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National Risk Assessment of Money Laundering

​Overview of National Risk Assessment 

About the NRA

The NRA is the first public, centrally co-ordinated National Risk Assessment of Money Laundering done by the Government of Jersey.

Jersey National Risk Assessment of Money Laundering

 


Why it's important

The NRA is a tool that allows all stakeholders to better understand the risk of Jersey being used by criminals to launder the proceeds of crime.

Jersey has had a long-standing commitment to be a leader in the global fight against financial crime and risk understanding is critical to that commitment.

Conducting an NRA is an international recommendation of the Financial Action Task Force (the "FATF"), the international standard setter on financial crime.

NRA findings

Jersey has a comprehensive infrastructure of institutions, laws and processes in place to combat money laundering but we have also identified some areas in which we can improve.

What happens next?

An action plan will be put into place to address the detailed findings of NRA over the coming months.

The action plan will involve Government, the regulator and the financial services industry in Jersey working together to ensure that Jersey's defences against Money laundering being facilitated here are as strong as they can be.

Jersey is committed to carrying out further reviews in 2021 to assess the threat of the island being used to facilitate terrorist financing and updating the NRA so that a process to ensure that Jersey's defences are constantly being assessed and improved is in place.

What difference will the NRA make?

Producing NRA's and following through action plans to address the findings of successive NRA's will ensure that Jersey is well placed to meet the constantly changing threats to the jurisdiction.

This will help protect Jersey's finance industry and reputation as highly co-operative and transparent jurisdiction that seeks to lead the fight against financial crime now and in the future.

Key findings

  1. Jersey is a significant global international finance centre, serving over a million customers worldwide and dealing with in excess of a trillion GBP of wealth. This makes the risk context of the island complex and ever changing. The island has had a long-standing commitment to the global fight against financial crime and risk understanding is critical to that commitment. The international community considers it a requirement of all jurisdictions to continue to analyse their ML risks and for IFCs it may be considered more important. 

  2. The NRA represents the first centrally coordinated exercise by Jersey to identify, assess and understand the ML risks that the island faces and to take action to effectively mitigate those risks. This is an international requirement of the Financial Action Task Force (the "FATF"), the international standard setter on financial crime.

  3. This report is the first public report of its kind in Jersey and is the result of a significant collaborative effort by numerous professionals in our local finance industry, the Jersey Financial Services Commission, the Law Officers' Department, the States of Jersey Police and the Government of Jersey. The report makes use of an established methodology developed by the World Bank, which was used and enhanced where appropriate to suit the characteristics of Jersey. A substantial amount of data was collected and analysed to determine the threats faced by Jersey on a National basis as well as threats which are specific to individual sectors of our finance industry. 

  4. The NRA confirms that there are a number of areas where Jersey has adequate systems and controls in place to mitigate ML risks. This is in line with previous international assessments which have confirmed Jersey has high standards in the prevention of financial crime. The NRA has also, naturally, identified a number of areas where additional action is required if we are to counter potential risks satisfactorily. The report includes a summary of the action points, split into key themes. 

  5. The NRA includes a summary of residual ML risk for Jersey, both in terms of themes and sector by sector. In terms of sectors, a heat map is generated using the World Bank methodology. It is important to note that the map provides only a generalised graphic representation of ML risk across the ecosystem in Jersey. It does not illustrate, at a detailed level, the specific levels of types of risk that exist inside a specific sector and reference should be had to the sectoral chapters in this regard. The heatmap should not be used as a comparison with other jurisdictions and should be considered only in the context of Jersey for this report. However, it is of note that the risk map is broadly similar to those produced in other IFCs and has a significant similarity to the conclusions of the NRA of Guernsey, which was completed and published in January 2020 using a different methodology.

    Jersey NRA (analysis period covering 2013 to 2018) Residual Risk Heat Map


    Heat map showing national risk assesment of Jersey. The image is not accessible.This image is best viewed on a desktop. We acknowledge this image does not meet accessibility guidelines. Contact the Financial Services Unit for an accessible format.

  6. The TCSP sector, the Banking Sector, the Funds and FSB sector and Investment Business were found to be the most exposed to ML risk in Jersey. This is unsurprising, as given the type of activity undertaken by an IFC, Jersey is more likely to be exposed to the "layering" stage of money laundering – which typologies indicate regularly involve Banks, TCSPs or Funds - rather than the "placement" stage. Lawyers were also found to be more exposed to the risk of ML given their significant role in corporate legal work and complex structures in Jersey. However, the report also notes that inside these sectors there is significant variance in risk exposure depending on the activity conducted and the type of institution in the sector.

  7. Considering the Threats and Vulnerabilities together, with the context of Jersey, ten residual risks have been developed which describe the initial areas of greatest focus for ML when considering the totality of the NRA process to date. The residual risks range from understanding of risk at a more granular level, through to the actions that the authorities can take to improve access to information and use of that information to identify financial crime to a significant number of actions related to working more closely with a number of overseas jurisdictions to address Jersey's cross-border threat, which is higher than most jurisdictions given its positions as an IFC.

  8. The NRA outlines the cross-border risk to Jersey further to significant analysis using a methodology designed to indicate where the greatest Threat to Jersey may exist from business arising from other jurisdictions. This concludes that those threats mainly come from Hong Kong, India, Ireland, Kenya, Russia, Switzerland, UAE, the UK and USA. A threat may ultimately not result in a risk due to mitigating measures in place to mitigate the threat - however, the publication of this information is designed to allow the finance industry to understand why certain jurisdictions may present a higher threat when conducting certain business. This does not mean the entire jurisdiction presents a threat, nor that every activity in that jurisdiction presents a threat. 

  9. Risk Assessment is an ongoing obligation for all jurisdictions but Jersey is now moving to a far more regular and dynamic process of ML risk assessment. It will be working under a structure, together with all authorities and industry to continually monitor ongoing risk to Jersey and to take forward many of the actions from this risk assessment. This is designed to produce more regular updates both to industry and more publically concerning ML risk. Jersey will also publish a NRA concerning Terrorist Financing in line with an international standard also set by the FATF. Risk Assessments should be considered advantageous to a jurisdiction in continuing to understand at a more detailed level, their ML risk. 

National Money-Laundering Threat

The NRA tool defines risk as the product of money laundering (ML) threat and national ML vulnerability and consists of the following modules:

  • ML threat
  • National ML vulnerability

Inter alia, the ML threat module calls for:

  1. compilation of a list of predicate offences that are considered most relevant on the basis of legislation and prevalent criminal behaviour patterns within the jurisdiction
  2. collation of enforcement data about these predicate offences and ML cases related to these predicates
  3. systematic collection of detailed information from available ML cases in order to analyse trends and patterns of ML
  4. compilation of data on economic and business relationships with other jurisdictions. Given the limited number of ML cases in Jersey, data has also been complied on suspicious activity reports. All of this data supports an analysis of the types of criminal proceeds found in Jersey, origin of predicate offences (domestic or foreign), sectors involved in ML, and cross-border threats.

The money laundering (ML) threat faced by Jersey was reviewed against data from various sources within the jurisdiction. The data recorded from Law Enforcement Agencies (LEAs) and their partners was limited to a time period of 2013 to 2017. 

As an IFC, the majority of Jersey's customer base is non-resident (by number and value).  Accordingly, activities that result in funds being held in Jersey will take place largely outside the jurisdiction and it follows that a large majority of predicate offending will have been committed outside of the island, with the proceeds potentially being placed and laundered through local institutions. 

The threat assessment, therefore, focusses mainly on the international ML threat, although the domestic threat has also been considered. 

The assessment of Jersey's ML threat includes an assessment of: Foreign Predicate Criminality, Cross-border Threat and Domestic ML Threat.

ML ThreatForeign Predicate OffencesCross-BorderDomesticOverall
Rating
Medium-HighMediumMedium-LowMedium-High

When determining the overall rating, it was deemed appropriate to apply a heavier weighting to the foreign predicate offences threat rating. The foreign predicate offences posed a much higher threat to Jersey as they were considerably more significant in respect of the type, value and level of the criminality.

The following factors were also considered when assessing the Overall ML Threat:

  • the comparison of data collated via various stated sources
  • evidence and intelligence of crimes committed within the jurisdiction, outside of the jurisdiction and where the origin is unknown, it compares domestic threat to international threat
  • the absence/gaps in data which is ultimately a vulnerability
  • professional judgement that was determined via various sources cited in this report and other available material as well as through working group discussions.

National Money-Laundering Vulnerabilities

National ML vulnerability is determined by: 

  1. the overall ML vulnerability of the various sectors – banking, securities (split between funds and investment business), TCSPs, other FIs and other DNFBPs – weighted to reflect sector significance
  2. the national ability to combat ML. The Island's ability to combat ML at national level is based on assessments of 22 "input variables", which include quality of AML policy and strategy, quality of FIU intelligence gathering and processing, and capacity and resources for investigations and prosecutions. For each variable, the NRA tool sets out the criteria that are to be used to assess vulnerability and suggests possible sources of data.

The below table outlines the vulnerabilities Jersey faces at a national level, displaying the assessed strength of various aspects of the framework that act as mitigating controls/factors which are rated according to their effectiveness.  A low score represents a weak control and thus a potential vulnerability.

Jersey NRA 2020 (analysis period covering 2013 to 2018) National Vulnerabilities

Quality of AML policy and strategy

0.4

Effectiveness of ML Crime definition

0.9 

Comprehensiveness of Asset Forfeiture Laws 

0.7 

Quality of FIU Intelligence Gathering and Processing

0.4

Capacity of Resources for Financial Crime Investigation (Including Asset Forfeiture)

0.5

Integrity and independence of Financial Crime Investigators (Including Asset Forfeiture)

0.9

Capacity and Resources for Financial Crime Prosecutions (including Asset Forfeiture)

0.7

Integrity and Independence of Financial Crime Prosecutors

0.9

Capacity and Resources for Judicial Processes (including Asset Forfeiture)

0.7

Integrity and Independence of Judges (including Asset Forfeiture)

0.9

Quality of Border Controls

0.8

Comprehensiveness of Customs Regime on Cash and Similar Instruments

0.7

Effectiveness of Customs Controls on Cash and Similar Instruments

0.6

Effectiveness of Domestic Cooperation

0.6

Effectiveness of International Cooperation

0.5

Availability of internal audit

0.7

Level of Financial Integrity

0.8

Effectiveness of Tax Enforcement

0.5

Level of formalisation of the economy

0.9

Availability of Reliable Identification Infrastructure

0.8

Availability of Independent Information Sources

0.6

Availability and Access to Beneficial Ownership Information

0.7

 
 

TCSP sector

The most material activity within the TCSP sector is management services where the trust company business (or an officer thereof) is the director, partner, council member of a foundation or trustee in respect of a client structure.

The overall assessment of the vulnerability of the TCSP sector, having taken into account the characteristics of the sector including the different services provided and the composition of the customer-base, and having assessed the input variables for this sector rates the sector as Medium High (ranked 1st in importance across finance sector).

Securities sector: funds

The principal activity for fund operators is the provision of fund administration and management services. Public Funds account for the majority of investors and assets under management. Recently the greatest growth has been in the number of Jersey Private Funds, a product launched in April 2017. Most fund products in Jersey are aimed at professional/sophisticated investors.

The main AML vulnerabilities are:

  • the complex and multi-jurisdictional nature of some of the fund structures
  • the low level of direct supervision of funds, particularly Unregulated Funds and Legacy Private Funds
  • the issues with the enforceability of the MLO and the lack of clear evidence of regulatory action being taken does not help to create a dissuasive environment
  • the complexity of the legislative framework with respect to private funds, as it permits (i) TCB or IB Regulated Fund Operators, who may not have sufficient knowledge of the Fund AML/CFT requirements, and (ii) the exemptions which create the concept of supported fund operators.

The assessment of ML vulnerability for the Securities Sector - Funds is Medium High (ranked 2nd in importance across finance sector).

Banking sector

The most material client / services segments include international corporate and retail, private banking and TCSPs.

The components increasing the score are client base profile (non-resident customers) and cross-border nature of business (including transactions);

Overall quality of AML general controls is medium-high, informed by an excellent level of market entry controls, comprehensive regulatory framework and supervision, very good knowledge and integrity of banks' staff; however limited availability of independent information sources used for verification of clients' data is an area that requires improvement.

The assessment of ML vulnerability in the Banking Sector is medium.

Investment business

Wealth management sector's exposure to ML risk is the highest: the sector is large, with the majority of clients being international (non-Jersey based), mostly HNWI.

ML threat in the Securities Investment Business sector is medium/high. There is 1 recorded ML prosecution featuring the sector, and 1 conviction listed; sectorial typologies relate to fraudulent activities (incl. through use of unauthorised products or firms), market manipulation, conflict of interests, Insider Trading or Securities Fraud.

The overall net assessment of ML vulnerability is Medium High. Overall quality of AML controls informed by a good level of market entry controls, supervision, regulatory framework and integrity/knowledge of the staff of Investment Businesses. Application of administrative and criminal sanctions for AML breaches, as well as SAR reporting practices and compliance arrangements in smaller firms are the areas that require improvement.

The assessment of ML vulnerability in Legal sector is medium high.

Legal sector

Over half the clients of legal firms in Jersey are rated as low risk with only 5% rated as higher risk. Only 22% of clients are from a jurisdiction which is not the UK or a Crown Dependency. The legal sector is the third largest sector of the Jersey economy in terms of both revenue and number of employees (being preceded by the banking and TCSP sectors). Jersey legal firms are involved in large multi-national transactions but often play a small role.

The assessment of ML vulnerability in Legal sector is medium.

Accountancy sector

The vast majority of accountants (over 80%) are members of a professional body and over 50% are sole practitioners. The sector is small; less than 4.5% of the total financial services sector revenue with the Big 4 firms dominating - nearly 70% of the income is generated by them and they employ 60% of the staff in this sector. Tax services are the most common followed by accountancy services, audit and insolvency.

Over 90% of clients are risk rated as standard or lower risk with over 85% resident in either the UK or a Crown Dependency (70% Jersey-resident)

The assessment of ML vulnerability for this sector is medium low.

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