that’s because the regulations are enforced so poorly—the U.S., for example, does not have a register of company beneficial ownership (listing who receives how much of a company’s proceeds), a key FATF requirement.

And an experiment (PDF http://bit.ly/1EqHFkA ) that involved sending 7,400 fake e-mail solicitations to corporate service providers in 182 countries asking to create anonymous companies—in which the e-mailer appeared to be involved in illegal activities—found that almost half of all replies did not ask for proper identification as required under FATF regulations. Service providers in the U.S. and U.K. were even less likely to ask for identification than companies based in developing countries and tax havens.

In the best of cases, anti-money-laundering efforts are likely to do no more than raise the cost of transactions. A system that misses all but a fraction of a percent of criminal financial flows is almost guaranteed to miss terrorism finance in particular, which involves very small sums: The Madrid and London terror bombings cost no more than $10,000 to finance; the Sept. 11 attacks, less than $500,000. That may be one reason why none of the reported money laundering prosecutions to date have involved terror finance.

Though the regulations have limited impact on criminal activities, they still cost money. Tracking illicit money flows requires a considerable bureaucracy. Enforcing the regulations cost an estimated $7 billion in the U.S., and probably far more.

Mauritius, a small, middle-income country of just 1.3 million people, has 25 government officials working on FATF implementation. That’s more people than are listed as opticians in the country. Each bank in Mauritius will also have staff tasked with carrying out customer investigations.

Perhaps most insidious, the regulations have disproportionately affected the kinds of business transactions that serve small, poor economies. FATF rules are why Merchants Bank of California cut off money transfers to Somalia last week, the last U.S. financial institution to do so. Between $160 million and $180 million of remittances will be affected by Merchants Bank’s action, but from its point of view, cutting services is the only safe course. It faced immense potential liabilities if it turned out that one of the accounts receiving funds in Somalia was linked to terrorist activity. Yet there’s no evidence any of the remittances were going to fund terror groups; most were being used to support schooling, housing, food, and other living costs for Somalis. The country is one of the poorest in the world and remittances are equal to about one-third of the country’s GDP.

No doubt, Somali expatriates will find other ways to send the money, but they will cost more and are likely to involve less savory financial institutions as intermediaries. Given that, and the link between people losing their livelihoods and terror recruitment, it is all too possible the FATF regulations will give rise to better-funded and larger terrorist groups.

We need global cooperation to track illicit financial flows and catch tax cheats, but the rules governing that cooperation should be reasonable, effective, and fairly enforced. The Financial Action Task Force is made up of a semi-formal group of representatives from the world’s largest economies who meet for a few days each year. Its recommendations are subject to no analysis of costs and benefits or democratic scrutiny. Yet any country worldwide that does not meet FATF standards can be subject to financial sanctions—despite the record of partial enforcement by task force members themselves. It’s time for this incompetently authoritarian global organization to be held to account, and a set of money laundering rules that do far more harm than good to be significantly reformed.

http://bloom.bg/1w3crZM

In February 2014 the Central Bank of Nigeria (CBN), as part of its efforts to develop “a safe reliable and efficient payments system in Nigeria”, launched its Bank Verification Number (BVN) project.

Under this initiative,

1. All bank customers must complete biometric registration (fingerprints and photographs) and obtain a BVN, through which all transactions by that particular customer may be verified.

TRANSACTIONS DEADLINE for Bank Verification Number (BVN) project.

2. In September 2014, in order to quicken the pace of registrations, the CBN directed that all bank customers must have a BVN by June 2015, and that from March 2015 only customers with BVNs will be permitted to make transactions in excess of N100 million (approximately $500,000).

3. As from June 2015, the provision of a BVN will be a requirement for every customer as part of a bank’s know-your-customer procedures.

VOTERS CARD

4. Each of Nigeria’s 60 million registered voters has also been issued with a voter’s card that includes his or her fingerprints and photograph (apparently, only 30 million cards have actually been delivered to voters, with elections scheduled for March and April).

5. Every holder of a driver’s licence must further have had his or her photograph and fingerprints taken at a licence issuing office; although despite this, individuals can still secure licences in fictitious names.

6. Every passport holder is also required to have had his or her photograph and fingerprints taken at a passport office.

7. This information may be shared internationally, but does not appear to be available to local law enforcement agencies.

MOBILE PHONES

8. At present, the Nigeria Communications Commission (NCC) requires that every single active mobile telephone number have an individual’s biometric data registered to it.

9. However, this does not appear to have assisted law enforcement agencies in apprehending kidnappers, who tend to negotiate ransoms with the use of mobile phones.

10. According to NCC statistics, there were more than 136 million active mobile phone lines in Nigeria as at November 2014.

WHAT ISSUE

11. Notwithstanding these initiatives, law enforcement agencies in Nigeria continue to experience serious challenges in dealing with fraud involving banks, as well as with other crimes.

12. Other than the general constitutional provisions relating to privacy, Nigeria has no legislation regulating how such data should be stored or accessed.

13. Towards the end of 2014, there were reports of a marked increase in fraudulent instructions for the transfer of funds to accounts held in various banks.

14. These accounts regularly turn out to be held by persons who have provided false information; and all of the information held by the banks do not appear to have been of any great assistance to those who have lost money as a result.

15. It remains to be seen whether the BVN initiative will result in any significant reduction in these types of fraud.

It is also unclear how banks will deal with accounts held in corporate names.