The Crédit Agricole v Papadimitiou decision shines a spotlight on what are sometimes perceived as the more difficult areas to interpret in the Jersey Financial Services Commission’s AML/CFT Handbook and provides guidance as to what constitutes understanding the ‘commercial rationale’ of a structure and related transactions.

It should give banks and other financial services businesses pause for thought when considering client acceptance procedures, documentation and ongoing monitoring

When trying to understand a transaction or structure, the below should be key considerations:

1. Understand not only what your client is trying to achieve, but how they are trying to do so. Are there any unusual or unwarranted complexities about the structure you are being asked to administer or the structure from which funds are being received?
2. Ensure that you understand what role each entity in a structure does and why it is there.
3. Are there any entities connected with jurisdictions which have unusual secrecy provisions?
4. Obtain documentary evidence as to the ultimate beneficial ownership and control of the structure.

The requirement to understand the ultimate beneficial ownership and control of the structure is replicated in the Money Laundering (Jersey) Order 2008 and guidance provided in the AML/CFT Handbook published by the Jersey Financial Services Commission.

1. Trace the source of any funds back to where the funds originated, if applicable, and not simply to the remitter. Understand that source of funds relates to the activity which generated the funds in the first place, not just the location where the funds came from.
2. Be alert, and be sceptical. If something does not seem right, it may not be – and you should look into it.
3. Once you have a concern that anything improper might be happening, any payments must be embargoed while it is investigated. The embargo should only be lifted if, on investigation, the concerns turn out to be unfounded. Amend terms and conditions to allow the delay of payments in such circumstances.
4. Do not place undue reliance on the status of any introducer or referrer of business. They are not the individuals who face the risks you are facing.
5. Do not be blinded by commercial returns which you will make on establishing a structure or otherwise facilitating transactions. Ask yourself why a client is seemingly willing to pay over the odds or even pay the going rate for something which could be achieved at a lower cost. It may be a sign of attempted money laundering.
6. Finally, do not forget about your obligations under the criminal law to report suspicious activity. Fraud, and attempted fraud, is usually grounds for filing a SAR. For offshore service providers the decision in Crédit Agricole should reinforce the lessons of Nolan v. Minerva Trust & Others.

Those who avoid asking difficult questions because they fear the answer – and perceive safety in not knowing – risk far greater problems down the line. Having robust anti-money laundering procedures will not of itself provide complete protection against the risks occasioned by administering client entities.

Where an action by a third party seeks to fix an institution with responsibility for losses incurred; it will become necessary to demonstrate that practices and procedures were fit for purpose and operated effectively.

The cost of failure can be very expensive indeed.

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