Draft Money Laundering and Weapons Development (Directions) (Jersey) Law 201-
Background
In the international context, the development of counter-terrorism measures has been an important priority since 9/11. Whilst many terrorist organisations have been disabled or significantly limited in their effectiveness since then, the risk and occurrences of terrorism remain a real and constant threat. Against this background, the United Kingdom government has introduced new counter-terrorism legislation: the Counter-Terrorism Act 2008 (the “UK Act”). In particular, Schedule 7 of the UK Act enables Her Majesty’s Treasury (“HM Treasury”) to direct the financial sector to take action in order to address terrorist financing risk. Action may also be taken where there is a risk that money laundering or the development of weapons in a country or territory poses a risk to the UK’s national interests.
The ability to give a direction in respect of money laundering and terrorist financing risk supports action that has been taken by the Financial Action Task Force (the “FATF”) - the global standard setter for anti-money laundering and combating the financing of terrorism (AML/CFT). In order to protect the international financial system from money laundering and terrorist financing risks, and to encourage greater compliance with the AML/CFT standards, the FATF now regularly identifies jurisdictions that have strategic deficiencies and works with them to address those deficiencies that pose a risk to the international financial system. As part of these efforts, the FATF calls on its members and other jurisdictions to apply effective counter-measures to protect their financial sectors from money laundering and terrorist financing risks emanating from high risk jurisdictions.
The development of measures to restrict and prevent money laundering, the financing of terrorist acts or organisations, and development of weapons, where these pose a significant risk, remains an important objective. This is particularly vital for Jersey in the area of international finance where the potential opportunity for money laundering, terrorist financing or assisting with the development or production of weapons, is a risk that must be guarded against.
The draft Money Laundering and Weapons Development (Directions) (Jersey) Law 201- (the “draft Law”) is intended to introduce powers in Jersey similar to Schedule 7 of the UK Act.
Overview of the legislation
1. Power to give directions
The draft Law provides powers to the Chief Minister to give a direction to a person carrying on financial services business in or from within Jersey, or to any legal person that is established under Jersey law that is carrying on financial services business in any part of the world (hereafter referred to as a “relevant person”).
A direction may be given if one or more of three conditions exist –
- The FATF advises there is a risk of money laundering or terrorist financing in a country or territory;
- The Chief Minister reasonably believes that there is a risk that there is money laundering or terrorist financing in a country or territory, by the government of a country or territory, or by persons resident or incorporated in a country or territory that poses a significant risk to Jersey; or
- The Chief Minister reasonably believes that the development or production of weapons in a country or territory, or anything that facilitates such development or production, poses a significant risk to Jersey.
The Chief Minister may form a reasonable belief that there is a significant risk to the interests of Jersey where he relies on the existence of a direction issued by HM Treasury under Schedule 7 of the UK Act.
Directions can be given generally, by Order, to all relevant persons or a specific category of relevant persons. A direction may also be given to a particular relevant person who must comply with the terms of the direction.
A direction ceases to have effect, if it has not previously been revoked, after one year, although consideration may be given to renewal of a direction. A direction may be withdrawn at any time by the Chief Minister.
2. Effects of a direction
Directions can impose a range of requirements on a relevant person in relation to their transactions or business relationships with the government of, or a person connected to, a targeted country (a “designated person”). A direction can require a relevant person to:
• Undertaken enhanced customer due diligence measures.
• Provide information and documents.
• Limit or cease a transaction or business relationship.
The requirements to carry out enhanced customer due diligence measures are in line with similar requirements under the Money Laundering (Jersey) Order 2008. The requirements for reporting and limiting or ceasing business are new.
Enhanced customer due diligence
The meaning and application of customer due diligence is set out in Article 3 of the draft Law.
If an enhanced due diligence direction is issued this may require a relevant person to apply enhanced due diligence measures before entering into a transaction or a business relationship with a designated person, or during a business relationship with such a person. A direction may also specify the particular due diligence measures to be undertaken.
Reporting
A direction may require a relevant person to provide such information and documents as may be specified, including periodically reporting transactions with designated persons. Each reporting direction will explain what information should be provided, to whom and when information should be sent. Businesses should also continue to submit Suspicious Activity Reports where necessary alongside any systematic reporting.
Limiting or ceasing business
A direction may specify that a relevant person must not do business with a designated person.
In some circumstances, the Chief Minister may grant general licences to exempt certain transactions or types of transaction from the requirements of the direction, or specific licences to exempt individual transactions. In practice, either the relevant person or the relevant person’s customer will apply for a licence, and the Chief Minister will provide further information on how to apply for a licence when he issues a direction.
3. Impact on businesses
Based on the use to date of Schedule 7 of the UK Act, it is not anticipated that the draft Law will place any significant additional burden on relevant persons. Indeed, UK nationals and branches of UK financial institutions carrying on financial services business in or from within Jersey are already subject to obligations under the UK Act.
In practice, it is expected that the vast majority of directions given by the Chief Minister will be based on directions issued by HM Treasury, and, in addition to publicity that will be given in Jersey to directions given, relevant persons may also sign up to HM Treasury’s alert system, which publicises directions made in the UK.
- Offences
Failure to comply with a direction given under the draft Law is a serious matter and a criminal offence. However, no offence is committed where there is evidence that a relevant person failed to comply with a direction but took all reasonable steps and exercised all due diligence to ensure that the requirement would be complied with, including following any relevant guidance or code of practice.
Other offences include intentionally circumventing a direction and the provision of false information for the purpose of obtaining a licence.
5. Human rights
The UK Act was the subject of detailed scrutiny with regards to human rights, and similar care has been taken to ensure the draft Law is fully human rights compliant.
Issues considered include the level of evidence required to issue a direction, which has been strengthened, for example, from merely ‘suspicion’ of a risk of money laundering to the more onerous ‘reasonable belief’ that there is a ‘significant risk’ to Jersey.
Procedural requirements to protect the rights of a person subject to a direction include:
- appropriate steps must be taken to bring the giving of the direction to the attention of recipients;
- the direction will lapse, unless it has previously been revoked, after 12 months and continuation is subject to a renewal;
- the Chief Minister must publicise when a direction is amended or ceases to have effect;
- a direction to limit or cease business may be subject to a licence to exempt certain acts in general or to exempt specific persons, subject to conditions as specified.
Any person aggrieved by a decision of the Minister may appeal to the Royal Court against that decision. The Royal Court may then make such interim or final order as it thinks fit. If it decides to set aside the Chief Minister’s decision to give a direction, it can quash the direction (if given by notice) or, if made by Order, direct the Chief Minister to revoke the Order.
As outlined above, the Chief Minister may give a direction if HM Treasury has issued a direction. Where the Chief Minister relies on such a direction when giving a direction under the draft Law, then there is no right of appeal to the Royal Court and the route of appeal lies under the UK Act. However, if a direction made by HM Treasury on which the Chief Minister has relied is set aside, ceases to have effect or is revoked, the direction given in Jersey will also cease to have effect.
The Schedule to the draft Law contains provisions for rules of court in connection with proceedings under the draft Law. In particular, the draft Law includes arrangements for restricting the disclosure of evidence. Such arrangements might be necessary, for example, where, for reasons of security or if it is contrary to the public interest, it is not possible to disclose to a party to the proceedings, or to any legal representative, the full details of the reasons for a decision.
Nevertheless, in carrying out its duties, the Court cannot act inconsistently with the Human Rights Convention and rules of court also provide for arrangements in Jersey for the appointment of special counsel to represent the interests of a party or a legal representative who is excluded from proceedings or an appeal under the draft Law.
Manpower and revenue resources
Implementation of the draft Law will involve administrative arrangements for the Chief Minister to give directions and grant licences. However, based on the use to date of Schedule 7 of the UK Act, it is considered unlikely that directions will be given frequently under the draft Law.
If an appeal was made by a Jersey person against a direction given by HM Treasury, it is possible that they might receive legal aid in the UK but would not receive financial support for travel and accommodation. The likelihood of such an appeal made in the UK by a Jersey person without the means to pay is remote; however, in such circumstances the States might be asked to give consideration to financial assistance.
European Convention on Human Rights
In accordance with the provisions of Article 16 of the Human Rights (Jersey) Law 2000 the Chief Minister has made the following statement –
In the view of the Chief Minister the provisions of the Draft Money Laundering and Weapons Development (Directions) (Jersey) Law 201- are compatible with the Convention Rights.
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