Knowledge

Introduction

The scope of Jersey's anti-money laundering, counter-terrorist financing, and counter proliferation financing regime (the "AML Regime") has been amended to closer align with the Financial Action Task Force's International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation (the "FATF Recommendations"). As a result, entities that weren't previously in scope under the Proceeds of Crime (Jersey) Law 1999 (the "Proceeds of Crime Law") may now be in scope.

The revisions introduce new terminology, much of which is broadly drawn. Some terminology features in other laws or regulations, or has been interpreted by the courts in Jersey or elsewhere, and the interpretation is supplemented by both guidance issued by the Jersey Financial Services Commission (the "JFSC") and the FATF Recommendations and methodology.  Discerning the exact perimeter of the AML Regime is no simple task, however. To some, it may be reminiscent of Lewis Carroll's 'Through the Looking Glass':

"'When I use a word,' Humpty Dumpty said in rather a scornful tone, 'it means just what I choose it to mean — neither more nor less.'  'The question is,' said Alice, 'whether you can make words mean so many different things.'"

With penalties for breach including imprisonment and fines, industry participants are understandably seeking assistance with navigating the chessboard in order to ensure compliance.

Background

The changes to the AML Regime took effect from 30 January 2023, subject to a transitional period ending on 30 June 2023 for existing activity. The changes involve two main elements:

• a new list of activities and operations that are in scope under the AML Regime, which essentially mirrors the FATF Recommendations; and
• an untangling of the AML Regime from prudential regulation, with anti-money laundering requirements and regulatory requirements now being determined separately.

The JFSC has made it clear that action is required of all persons who may be in scope – from substantial operating businesses to simple structures hosted by corporate service providers. Each is required to evaluate, determine, and document whether they are affected and to take appropriate action by the end of the transitional period (if it applies) or before commencing new relevant activities.

The new legislation

The Proceeds of Crime Law has been updated to include a recast Schedule 2, which now includes the following activities in the definition of a 'financial services business' (and thus within the scope of the AML Regime):

• Financial Institutions: This includes activities such as lending, investing, fund services, security services, portfolio management, and investing, administering or managing funds/money.
• Designated Non-Financial Businesses and Professions: This includes lawyers, accountants, real estate agents, and trust and company service providers.
• Virtual Assets Service Providers: This includes token exchanges and other entities providing custodial, administrative or other services in respect of virtual assets.
• Express Trusts.

The JFSC has published guidance on Schedule 2, which emphasises that the aforementioned activities are intended to be interpreted broadly and which notes that businesses should err on the side of caution, favouring inclusion over exclusion.

In scope or out of scope?

A key initial filter for most activities is whether the activity is being conducted 'as a business'. This then requires entities to undertake a qualitative analysis with respect to each relevant activity. The JFSC guidance suggests a number of 'non-prescriptive indicators', which include the following questions:

• Does the entity hold itself out or publicly offer to conduct the activity for other persons?
• Is the entity or operation conducted for commercial purposes with the intention to earn profits through the receipt of compensation?
• Is the activity being conducted for multiple persons?
• Is more than one of the activities under Schedule 2 being undertaken?
• Is there a view to making a profit?

The indicators are presented as a non-exhaustive list of considerations, with an acknowledgement that the relevant indicators may differ depending on the activity being conducted.

In addition to whether a person is considered to be conducting a business activity, to be in scope, Financial Institutions must be undertaking the activity for or on behalf of a customer, Designated Non-Financial Businesses and Professions must be undertaking the activity for a third party and Virtual Assets Service Providers must be undertaking an activity for or on behalf of another person. The guidance covers the meaning of 'customer', 'third party' and other relevant terms.

As noted, every person, entity or structure must consider the relevance of the AML Regime to them and take care to record the process by which a determination is made.

Obligations for entities already carrying on an in scope activity

By 30 June 2023, entities that were previously in scope of Schedule 2 of the Proceeds of Crime Law must file a notification to the JFSC, explaining their intention to continue carrying on the activity under Schedule 2, and confirming the scope of activities undertaken.

Obligations for newly in scope entities

Entities which were already conducting activities which now fall within the scope of Schedule 2 of the Proceeds of Crime Law are required, by 30 June, to:

• register with the JFSC under the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 (the "Supervisory Bodies Law");
• conduct a risk assessment of their business and ensure they adopt and adequately maintain AML/CFT/CPF policies and procedures;
• appoint a Money Laundering Compliance Officer ("MCLO") to monitor compliance with the aforementioned policies and procedures, legislation, and relevant codes of practice; and
• appoint a Money Laundering Reporting Officer ("MLRO") who will be responsible for reporting instances of possible money laundering.

A non-professional trustee will not be required to register with the JFSC, though it should be noted that it will still be subject to the core CDD and record-keeping obligations of the AML Regime, in accordance with the Proceeds of Crime (Duties of Non-Professional Trustees) (Jersey) Order 2016.

It is worth further noting that newly incorporated entities carrying out in scope activities will not have the benefit of the transitional period and will have to register and adhere to the obligations of the AML Regime from day one.

How to comply with the new obligations

An entity may adhere to the new obligations by registering with the JFSC and fulfilling for itself the various obligations under the AML Regime, including appointing an MLCO and MLRO.

Alternatively, an entity that receives corporate administrative support from a regulated business may fulfil its obligations through outsourcing to its regulated service provider, in this context known as the Anti-Money Laundering Service Provider ("AMLSP"). The responsibility to comply with the AML Regime will ultimately lie with the entity itself.  However, the AMLSP will be able to take away much of the compliance burden and provide individuals as the MLRO and MLCO to the entity. The entity must ensure the appointment of an AMLSP is reasonable, and the terms by which the AMLSP will provide services to the entity should be clearly considered by both sides at the outset and during the arrangement – and all arrangements should be formally documented.

Some entities, such as non-professional trustees, will not be able to benefit from appointing an AMLSP, but they may wish to outsource some of the compliance functions to third parties.

Service providers intending to act as AMLSPs

Service providers will have to seek permission from the JFSC if they wish to perform the role of an AMLSP. This application will include identifying the entities which the AMLSP is going to be acting for and the names of the individuals who will be acting as the MLROs and MLCOs, among other things.

It is likely that prospective AMLSPs will need to revise their own policies and procedures and carry out further risk assessments to cover the new provision of services. The MLROs and MLCOs must be employed by the AMLSP or a member of its group to act for entities.

The AMLSP must demonstrate on an ongoing basis that, as well as the other obligations, the MLRO will be provided with reports of any suspicious activity, and as mentioned prior, all arrangements should be formally documented.

Prospective AMLSPs must submit applications promptly to ensure the JFSC can consider the application before 30 June 2023.

What we can do

We are advising on all aspects of the new AML Regime and are able to provide services relating to:

• advising entities on whether they are in or out of scope of the new Schedule 2 of the Proceeds of Crime Law;
• providing formal legal opinions where independent determination (or third party validation of a determination) on scope is considered useful to mitigate regulatory risk;
• advising on the terms of the arrangement between entities and AMLSPs; and
• advising AMLSPs on their applications to the JFSC and duties under the new AML Regime.