ANTI-MONEY LAUNDERING

THEMED ON-SITE EXAMINATION PROGRAMME 2008 - 2010

SUMMARY FINDINGS – SEPTEMBER 2010

DOCUMENT OVERVIEW

Document Overview ............................................................................................................................... 1

1 Introduction ................................................................................................................................... 1
2 Purpose ............................................................................................................................................ 3
3 Scope ................................................................................................................................................ 3
4 Process ............................................................................................................................................. 3
5 Overview......................................................................................................................................... 4

1 Introduction

1.1 The AML Unit commenced its outreach programme in January 2008 when a series of
presentations were made to various Industry sectors that would be captured under
Schedule 2 of the Proceeds of Crime (Jersey) Law 1999 (the “Law”). In addition, 113
individual outreach visits have been conducted.

1.2 Relevant entities were advised that they needed to be registered with the Jersey Financial
Services Commission (the “Commission”) once the Law came into force on 19 September
2008. The Law provided for a transitional period of three months from the
commencement date before non-registration became an offence.

1.3 Since the Law came into force, 189 specified Schedule 2 Businesses have registered with
the Commission. Below is a chart showing a breakdown of registrations by Industry
sector.
Specified Schedule 2 Business Registrations as at 31August 2010

Accountants 39%
Estate Agents 20%
Lawyers 25%
HVD 0%
Other Services 16%

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 Anti-Money Laundering
Themed Examination Programme 2008-2010
Summary Findings

1.4 It is interesting to note that despite outreach being provided for high value dealers, not
one of the 50 identified dealers has registered with the Commission. The AML Unit
continues to monitor this sector by way of individual outreach visits, which are
scheduled to be completed by the end of 2010. High value dealers are captured and must
be registered if they accept cash payments of €15,000 (or the Sterling equivalent) or more.
To date, all high value dealers that have been visited have indicated that it is not their
policy to accept cash payments in this amount, have issued a formal policy to this effect
and instructed their staff accordingly. By doing so, this absolves them of the requirement
to register.

1.5 The following table represents the number of registrations relating to each sector, along
with numbers of entities perceived to be conducting specified Schedule 2 Business, but
that remain unregistered. Apart from the 50 high value dealers who have not registered
for the reasons given above, the two remaining unregistered entities are being pursued.

1.6 Other Services consists of entities such as lenders, property management, leasing agents
etc.

Sector Registered Unregistered Registered Unregistered

Accountants 74 1 31% 0%
Estate Agents 38 0 16% 0%
Lawyers 47 0 20% 0%
HVD 0 50 0% 22%
Other Services 30 1 11% 0%
Total 189 52 78% 22%

1.7 Under the Law there are two levels of registration; Level 1 covers entities such as lenders,
providers of financial leasing and those that accept deposits (other than banks) etc.
Level 1 has an element of fitness and propriety in that they are required to make a
declaration that they have not been convicted of a fraud or money laundering offence.
Level 2 covers lawyers, accountants, estate agents, high value dealers etc and there is no
such mandatory declaration.

1.8 Registered specified Schedule 2 Businesses are broken down as follows:

SCH2 Level 1 30 16%

SCH2 Level 2 159 84%
Total 189 100%

1.9 Part of the registration process included providing the number of staff employed by each
entity. Initial registration details indicated that there were 2,170 staff employed within
the registered Schedule 2 sector. This figure may of course change significantly when the
definition of ‘relevant employee’ is used as an element in the calculation of registration
fees currently under the consultation process.

1.10 In addition to the requirement to register as a specified Schedule 2 Business, certain

entities that are captured, but are already regulated, are required to notify the
Commission that they are also conducting Schedule 2 Business. Of the 63 notifications
received, 40 relate to entities regulated under the Banking Business (Jersey) Law 1991 and
14 hold TCB licences under the Financial Services (Jersey) Law 1998.

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 Anti-Money Laundering
Themed Examination Programme 2008-2010
Summary Findings

2 Purpose

2.1 This paper summarises the activities of the AML Unit from September 2008 to date and
through the examination programme to provide assurance that entities are operating in
compliance with the specified regulatory requirements and laws. The visit programme
was designed to:

2.1.1 Assess risks and related controls, policies, procedures and processes;

2.1.2 Ensure the collation of sufficient evidence to support visit findings; and

2.1.3 Obtain a greater understanding of the entities’ activities to focus current and
future visits on higher risk areas.

3 Scope

3.1 The examinations assessed the degree of compliance with the Money Laundering (Jersey)
Order 2008 (the “Order”) and sector specific Handbooks for the Prevention and
Detection of Money Laundering and the Financing of Terrorism (the “Handbooks”).

4 Process

4.1 During the period, 143 on-site themed examinations have been conducted and the
following observations were compiled. When examining for compliance with the Order,
260 findings were identified from the 143 visits conducted. Of these:

4.1.1 34 (13%) of the 260 findings related to deficiencies in business risk assessments;

4.1.2 22 related to customer due diligence issues;

4.1.3 Reporting issues 36 (14%);

4.1.4 Record Keeping featured in 17 instances;

4.1.5 In 10 cases deficiencies were found in policies and procedures relating to PEPs;

4.1.6 15% (38) of the findings related to Sanctions; and

4.1.7 Training features in 27 cases. This equates to 10% of all the findings.

4.2 In addition to the above, there were numerous other findings in relation to Article 11 of
the Order (policies, procedures and training to prevent and detect money laundering).
However, these were considered too diverse to report upon in the context of this report.
The AML Unit has conducted a very detailed analysis of all the findings in relation to the
Order, which could be made available if required.

4.3 In the Handbooks for both the legal and the accountancy sector, Section 2 covers
Corporate Governance. This section outlines senior management responsibilities and
requires:

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 Anti-Money Laundering
Themed Examination Programme 2008-2010
Summary Findings

4.3.1 Senior management to notify the Commission in writing of any material failures
to comply with the requirements of the Order or of the Handbooks. It was found
that 45 entities (31%) had failed to include this requirement in their policies and
procedures; and

4.3.2 Senior management must monitor and review instances where exemptions are
granted to policies and procedures, or where controls are overridden. In this
instance, 42 (29%) were found to be deficient.

4.4 It should be noted that these requirements are not included in the Handbook for Estate
Agents and High Value Dealers.

4.5 In 31 entities no findings were identified, however, this was as a direct result of extensive
outreach prior to commencing a formal themed examination visit. In many cases, entities
received 3 or 4 outreach visits.

5 Overview

5.1 Throughout the programme, it became apparent that a number of entities had multiple
findings and others only had one or two.

5.2 Although estate agents were more labour-intensive and required the highest level of
outreach, this resulted in a lower number of findings (24) during our on-site themed
visits. Conversely, perhaps because of the nature of their business, fewer outreach visits
were conducted with accountants and lawyers resulting in a higher number of findings –
79 and 75 respectively.

5.3 It was obvious from our findings that many of the entities were unaware of the
importance of monitoring sanctions and were also unaware of the availability of the
Chief Minister’s 1 website. The AML Unit continually promotes the use of the Chief
Minister’s website as well as HM Treasury 2 consolidated list and the importance to
businesses on checking if sanctions are in place. The proposal for the Commission to
play a greater role in sanctions awareness has been welcomed.

5.4 Of the visited entities, 14% were unaware of their obligations to report suspicious activity
to the Joint Financial Crimes Unit. A proportion of these did not know the correct
procedure for reporting their suspicions.

5.5 This is followed very closely by inadequate business risk assessments, which accounted
for 13% of all entities visited.

5.6 Lack of staff training and the collection of customer due diligence also featured heavily in
our findings, as did poor policies and procedures in relation to record keeping. The last
of our major findings was the lack of procedures in relation to the identification and
handling of politically exposed persons.

1 http://www.gov.je
2 http://www.hm-treasury.gov.uk

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 Anti-Money Laundering
Themed Examination Programme 2008-2010
Summary Findings

5.7 The AML Unit believes that it has captured the majority of the specified Schedule 2
Businesses that require registration. The AML Unit continues to ‘police the perimeter’
and immediately contacts anybody suspected of conducting unauthorised Schedule 2
business.

Gary Howlett Dennis Le Mercier

Manager, AML Unit Manager, AML Unit
Tel: +44 (0) 1534 822152 Tel: +44 (0) 1534 822104
Fax: +44 (0) 1534 822002 Fax: +44 (0) 1534 822002
Email: g.howlett@jerseyfsc.org Email: d.lemercier@jerseyfsc.org

Jersey Financial Services Commission

PO Box 267
14-18 Castle Street
St Helier
Jersey
JE4 8TP

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