The Syria (European Union Financial Sanctions) (Amendment) Regulations 2013 (SI 2013 No. 877) (2013 Regulations) will come into force on 7 May 2013.

The 2013 Regulations amend the Syria (European Union Financial Sanctions) Regulations 2012 (SI 2012 No. 877) which provide for enforcement of, and penalties for breaches of, EU financial sanctions in relation to Syria imposed by Council Regulation (EU) No. 36/2012 concerning restrictive measures in view of the situation in Syria (the First Council Regulation).

The 2013 Regulation introduces an exemption from the asset-freezing measures in respect of Syrian Arab Airlines. It also amends an existing asset-freezing exemption in the First Council Regulation to allow funds to be credited to frozen accounts where payments are due under judicial, administrative or arbitral decisions rendered in an EU Member State or enforceable in the Member State concerned.

www.legislation.gov.uk/uksi/2013/877/pdfs/uksi_20130877_en%2Epdf
www.legislation.gov.uk/uksi/2013/877/pdfs/uksiem_20130877_en.pdf

On the 10th April the Commission advised that it noted that the Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) (Amendment) Regulations, 2013 have resulted in an inaccurate cross-reference in regulation 5(1)(d) of the regulations being amended.  In regulation 5(1)(d) the reference to regulation 3(1)(c) should now be to regulation 3(2)(a).
 
The making of the Criminal Justice (Proceeds of Crime) (Legal Professionals, Accountants and Estate Agents) (Bailiwick of Guernsey) (Amendment) Regulations, 2013 has led to a similar inaccuracy in regulation 5(1)(c) of the regulation being amended.  In regulation 5(1)(c) the reference to regulation 3(1)(c) should now be to regulation 3(2)(a).
 
For the purposes of clarity the Commission will seek a further revision to the regulations as soon as possible.

On the 23rd April the Commission advised that the Policy Council has made the  Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) (Amendment) (No 2) Regulations, 2013 and the  Criminal Justice (Proceeds of Crime) (Legal Professionals, Accountants and Estate Agents) (Bailiwick of Guernsey) (Amendment) (No 2) Regulations, 2013.  These regulations revise cross references in Regulations 5 of the principal regulations.

Corresponding amendments have been made in the Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing and the Handbook for Legal Professionals, Accountants and Estate Agents on Countering Financial Crime and Terrorist Financing, together with some minor reformatting and clarifications, which are indicated in coloured text in the following versions:

• The Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing can be found here.
• The Handbook for Legal Professionals, Accountants and Estate Agents on Countering Financial Crime and Terrorist Financing can be found here.

http://www.gfsc.gg/AML-CFT/News%5CPages/Revisions-to-the-AMLCFT-Legislation-and-Handbooks.aspx

The Policy Council has signed the following amendment regulations, which came into force 28 March 2013:

1. The Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) (Amendment) Regulations, 2013

2. The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 (Amendment of Schedules 1 and 2) Regulations, 2013

3. The Criminal Justice (Proceeds of Crime) (Legal Professionals, Accountants and Estate Agents) (Bailiwick of Guernsey) (Amendment) Regulations, 2013 and

4. The Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008 (Schedule 1 Amendment) Regulations, 2013.

The AML/CFT Handbooks have been amended to reflect these changes, together with other revisions, following the consultation in 2012.

For ease of reference copies of the Handbooks have also been prepared identifying the changes made.

1. The Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing can be found here. http://www.gfsc.gg/AML-CFT/Pages/Handbook-and-Regulations.aspx

2. The Handbook for Legal Professionals, Accountants and Estate Agents on Countering Financial Crime and Terrorist Financing can be found here. http://www.gfsc.gg/AML-CFT/Pages/Handbook-and-Regulations-for-Prescribed-Businesses.aspx

Versions of the Schedules which are amended by these regulations are shown below indicating the changes in coloured text:

1. Schedule 1 to the Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) (Law), 2008 (tracked)

2. Schedules 1 and  2 to the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 (tracked)

http://www.gfsc.gg/The-Commission/News/Pages/Amendments-to-the-AMLCFT-Legislation.aspx

On 23 April 2013, Mr Yang Li, a Chinese student who had been studying at the University of Bath, pleaded guilty to bribery under section 1 of the Bribery Act 2010 (the “Act”).

Mr Li had been studying for an innovation and technology management masters degree at the University of Bath.  Upon finding out his dissertation was awarded 37%, 3% short of a pass mark, Mr Li arranged a meeting with his tutor, Prof. Andrew Graves.  During their meeting on 23 November 2012, Mr Li offered his tutor £5,000 to change the mark to a passing grade.  Prof. Graves rejected Mr Li’s offer but as Mr Li took the money off the table, an imitation firearm (an air pistol) fell out of his pocket.

Mr Li pleaded guilty to bribery and possession of an imitation firearm.  Mr Li was sentenced to twelve months imprisonment and ordered to pay £4,880 in costs.  Judge Michael Longman said during sentencing: “You attempted to persuade a university professor to behave in such a way that if it had been successful you would have undermined the integrity of the universities in the UK and the legitimacy of degrees from universities here, the University of Bath in particular.  Your bid to achieve a pass mark by offering what was a bribe to your professor was ill conceived to the point of being a spectacular mistake and one which was doomed to fail from the start.”

Comment

This is the third prosecution of an individual under the Act since it came into force on 1 July 2011.  Similarly to the last conviction under the Act, this was a case of someone seeking to obtain a qualification through bribery.  There have been no corporate prosecutions under the Act to date and so corporates continue to await judicial interpretation of the more nuanced aspects of the section 7 corporate offence, including its territorial effect. 

As a result, it also remains unclear how the courts will treat the Ministry of Justice’s Guidance to corporates on putting in place “adequate procedures”, although comments made by some members of the judiciary to the OECD suggest that the Guidance will be given no greater weight than a secondary text.

THE  number of Foundation structures registered in Jersey has broken through the 200 barrier, fewer than four years since their introduction.

Over 200 Foundations have now been registered with the Jersey Financial Services Commission Registry since 17 July 2009, when Jersey’s Foundations Law came into force. Jersey was the first British Crown Dependency to offer such structures and it has seen a steady stream of registrations since enactment.

It is understood that around one third of the Foundations formed are being used for philanthropic or charitable purposes, with a further third being used specifically by ultra-high-net-worth families as part of their family wealth management and dynastic planning strategies. Foundations are also being used for commercial purposes and for holding high value or luxury assets.

Jersey Foundations are proving particularly popular in civil law jurisdictions, where the common-law concept of the trust is less familiar. As well as a strong uptake in continental Europe, including Switzerland and the Netherlands, there have been high levels of interest from Asia, including the Far and Middle East, with a number of Foundations being used for Sharia’h-compliant financing arrangements.

Geoff Cook, CEO, Jersey Finance, said:

“It is encouraging that, almost four years since their introduction, Jersey Foundations have established themselves as mainstream vehicles within global wealth management strategies. Their long-term appeal is also proving hugely valuable as Jersey builds relationships with key markets in Asia, thanks both to their flexibility and control structures. The consistent growth both in terms of bare numbers but also in terms of the levels of funds being placed into Foundations reflects the success of Jersey’s Foundations Law and reinforces again Jersey’s position as a centre of excellence for private wealth management business.”

Giles Corbin, Partner at law firm Mourant Ozannes and a leading practitioner on Jersey Foundations, added:

“The growth in Foundations being used for philanthropic purposes demonstrates Jersey’s position as a leading offshore centre for this type of activity. In addition, while the majority of Jersey Foundations have been new structures, a number have been migrated from other jurisdictions, providing more evidence of Jersey’s attraction as a flexible jurisdiction with high standards of regulation and governance.”

http://www.businesslife.co/BusinessNews.aspx?id=jersey-foundations-break-200-milestone

The Financial Conduct Authority (FCA) has fined EFG Private Bank Ltd (EFG) £4.2 million for failing to take reasonable care to establish and maintain effective anti-money laundering (AML) controls for high risk customers. The failings were serious and lasted for more than three years.

EFG is the UK private banking subsidiary of the EFGI Group, a global private banking group, based in Switzerland.  EFG provides private banking and wealth management services to high net worth individuals including some from overseas jurisdictions recognised as presenting a higher risk of money laundering and/or bribery and corruption.  At the end of 2011 around 400 of EFG’s 3,342 customer accounts were deemed by the firm to present a higher risk of money laundering or reputational risk, and of these 94 were held by politically exposed persons (PEPs).

As part of a thematic review of how UK banks were managing money laundering risk in higher risk situations, the Financial Services Authority (FSA) visited EFG in January 2011.  That visit and further investigation caused serious concern to the FSA.  The investigation found that EFG had not fully put its AML policies into practice.  Of particular concern was that 17 of 36 reviewed customer files, opened between December 2007 and January 2011, contained customer due diligence that highlighted significant money laundering risks, but insufficient records of how the bank’s senior management had mitigated those risks.

Of these 17 files, the FSA found that the risks highlighted in 13 files related to allegations of criminal activity or that the customer had been charged with criminal offences including corruption and money laundering.

For example in one account, EFG’s due diligence highlighted that a prospective client had acquired their wealth through their father, about whom there were allegations of links with organised crime, money-laundering and murder.  However there was insufficient information on file to explain how the bank concluded that this risk was acceptable or how it was mitigating the risks.

EFG also failed to appropriately monitor its higher risk accounts.  Of the 99 PEP and other high risk customer files reviewed by the FSA, 83 raised serious concerns about EFG’s monitoring of the relationship.

As a result of these failures, EFG breached FSA Principle 3, requiring it to take reasonable care to organise and control its affairs responsibly and effectively.

Tracey McDermott, head of enforcement and financial crime, said:

“One of the FCA’s objectives is to protect and enhance the integrity of the UK financial system. This includes ensuring money in the UK system is clean.

“Banks are the first line of defence to make sure that proceeds of crime do not find their way into the UK.  In this case while EFG’s policies looked good on paper, in practice it manifestly failed to ensure that it was addressing its AML risks.  Its poor implementation of its agreed policies risked the bank handling the proceeds of crime.  These failures merited a strong penalty from the FCA.

“Firms that accept business from high risk customers must have systems, controls and practices to manage that risk. The FCA will continue to focus on high risk customers and business.”

EFG settled at an early stage of the investigation and qualified for a 30% discount on its fine.  Without the discount the fine would have been £6 million.

Notes for editors

1. The Final Notice for EFG Private Bank Ltd.
2. On 22 June 2011, the FSA published its findings from a thematic review, which focused on how banks manage money laundering risk in higher risk situations.  The FSA published a Policy Statement PS11/15 Financial crime: a guide for firms on 9 December 2011. This contains guidance on steps firms can take to reduce their financial crime risk, including in their dealings with high risk and PEP customers.
3. EFG breached Principle 3 of the FCA’s Principles for Businesses.  Principle 3 is set out in the FCA Handbook and states: a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
4. The FSA fined Coutts and Habib Bank for similar AML failings.
5. On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
6. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers

http://www.fca.org.uk/news/efg-private-bank

 Some small Jersey businesses are ignoring basic principles of the employment law according to a review.

Darren Newman, an employment law expert, reviewed the Jersey Employment Tribunal after increasing criticism from some employers.

He found overall the tribunal system was fair and consistent.

But he said some small employers were “struggling with or ignoring altogether some of the basic principles” of the laws for unfair dismissal.

He said it was in instances of “on the spot dismissal where employers could really get in trouble.”

“ Mr Newman said: “Whether anything can be done to improve their capacity or awareness in this area is beyond the scope of this report, but obviously the advice and support available from JACS [Jersey’s Advisory and Conciliation Service] is key.”

The review was commissioned by the social security Minister after what he described as increasing levels of criticism by certain employers and employer representative bodies.

Senator Francis Le Gresley said he would consider the reports findings in conjunction with the chairman of the Employment Tribunal and the director of JACS to decide whether further action was needed to address the problems.

David Witherington, director of JACS, said about half the 5,000 inquiries to the service last year were from employers with fewer than 50 staff.

He said: “I don’t yet know what more JACS can do to make people aware than we are present, but we certainly will be talking to the minister and to the tribunal chair to see what we can do.”

However, Senator Le Gresley said the review found the Jersey Employment Tribunal was “not biased in favour of employees and the criticism that tribunal decisions are inconsistent is unfounded”.

He said he hoped the publishing of the report would reinforce the reputation of the tribunal.

http://www.bbc.co.uk/news/world-europe-jersey-22201701

The Financial Ombudsman Service (“FOS”) has ruled that five investors in a film tax avoidance scheme should be awarded £2.6m following a claim against their advisers 20Twenty Independent Ltd.  FOS ruled that the investment advice given was unsuitable and that they were not informed of the true nature of the risk that they were taking on, so the Financial Times reports.

Investigations into Tax Mitigation Schemes

Although this case may raise alarm bells for many advisers who may be fearful of an onslaught of similar cases, last year it was reported that not many schemes have failed before the courts when challenged by HMRC.  However, schemes continue to be the subject of investigation and so this could just be the tip of the iceberg.  Investigations have been and continue to be conducted into a number of schemes such as music industry investment schemes, stamp duty land tax mitigation schemes and film financing schemes. 

Such schemes seek to work within the terms of existing tax legislation so as to allow individuals to maximise available tax relief but recently have been subject to intense scrutiny from HMRC. 

Last year the FOS stated that only a handful of tax mitigation schemes were making it onto their desk.  These tended to relate to investors being introduced to investments by a non-FSA regulated individual, in which case the FOS stated that there was not a lot that they could do as they lacked jurisdiction to deal with the complaint.

If investors were to bring claims against advisers it is likely that their main argument would be that they were mis-sold the schemes and the risks involved were never fully explained, (for example the risk that the investor risks more than the original capital investment, particularly if the scheme is leveraged and utilises loan facilities).

Comment

This award could encourage investors to bring similar claims against their advisers.  Investors (especially wealthy individuals) have always been interested in ways to reduce the levels of tax that they are paying.  However, with HMRC taking a stronger stance against the use of tax mitigation schemes, this could lead to more schemes being investigated by HMRC.  In turn investors who have lost out on their tax relief (and who may have suffered further losses) may seek to recover these sums from those that introduced them to, recommended or set up the schemes. 

The risks for financial advisers are compounded by the presence of claims management companies, who have the ability to pool together a number of investors related to the schemes which increases the quantum of claims and allows those investors to share the professional costs of lawyers and experts.  IFA’s, accountants and their insurers will be watching with interest to see whether more claimants will seek to bring such claims to FOS.  Even though there is a £150,000 limit on the awards that FOS can make the High Court’s recent judgment of Infocus has cast considerable doubt on whether complainants can accept a FOS award and still pursue their adviser for the balance of any loss over £150,0000 through the courts.  The Court of Appeal will need to reconcile the competing judgments on this issue.