It is no longer optional for AML reporting entities to dip into their countries' national risk assessments - made by their governments and distributed to them - with a 'take it or leave it' attitude. Firms must now follow the requirements of these documents to the letter and Guernsey's NRA is no exception.
Guernsey’s new anti-money-laundering regime came into force on 31 March 2019. In the run-up to this event, my advice to the market was to act promptly to ensure compliance. Because of the Covid-19 pandemic, the Government has extended the deadline for businesses to comply with a number of the regime's requirements and it is important for businesses to meet these deadlines – even if they have to struggle to do so.
The AML regime
The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) (Amendment) Ordinance 2018 was approved by the States of Guernsey in December 2018 and Guernsey’s new AML regime, comprising a new Schedule 3 Proceeds of Crime Law and a revised Handbook on Countering Financial Crime and Terrorist Financing, came into force on 31 March 2019. The revised handbook was issued by the Guernsey Financial Services Commission (GFSC) on 12 March 2019 and is a vital document for all “specified businesses” – term that takes in both financial service businesses (banks, investment firms, fiduciaries, insurers and insurance companies), and prescribed businesses (lawyers, accountants and estate agents). The regulators have amended the handbook several times since March 2019 and the current version is the version re-issued on, and dated, 30 October last year.
When Schedule 3 and the revised handbook came into force, the reporting community was still awaiting Guernsey’s National Risk Assessment (NRA). The principal idea behind the NRA was to set out in a detailed summary the threats, weakensses and consequences of money laundering, terrorist financing and other forms of financial crime, including the proliferation of weapons of mass destruction, to Guernsey as a jurisdiction. Unfortunately, the publication of the NRA was delayed significantly, thus affecting certain of the transitional provisions for compliance with the new AML regime.
The NRA was eventually published in January. In general terms, firms have to use it for guidance when revising their own business risk assessments or BRAs. It is interesting to note that firms are now required to prepare separate assessments in respect of money laundering and terrorist financing. Although a firm can put both assessments in the same document, it must keep them clearly distinct from one another.
It is important to remember that the handbook sets out the standards which are required of all specified businesses and it includes rules and guidance that apply to all firms. The new regime is a product of a considerable amount of work, which followed the MONEYVAL evaluation which took place in 2014 (although the report was not issued until September 2015). MONEYVAL is Europe's FATF-style regional body or FSRB. The FATF is the Financial Action Task Force, the world's AML standard setter.
Firms were originally given until the end of May 2020 to update their BRAs to conform to Schedule 3 and the revised handbook. This was extended to 30 September 2020 because of the Covid-19 pandemic. Firms are now required to review existing business relationships against the requirements of Schedule 3 and the revised handbook by 31 December this year (although the GFSC suggests that this process should, if possible, be completed by 30 June for 'high risk' relationships). Revised deadlines are set out in chapter 17 of the handbook.
Why is the National Risk Assessment important?
In order to consider that question, one needs to look at the genesis of the NRA. It was created after financial service businesses, prescribed and other related businesses gathered a significant amount of information. Information also flowed in from other bodies operating or involved in the AML sphere, especially the GFSC and the Financial Intelligence Service, Guernsey's financial intelligence unit or FIU.
The NRA sets out the risks at both a national and at a local level and its assessment of the threats and the weaknesses in various sectors of business such as financial services, investments, lawyers and accountants. It is vital to understand that specified businesses should now have considerable regard to the content of the NRA in the context of their own business, not only now but also in the future. It is also important to remember that the NRA will evolve and various initiatives will spin off from it. At present, the NRA is particularly relevant to a specified business and the provisions of its AML policies and procedures.
Businesses must consider the NRA carefully the next time they update their BRAs and consider whether the existing areas and levels of risk are consistent with the conclusions set out in the NRA.
Areas of risk
As noted above, the NRA addresses specific areas of risk ratings against various subjects. Unsurprisingly, the greatest money laundering risk for Guernsey comes from the laundering of the proceeds of foreign criminal activity, the sectors identified as being most at risk being private banking and those trust/corporate service providers that deal with legal persons (such as companies) and legal arrangements (such as trusts). The NRA identifies fraud (which includes tax evasion) and bribery and corruption as the most relevant predicate offences for money laundering from Guernsey’s perspective. The risks associated with money laundering relating to domestic criminality are lower, the main predicate offences identified being drug trafficking and fraud.
The risks associated with terrorist financing are lower than those associated with money laundering but they still exist. The main risk that the Government has spotted is that of secondary terrorist financing – where the proceeds of crime are used to finance terrorism.
Points to take away
If they have not done so already, all specified businesses should review their BRAs in the light of the NRA. Specified businesses must also now begin the long struggle to review their existing business relationships by 31 December with the requirements of Schedule 3, the handbook and the NRA in mind, while dealing with the highly risky relationships by 30 June if possible.
The GFSC will undoubtedly be paying close attention to the ways in which businesses take account of the NRA and it will continue to concentrate its supervisory fire-power on sectors in highly risky areas. It is likely to place particular emphasis on areas of weakness with a view to improving them before MONEYVAL comes to make its next assessment. This is scheduled currently for 2023.
* Andrew Laws can be reached on +44 1481 746107 or at firstname.lastname@example.org