ASK MAT:- Why doesn’t the JFSC take regulatory action against supervised persons who commit CRIMINAL OFFENCES or enter DPAs

ASK MAT:- Why doesn’t the JFSC take regulatory action against supervised persons who commit CRIMINAL OFFENCES or enter DPAs

MAT SAYS: Thank you for an excellent question. Many people cannot understand why, after a supervised (also regulated) person has been prosecuted for a Money Laundering (Jersey) Order 2008 (or similar), the JFSC does not take further public action (e.g. public statements)

Firstly, we must recognise that the JFSC issues private [non-public] statements and forces firms to employ third-party “reporting professional” consulting firms that have an effect of enforcement.  However, these actions have never been made public, so it's impossible to gauge the full scope of enforcement work in which the JFSC is involved.

Also, we must acknowledge the JFSC has, over the years, made many public statements about firms that have not met the JFSC standards

• https://www.jerseyfsc.org/news-and-events/?contenttype=Public%20statements

Also included in the above, the JFSC has issued seven public statements that resulted in civil penalties (fines), namely

• 1] Sanne, 2] Equity Trust, 3] Kleinwort Hambros group, 4] Lloyds Bank Corporate Markets Plc, Jersey Branch (LBCM, Jersey Branch)
• 5] IQ EQ (Jersey) Limited, 6] Belasko Jersey Limited, 7] Post Office Limited.

However, in listing the names above, none have been prosecuted for failing to follow a relevant regulatory law, such as the Proceeds of Crime (Jersey) Law 1999 or Money Laundering (Jersey) Order 2008

On this matter, since 2005, There have been 6 JFSC regulated persons that have been subject to a CRIMINAL PROSECUTION (X5) or DEFERRED PROSECUTION AGREEMENT (X1) for failing to follow the Money Laundering (Jersey) Order 2008. these are highlighted later in my answer

• The breakdown of the six is:-
  • 1&2]Caversham and Nicholas Bell, 3] Kevin Manning, 4] Abu Dhabi Commercial Bank, 5] LGL Trustees Limited,
  • 6] AG v Afex Offshore (Jersey) Limited
• MONEY LAUNDERING (JERSEY) ORDER 2008 =
• DEFERRED PROSECUTION AGREEMENT (DPA) =

Out of the 6 cases listed above:-

• Only one individual was ever held to account and prosecuted, Nicholas Bell.  Although the JFSC did not issue a public statement
• All cases were body corporate failures, with no individuals being held to account by the courts or the JFSC
• Also, all the X5 Money Laundering (Jersey) Order 2008 cases:-
• Resulted in financial sanctions and no jail time. 
• Only one public statement was issued by the JFSC, and this was against Mr Kevin Robert Manning (R) https://www.jerseyfsc.org/news-and-events/mr-kevin-robert-manning-r/
• Concerning the DPA - On the 18th of December, AG v Afex Offshore (Jersey) Limited was subject to Jersey's first DPA under the Criminal Justice (Deferred Prosecution Agreements) (Jersey) Law 2023, which came into force on March 3, 2023.  
  • READ THE DPA AGREEMENT = https://www.jerseylaw.je/judgments/unreported/Pages/[2024]JRC271.aspx –
• The Royal Court issued a comprehensive judgment explaining why the case met the legal thresholds for a DPA and endorsed the agreed statement of facts and the financial penalty. This DPA milestone also sets a precedent for future cases and highlights the importance of compliance and structured reparation for corporate misconduct. 
• Notably, the JFSC has not issued any public statement

In addition to the above, there have also been two failed prosecutions under the Proceeds of Crime (Jersey) Law 1999 to note

• Michele Jardine and STM Fiduciaire Corporate Limited were found NOT guilty of a criminal offence
• However, It is notable that the JFSC issued a public statement against both.

All the above failures exposed Jersey to a high risk of money laundering and highlighted the importance of robust AML controls.  Furthermore, these cases highlight the importance of robust AML controls and the consequences of failing to comply with regulatory requirements.  However, as shown above, the JFSC relies on the courts only where the law has been broken. 

One reason for this is outlined in the JFSC updated guidance that followed the DPA.

• https://www.jerseyfsc.org/industry/guidance-and-policy/our-approach-to-enforcement/

ANSWER TO YOUR QUESTION

So, to answer your question, we need to consider what the JFSC says in its guidance:-

• The JFSC will only consider taking enforcement action against a firm or any individuals following an investigation by the criteria outlined in https://www.jerseyfsc.org/industry/guidance-and-policy/our-approach-to-enforcement/ .
• Whether the JFSC will start an investigation depends on the merits of each case and the impact that the matter in question may have on the JFSCs guiding principles.
  • Reducing risk to the public: This involves minimising the risk of financial loss to the public due to dishonesty, incompetence, malpractice, or the financial unsoundness of financial service providers.
  • Protecting and enhancing Jersey's reputation: The JFSC aims to safeguard and enhance the reputation and integrity of Jersey in commercial and financial matters.
  • Safeguarding Jersey's economic interests: This principle focuses on protecting the best economic interests of Jersey.
  • Countering financial crime: The JFSC is committed to combating financial crime both within Jersey and internationally.
• These principles drive the JFSC's work and ensure high regulatory standards. The key guiding principles are:
• These principles guide the JFSC's regulatory activities, ensuring a balanced, progressive, and risk-based approach to financial regulation.
• The JFSC will not consider any enforcement action just based on:-
• A judgement,
• A statement of facts or
• A deferred prosecution agreement,

Outside of what the JFSC says, it must be recognised that the JFSC applies other powers that have enormous consequences for firms, including costs.

For example, the JFSC may require a supervised form to appoint an independent reporting professional at the cost of the respective supervised entity.  

END

 FURTHER DETAILS OF CASES LISTED IN THE ABOVE ANSWER

1. Criminal Prosecution:
   1. https://www.step.org/industry-news/jersey-fiduciary-acquitted-failing-report-suspicious-transaction
• The prosecution was under the Proceeds of Crime (Jersey) Law 1999, which requires financial intermediaries to report transactions if there are reasonable grounds to suspect money laundering
• Michele Jardine and STM Fiduciary acquittal was significant as it was the first criminal prosecution of its kind in Jersey
2. Regulatory Sanction:
   1. The JFSC issued a public statement on July 7, 2015, detailing the regulatory sanctions against Michele Jardine[1][2]. Jardine was found to have failed in her role as Money Laundering Reporting Officer (MLRO) and Money Laundering Compliance Officer (MLCO) at STM Fiduciary.
   2. Specific failures included not processing 15 internally filed Suspicious Activity Reports (SARs) related to 19 individuals or entities, some of which had been filed up to 20 months prior[1][2].
   3. Jardine was issued directions under Article 23 of the Financial Services (Jersey) Law 1998, preventing her from engaging in any employment with a registered person without prior written approval from the JFSC[1][2].
   1. JFSC - Public Statement on Michele Jardine
   1. The JFSC's public statement also addressed STM Fiduciary's failures in maintaining adequate AML controls and compliance procedures
   2. The firm did not ensure proper reporting and scrutiny of suspicious activities, which led to significant regulatory breaches
   1. https://www.jerseyfsc.org/news-and-events/stm-fiduciaire-corporate-limited/
• Despite the acquittal, Michele Jardine and STM Fiduciaire Corporate Limited faced regulatory sanctions from the Jersey Financial Services Commission (JFSC).
•  The Jersey Financial Services Commission (JFSC) issued public statements regarding Michele Jardine and STM Fiduciary, highlighting several key points:
• Michele Jardine:
• STM Fiduciary:

Firstly, let us consider the prosecutions under the Money Laundering (Jersey) Order 2008 involving Caversham, Manning, Abu Dhabi, and LGL:

1. Caversham and Nicholas Bell
   1. https://www.comsuregroup.com/news/caversham-fiduciary-services-ltd-and-caversham-trustees-ltd-and-nicholas-bell-2005-judgement/
   2. https://www.jerseylaw.je/judgments/unreported/PDFs/%5B2005%5DJRC165.pdf
• In the 2005 case involving Caversham Fiduciary Services Ltd, Caversham Trustees Ltd, and Nicholas Bell, several significant issues were identified:
• Nicholas Bell and the firms failed to conduct adequate due diligence on clients and transactions. This included not properly identifying and verifying the beneficial owners of the entities involved
2. Kevin Manning:
• Manning faced prosecution for similar AML failures, including inadequate customer due diligence and record keeping.
• These lapses exposed the firm to significant risks of money laundering
• JFSC public statement - https://www.jerseyfsc.org/news-and-events/mr-kevin-robert-manning-r/
3. Abu Dhabi Commercial Bank:
• The Abu Dhabi Commercial Bank PJSC was fined £475,000 for failing to maintain adequate policies and procedures to prevent money laundering.
• The bank allowed large cash withdrawals without proper scrutiny, which violated AML regulations
4. LGL Trustees Limited:
• LGL Trustees Limited was fined £550,000 for failing to heed red flags that an investment scheme might have been a fraud.
• The firm did not adequately investigate the source of funds from Angola's public treasury, leading to significant AML breaches
• https://www.comsuregroup.com/news/lgl-trustees-ltd-fined-550k-plus50k-what-is-known-and-what-the-jersey-court-said-about-what-happened/

Also, Jersey recently secured its first Deferred Prosecution Agreement (DPA) under the Criminal Justice (Deferred Prosecution Agreements) (Jersey) Law 2023, which came into force on March 3, 2023.  On the 18^{th of} December, AG v Afex Offshore (Jersey) Limited entered Deferred Prosecution Agreements with The Attorney General

5. AG v Afex Offshore (Jersey) Limited—The Royal Court issued a comprehensive judgment explaining why the case met the legal thresholds for a DPA and endorsed the agreed statement of facts and the financial penalty. This DPA milestone also sets a precedent for future cases and highlights the importance of compliance and structured reparation for corporate misconduct. 

• READ THE DPA AGREEMENT = https://www.jerseylaw.je/judgments/unreported/Pages/[2024]JRC271.aspx -

• Customer Due Diligence (CDD) Failures:
1. Counts 1-5: These counts involved failures in customer due diligence obligations and risk assessment for a transaction administered in January 2019[1][2].
2. The firm failed to identify the beneficial owners of the funds involved in the transaction[2].
3. There was a general failure to properly scrutinise, identify, and address the money laundering risks apparent from the transaction[2].
• Monitoring and Compliance Failures:
1. Counts 6-11: These counts are related to failures in monitoring and compliance with Article 16 of the Money Laundering (Jersey) Order 2008[2].
2. The firm did not maintain appropriate, consistent policies and procedures to prevent money laundering[2].
• Specific Transaction Issues:
1. The transaction involved the receipt of €3 million from a third party, which was distributed to various persons and entities without adequate scrutiny[2].
2. The firm was motivated by the prospect of repeat business, which led to the commission of serious criminal offences[2].

 References

• [1] Money Laundering (Jersey) Order 2008 https://www.jerseylaw.je/laws/current/ro_20_2008
• [2] Judgments with connection to financial crime - Government of Jersey https://www.gov.je/industry/finance/financialcrime/pages/judgments.aspx
• [3] BEFORE THE ROYAL COURT OF JERSEY His Majesty’s - Government of Jersey https://www.gov.je/SiteCollectionDocuments/Government and administration/AG v AOL Indictment.pdf
• [4] https://www.jerseylaw.je/laws/current/Pages/08.780.aspx25

References

• [1] Jersey fiduciary acquitted of failing to report 'suspicious ... https://www.step.org/industry-news/jersey-fiduciary-acquitted-failing-report-suspicious-transaction
• [2] Mrs Michelle Jardine — Jersey Financial Services Commission https://www.jerseyfsc.org/news-and-events/mrs-michelle-jardine/
• [3] Public Statement - Jersey Financial Services Commission https://www.jerseyfsc.org/media/1614/ps-public-statement-m-jardine-july-2015.pdf

References

• [1] Afex Offshore (Jersey) Limited have entered into a Deferred Prosecution ...https://www.comsuregroup.com/news/afex-offshore-jersey-limited-have-entered-into-a-deferred-prosecution-agreements-dpa-and-been-fined-468k/
• [2] HIS MAJESTY’S ATTORNEY GENERAL -V- STATEMENT ... - Government of Jersey https://www.gov.je/SiteCollectionDocuments/Government and administration/Agreed statement of facts AG anonymised post hand down.pdf
• [3] BEFORE THE ROYAL COURT OF JERSEY His Majesty’s - Government of Jersey https://www.gov.je/SiteCollectionDocuments/Government and administration/AG v AOL Indictment.pdf
• [4] https://www.jerseylaw.je/laws/enacted/Pages/L-02-2023.aspx https://www.jerseylaw.je/laws/enacted/Pages/L-02-2023.aspx
• [5] https://www.jerseylaw.je/judgments/unreported/Pages/ https://www.jerseylaw.je/judgments/unreported/Pages/
• [6] https://www.gov.je/SiteCollectionDocuments/Crime%20and%20justice/AG%27s%20DPA%20Guidance.pdf https://www.gov.je/SiteCollectionDocuments/Crime and justice/AG%27s DPA Guidance.pdf

References

• Baker & Partners secure the first deferred prosecution agreement in ...https://www.bakerandpartners.com/insights/deferred-prosecution-agreement/
• Baker & Partners secure the first DPA in Jersey https://www.legal500.com/developments/thought-leadership/baker-partners-secure-the-first-dpa-in-jersey/
• Best practices to secure a Jersey deferred prosecution agreement ...https://www.bakerandpartners.com/insights/jersey-deferred-prosecution-agreement/
• https://chambers.com/articles/baker-partners-secure-the-first-dpa-in-jersey