Fixing Jerseys AML gaps - PROCEEDS OF CRIME (AMENDMENT No. 6) (JERSEY) LAW 202-

The following matters were discussed by the Sates o Jersey prior to agreeing to the PROCEEDS OF CRIME (AMENDMENT No. 6) (JERSEY) LAW 202-

The national preparations are also taking the findings from the previous MONEYVAL evaluation during the fourth evaluation round into consideration. In December 2015, MONEYVAL agreed its Mutual Evaluation Report (the Report) regarding the Island’s compliance with the FATF Recommendations.

The Report concluded that certain scope exemptions from Anti Money Laundering / Countering the Financing of Terrorism (AML/CFT) obligations in Jersey were not compatible with the FATF Recommendations which allow such exemptions only where –

• “There is a proven low risk of money laundering and terrorist financing; this occurs in strictly limited and justified circumstances; and it relates to a particular type of financial institution or activity, or DNFBP”; or
• “A financial activity (other than the transferring of money or value) is carried out by a natural or legal person on an occasional or very limited basis (having regard to quantitative and absolute criteria), such that there is low risk of money laundering and terrorist financing.”

1. Specifically, the Report highlighted concerns about the rationale for scope exemptions that mean certain businesses are not required to comply with AML/CFT obligations.
2. AML/CFT regulation, including exemptions from AML/CFT obligations, evolved as the Island brought its AML/CFT regime into force in line with developing international standards. The Proceeds of Crime (Jersey) Law 1999 (POCL) introduced AML obligations for certain financial services activities which were specified in POCL’s Second Schedule (Schedule 2).
3. Several scope exemptions remain directly linked to Jersey’s conduct and prudential regime.
4. Such activities are expected to be subject to AML/CFT obligations in line with the FATF Recommendations, yet they may currently be exempted from both AML/CFT obligations as well as conduct and prudential obligations by virtue of the way the regime has evolved. Equally, there are certain activities that are now expected to be subject to AML/CFT obligations in line with the FATF Recommendations which are not currently specified in Schedule 2.
5. In order to better understand the extent to which the scope exemptions are relied upon by Island businesses, the Jersey Financial Services Commission (JFSC) established an industry working group made up of experienced practitioners from a cross-section of the finance industry.
6. The working group considered several scope exemptions in detail including how they are used in practice, and the potential impact should certain scope exemptions no longer be available to the finance industry because they are not compatible with the current FATF Recommendations’ definitions of Financial Institutions (FIs), Designated Non-Financial Businesses and Professions (DNFBPs) and Virtual Asset Service Providers (VASPs).
7. Following the working group’s initial consideration of several scope exemptions, the JFSC identified that the most pragmatic route forward would be to disconnect AML/CFT obligations from conduct and prudential obligations.
8. Thereafter, where a business is to be subject to AML/CFT obligations, this will be the case irrespective of that business’s obligations in respect of conduct and prudential matters. The key benefit of this approach is that it will provide clarity and certainty to the finance industry regarding what activities are subject to AML/CFT regulation and there is no requirement to amend the wider network of statutes relating to financial services. The approach will also allow the Island to demonstrate that any future scope exemptions from AML/CFT obligations are fully aligned to the criteria for exemptions within the FATF Recommendations.
9. The JFSC and Government published a consultation in 2021 which outlined all the aforementioned considerations and proposed changes to POCL accordingly. As part of the consultation, there were several engagements with the finance industry to gather feedback on the consultation.
10. This feedback has then been incorporated into the current version of the proposed Draft Proceeds of Crime (Amendment No. 6) (Jersey) Law 202- (the “Amendment”).
11. However, Jersey Gov point out that, should the Amendment be adopted, this would only represent the conclusion of the first phase of this important work stream.
12. As outlined above, there are situations where AML/CFT scope exemptions are compatible with the FATF Recommendations, most importantly if there is a proven low risk of money laundering.
13. Since low money laundering risk can currently not be proven because of the JFSC’s lack of powers to collect the relevant data from businesses which rely on these exemptions, the exemptions need to be removed as far as FIs, DNFBPs and VASPs under the FATF Recommendations are concerned.
14. Following the adoption of the Amendment and as part of the second phase of the work stream, the JFSC will be able to collect the relevant data and, where there is demonstrable low risk of money laundering for certain businesses, AML/CFT scope exemptions will be re-introduced via a single Order.
15. Whereas, if a low risk of money laundering can not be proven through the data collection for certain businesses, those businesses will no longer be able to rely on an exemption. It is of utmost importance to note that the removal of the exemptions would not come into force until the completion of this second phase which will require significant consultation, data collection and engagement with the finance industry over the coming months.
16. For this reason, the Amendment will only come into force after this transitional period, on a day to be specified by Order. This should provide the JFSC, the finance industry and fellow States members the assurance that any new exemptions will only come into effect once all the AML/CFT risks have properly been assessed, in line with the FATF Recommendations.
17. Implementing the Amendment will remove the existing AML/CFT scope exemptions and hence enable the Island to remedy the aforementioned issues highlighted in the 2015 MONEYVAL Report and enable the JFSC and Government to commence the second
18. phase of this important work stream which will be centred on establishing a better AML/CFT risk understanding for currently exempted businesses. Therefore, we propose the Amendment for adoption by the States Assembly

https://statesassembly.gov.je/AssemblyPropositions/2022/P.24-2022.pdf