In his 2001 article “Money Laundering and Tax Evasion – the Banker’s Dilemma”,[www.jerseylaw.je/Publications/jerseylawreview/feb01/the_difficulties_binnington.aspx] Alan Binnington has highlighted some of the main difficulties in the operation of the primary money laundering offences contained in the Proceeds of Crime (Jersey) Law 1999 (“the 1999 Law”) in the field of tax evasion. Tax evasion per se does not constitute criminal conduct for the purposes of the 1999 Law and one has to resort to trying to identify in the scenario of a suspected tax crime the component elements of some other offence such as forgery, false accounting or common law fraud, which does fall within the definition of criminal conduct, as a basis for applying the 1999 Law to the scenario in hand.

Mr. Binnington also highlights difficulties associated with interpretation of the some of the terminology used in some of the primary money laundering offences of the 1999 Law particularly, in the context of fiscal offences, the question of what constitutes the “proceeds” of tax evasion and he alludes to the challenge presented to a prosecuting team by the complexity of the component elements of the money laundering offence. Proving that a person was suspicious about another with whom he was dealing is a perennial problem for prosecutors. It has been commented that “except where there is oral or documentary evidence (such as notes on a bank file) to support the allegation of suspicion or where there is a covert contemporaneous police investigation, it may be easy for defendants to put forward a credible argument that they were innocent facilitators”.

In his conclusion Mr. Binnington states that for those who might one day find themselves charged with a money laundering offence relating to fiscal matters comfort may be drawn from the fact that some of the difficulties may hinder the prosecutor in securing a conviction and that clarity will only be brought to this area of the law when the first test case arrives before the Court.

We may however have to wait a long time for that first test case as a result of the legal uncertainties which beset this area of law and the consequential risks of mounting what may turn out to be an unsuccessful prosecution. But in the meantime bankers and others involved in the finance industry in Jersey cannot afford to relax their guard; the tactical advantage to the prosecutor of commencing proceedings for breach of the Money Laundering (Jersey) Order 1999 (“the 1999 Order”) rather than the Proceeds of Crime (Jersey) Law 1999 must not be overlooked.

The subordinate legislation

The 1999 Order is a piece of subordinate legislation made under Article 37 of the 1999 Law. It tracks closely the provisions of the UK Money Laundering Regulations 1993. While the 1999 Law sets the basic agenda and makes clear through its inclusion of complex and severe offences and wide ranging investigation and co-operation powers that Jersey is serious about its commitment to combating money laundering, the 1999 Order serves to introduce within Jersey a common set of due diligence and compliance procedures which all financial services businesses in the Island are required to follow.

These due diligence procedures are designed to ensure that an audit trail exists in the event that a money laundering investigation is launched and to assist finance sector employees to detect suspicious transactions. In broad summary, the due diligence and compliance procedures comprise obligations to carry out client identity verification, the maintenance of proper transaction records, the implementation of internal reporting procedures in each business for the handling of suspicious transaction reports, and anti-money laundering employee training.

Complying with all these procedures and requirements is extremely onerous and depends upon all client-facing employees within a financial services business being diligent in following client take-on procedures set down by their employer. Compliance also requires that employees be trained and kept up to date with developments in best practice in this context. Busy banks and other financial services businesses working to short transaction deadlines and dealing with demanding clients provide a setting where slip ups can occur or where compliance procedures may sometimes be relegated towards the bottom of action lists. But increasing attention is being focused on the need to ensure compliance with these procedures as a result of the new regulatory controls and standards introduced for investment business and trust company business activities in Jersey under the Financial Services (Jersey) Law 1998 and related Codes of Practice.

The Codes of Practice include express reference to the need for registered financial services businesses to comply with the 1999 Order. The Jersey Financial Services Commission, as the regulatory authority in the Island, has signalled clearly its intention to police compliance with the due diligence requirements and has embarked on a consultation process which is likely to lead to an increased level and extended application of these due diligence procedures.

In addition to regulatory sanctions which may be applied by the Commission for breach of the requirements of the 1999 Order the criminal penalties under the 1999 Law for breach of the 1999 Order constitute a significant risk to bankers and other finance sector executives in Jersey.

Prosecuting a breach

Where it can be proven that contravention of any of the due diligence requirements of the 1999 Order by a financial services business organised as a company or partnership or other unincorporated association was committed with the consent or connivance of, or was attributable to any neglect on the part of any director, manager, secretary or other similar officer, any person purporting to act in such a capacity, or in the case of an unincorporated association, a person concerned in the management or control of the association, then the relevant individual will be guilty of the contravention as well as his or her employing organisation.

The criminal offence therefore has the potential to apply across the whole of the management personnel.

The penalties for individuals convicted of any contravention of the due diligence requirements, while not as stringent as those applicable to the primary money laundering offences in the 1999 Law, are still sufficient to terminate a reputation and career in the financial services sector.

Furthermore, the fact that the offence can be committed where the breach of the due diligence requirement by the employing organisation is attributable merely to the neglect of the relevant individual widens these criminal provisions considerably.

To be attributable to the neglect of the relevant person the acts or omissions of that person must involve some causal connection with the contravention by the employing business, but the conduct of the relevant individual need not be the sole, dominant, direct or proximate cause or effect. A contributory causal connection is likely to be quite sufficient. Failure to exercise reasonable care on the part of a manager periodically to monitor compliance by junior employees with required procedures may expose the manager to the risk of prosecution if a contravention of the procedures materialises.

It is therefore arguable that prosecuting a contravention of the 1999 Order may present a significantly easier route (if the requisite evidence is available) than commencing proceedings for a breach of one of the principal money laundering offences in the 1999 Law. In the context of a money laundering investigation which is complicated by issues of fiscal fraud, the prosecutor can avoid the need to wrestle with the jurisprudential difficulties that the fiscal element may introduce; problems of definition and evidential issues as to the proceeds of tax evasion can be side-stepped, as can the mine-field of assessing the evidence as to the state of mind of the potential defendant and whether he or she had the requisite knowledge or suspicion in order to sustain a of money laundering charge being preferred.

Prosecuting for breach of any of the due diligence and compliance requirements of the 1999 Order, while not entirely free from difficulties, is likely to be a more straight forward task. The due diligence obligations are for the most part reasonably clearly set out in the 1999 Order and the Anti-Money Laundering Guidance Notes issued by the Jersey Financial Services Commission. Construing terms such as “consent”, “connivance” or “attributable to the neglect” should present lesser difficulties for the prosecution as there is a body of existing English case law interpreting these terms which can be drawn upon.

Also, the consent of the Attorney General is not required for the bringing of a prosecution for contravention of the 1999 Order; such consent is a necessary pre-condition of proceedings for any of the principal money laundering offences in the 1999 Law.

The alleged contravention of the due diligence or compliance procedures need not have any connection with the client whose affairs have sparked off a money laundering investigation under the 1999 Law. Incidental discovery of breach of the due diligence or compliance procedures in relation to other clients or transactions in the course of carrying out a money laundering investigation in the offices of a financial services business could lead to a prosecution for breach of the 1999 Order.

This last point highlights the potential which prosecutions for breach of the 1999 Order have in terms of protecting the reputation of the Island in financial and commercial matters and serving the public interest where a decision has been taken in favour of proceedings of some type being commenced. Without the need to mount a full blown investigation with a view to prosecuting one or more of the principal money laundering offences under the 1999 Law, media reports of a successful conviction for breach of the Money Laundering (Jersey) Order 1999 will serve the purpose.

See VOLUME 5 ISSUE 2 JUNE 2001

https://www.jerseylaw.je/Publications/jerseylawreview/june01/shorter_articles.aspx

author – Simon Howard is an advocate of the Royal Court of Jersey