consultation paper - the Jersey Financial Services Commission

CONSULTATION PAPER AML 4, 2014 REVISIONS TO COMMISSION AML/CFT HANDBOOKS Proposals to amend provisions in the Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism for Financial Services Business Regulated under the Regulatory Laws

ISSUED NOVEMBER 2014

Consultation Paper

CONSULTATION PAPER Please note that terms in italics are defined in the glossary of terms. This consultation paper should be read and understood alongside Position Paper AML 2014. The Commission invites comments on this consultation paper. William Byrne at Jersey Finance is co-ordinating an Industry response that will incorporate any matters raised by its members. Comments should reach Jersey Finance by 5 December 2014. William Byrne Head of Technical

Telephone:

+44 (0) 1534 836021

Facsimile:

+44 (0) 1534 836001

Jersey Finance Limited

Email:

[email protected]

4th Floor, Sir Walter Raleigh House 48-50 Esplanade St Helier Jersey JE2 3QB Alternatively, responses may be sent directly to [email protected] by 5 December 2014. If you require any assistance, clarification or wish to discuss any aspect of the proposal prior to formulating a response, it is of course appropriate to contact the Commission. The Commission contact is: Andrew Le Brun Director, Financial Crime Policy

Telephone:

+44 (0) 1534 822065

Email:

[email protected]

Jersey Financial Services Commission PO Box 267 14-18 Castle Street St Helier Jersey JE4 8TP It is the policy of the Commission to make the content of all responses available for public inspection unless specifically requested otherwise.

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Issued: November 2014

Glossary of Terms

GLOSSARY OF TERMS AML/CFT

means anti-money laundering and countering the financing of terrorism

AML/CFT Handbook

means the Handbook for the Prevention and Detection of Money Laundering and Terrorist Financing for Financial Services Business Regulated under the Regulatory Laws

business relationship

has the meaning given in Article 1 of the Money Laundering Order

CDD

means customer due diligence

CDD measures

means identification measures and ongoing monitoring

Commission

means the Jersey Financial Services Commission

identification measures


Jersey Finance

means Jersey Finance Limited

Money Laundering Order

means the Money Laundering (Jersey) Order 2008

one-off transaction


PCC

means a protected cell company

relevant person

means a person carrying on a financial services business (as described in Schedule 2 of the Proceeds of Crime Law) and which is carrying on that business in or from within Jersey, or, if a Jersey legal person, carrying on that business in any part of the world

trust company business

has the meaning given in Section 13.1 of Part 1 of the AML/CFT Handbook

REVISION TO COMMISSION AML/CFT HANDBOOKS

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Contents

CONTENTS 1

2

3

EXECUTIVE SUMMARY ............................................................................. 5 1.1

Overview ............................................................................................................................5

1.2

Section 13 of the AML/CFT Handbook.........................................................................5

1.3

Who would be affected? ..................................................................................................6

SECTION 13 OF THE AML/CFT Handbook ........................................... 7 2.1

Overview ............................................................................................................................7

2.2

Section 13.2.1: obligation to apply identification measures ........................................7

2.3

Section 13.2.2: information for assessing risk – stage 1.4 ............................................7

2.4

Section 13.3: identification measures – finding out identity and obtaining evidence..............................................................................................................................8

2.5

Section 13.4: timing of identification measures ..........................................................10

2.6

Section 13.5: failure to complete identification measures .........................................10

2.7

Questions .........................................................................................................................10

COST BENEFIT ANALYSIS ..................................................................... 12 3.1

Costs to Industry .............................................................................................................12

3.2

Costs to the Commission ...............................................................................................12

3.3

Benefits .............................................................................................................................12

APPENDIX A ........................................................................................................ 13 List of representative bodies who have been sent this consultation paper. .....................13

APPENDIX B......................................................................................................... 14 Draft Section 13 of the AML/CFT Handbook ......................................................................14

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Executive Summary

1

EXECUTIVE SUMMARY

1.1

Overview

1.2

1.1.1

Chapter 2 of this consultation paper makes proposals to amend the current sector specific section for trust company business in the AML/CFT Handbook.

1.1.2

Whilst a number of changes are summarised in this consultation paper, some of the more important changes are summarised below.

1.1.3

Appendix B of this consultation paper includes draft Section 13 of the AML/CFT Handbook. The Commission will also shortly publish a “best-efforts” marked-up draft of the sector specific section.

Section 13 of the AML/CFT Handbook 1.2.1

Amongst other things, this section explains who is to be considered the customer of a relevant person carrying on trust company business.

1.2.2

Section 13.3.1 explains who is to be considered the customer of a relevant person that is to act as trustee of an express trust. Guidance is based on paragraph 29 of the current sector specific section, except that a co-trustee is not considered to be the relevant person’s customer (rather information on any co-trustee should be collected in order to assess the risk of money laundering or financing of terrorism).

1.2.3

Section 13.3.4 explains who is to be considered the customer of a relevant person that is to act as the general partner of a limited partnership. Guidance is based on paragraph 104 of the current sector specific section, except that:

1.2.4

1.2.3.1

Another general partner is not considered to be the relevant person’s customer (rather information on any other general partner should be collected in order to assess the risk of money laundering or financing of terrorism); and

1.2.3.2

A “threshold” is applied, so that identification measures are applied to those limited partners holding a material interest in the capital of the partnership, and not all limited partners.

Having determined who its customer(s) is, a relevant person carrying on trust company business is to apply identification measures in line with Section 4 of Part 1 of the AML/CFT Handbook. In line with Section 4, a relevant person may demonstrate that it has found out the identity of a customer’s beneficial owners where it finds out the identity of individuals ultimately holding a material interest in the capital of its customer, rather than all individuals with a beneficial interest.


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Executive Summary

1.3

Who would be affected? 1.3.1

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The amendments that are proposed in this consultation paper will affect relevant persons carrying on trust company business.


Section 13 of the AML/CFT Handbook

2

SECTION 13 OF THE AML/CFT HANDBOOK

2.1

Overview

2.2

2.1.1

Section 13 of the AML/CFT Handbook is intended to assist with the application of customer identification measures where a relevant person establishes a business relationship or carries out a one-off transaction in the course of carrying on trust company business.

2.1.2

A draft of Section 13 of the AML/CFT Handbook is attached at Appendix B.

Section 13.2.1: obligation to apply identification measures 2.2.1

This section is based on existing statements. particular should be noted.

2.2.2

Existing statements say that the following transactions are to be considered to be a one-off transaction:

2.2.3

2.3

However, one change in

2.2.2.1

Arranging for another person to act as, or fulfil the function of, trustee, partner, director, council member etc.

2.2.2.2

Formation of a legal arrangement or legal person.

In a change to this approach, paragraphs 8 and 9 state that a relevant person will need to consider whether such transactions are one-off transactions. In the event that it is not possible to determine with certainty whether such a transaction is a one-off transaction, a relevant person would be advised to apply identification measures to that transaction.

Section 13.2.2: information for assessing risk – stage 1.4 2.3.1

This section introduces the concept of “limited services”; i.e. the provision by a relevant person carrying on trust company business of registered office and/or secretarial services only. It builds on existing statements on the risk presented by the provision of registered office only services and guidance on management of that risk.

2.3.2

This section also provides guidance on the collection of information to assess the risk of money laundering or financing of terrorism in a case where: 2.3.2.1

a trust has more than one trustee; or

2.3.2.2

a limited partnership has more than one general partner.


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Section 13 of the AML/CFT Handbook

2.4

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Section 13.3: identification measures – finding out identity and obtaining evidence 2.4.1

This section rationalises existing statements and guidance on the identification measures to be applied by a relevant person that is carrying on trust company business and must be read alongside Sections 3 and 4 of Part 1 of the AML/CFT Handbook.

2.4.2

In particular, it now avoids duplication of parts of Section 4 of Part 1 of the AML/CFT Handbook – which will apply in a case where a relevant person carrying on trust company business has a customer who is an individual or a legal person.

2.4.3

Instead, this section highlights who will be considered to be a relevant person’s customer under Article 3 of the Money Laundering Order in a number of cases. 2.4.3.1

In the case of a relevant person that carries on trust company business and is to act as the trustee of an express trust, customers will be the settlor, protector (if any), beneficiaries with a vested right, and any other beneficiaries and persons who are the object of a power and that have been identified as presenting a higher risk.

2.4.3.2

In the case of a relevant person that carries on trust company business and is to act as the general partner of a limited partnership, customers will be the limited partners of the partnership.

2.4.3.3

In the case of a relevant person that carries on trust company business and is to provide a service, e.g. registered office, in respect of a limited partnership, the customer will be the general partner acting for the limited partnership – a third party.

2.4.3.4

In the case of a relevant person that carries on trust company business and is to provide a service to a company, the customer will be the company.

2.4.3.5

In the case of a relevant person that carries on trust company business and is to provide a service to a foundation, the customer will be the foundation.

2.4.3.6

In the case of a relevant person that carries on trust company business and is to provide a service to a separate limited partnership, incorporated limited partnership or limited liability partnership, the customer will be the partnership.

2.4.3.7

In the case of a relevant person that carries on trust company business and is to form a company, partnership or foundation, the customer will be the persons who are to be the beneficial owners and controllers of the legal person.


Section 13 of the AML/CFT Handbook 2.4.4

The approach that is summarised in paragraph 2.4.3 above is more closely aligned with the construction of Article 3 of the Money Laundering Order than current statements. For example, current overview text for a company that has already been incorporated states that a relevant person’s customer, under Article 3(2)(a) of the Money Laundering Order, will be the owners and controllers of that company. Whereas, the owners and controllers are, in fact, the individuals to be identified under Article 3(2)(c)(iii) (the customer’s beneficial owners and controllers).

2.4.5

Section 13.3.1 explains who is to be considered the customer of a relevant person that is to act as trustee of an express trust. Guidance is based on paragraph 29 of the current sector specific section, except that a co-trustee is not considered to be the relevant person’s customer (rather information on any co-trustee should be collected in order to assess the risk of money laundering or financing of terrorism).

2.4.6

Section 13.3.4 explains who is to be considered the customer of a relevant person that is to act as the general partner of a limited partnership. Guidance is based on paragraph 104 of the current sector specific section, except that: 2.4.6.1

Another general partner is not considered to be the relevant person’s customer (rather information on any other general partner (or limited partner that participates in management) should be collected in order to assess the risk of money laundering or financing of terrorism); and

2.4.6.2

A “threshold” is applied, so that identification measures are applied to those limited partners holding a material interest in the capital of the partnership, and not all limited partners.

2.4.7

Having determined who its customer is, a relevant person carrying on trust company business is to apply identification measures in line with Section 4 of Part 1 of the AML/CFT Handbook. In line with Section 4, a relevant person may demonstrate that it has found out the identity of a customer’s beneficial owners where it finds out the identity of individuals ultimately holding a material interest in the capital of its customer, rather than all individuals with a beneficial interest.

2.4.8

The position of a relevant person carrying on trust company business and which provides a registered office and/or secretary to a PCC is also considered. It is explained that identification measures must be applied under Article 13 of the Money Laundering Order to the PCC and each cell of the PCC.

2.4.9

Finally, this section considers the application of preventative measures to a customer that is a private trust company. An AML/CFT Code of Practice is set in order to put beyond doubt that a relevant person must apply CDD measures, keep records and apply reporting procedures to a customer that is a private trust company. This AML/CFT Code of Practice is based on an existing regulatory requirement, except that: 2.4.9.1

it now also deals with record-keeping and reporting by the relevant person; and


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Section 13 of the AML/CFT Handbook 2.4.9.2

2.4.10

2.5

2.6

2.7

Statements and guidance are no longer provided in this section on employee benefit and similar schemes. Instead, statements and guidance (in line with existing provisions) are to be provided in Section 7.15 of Part 1 of the AML/CFT Handbook – which deals with the general application of simplified identification measures.

Section 13.4: timing of identification measures 2.5.1

The section explains the timing of identification measures where there is a change in a customer of a relevant person during a business relationship.

2.5.2

Statements and guidance are based on existing provisions.

Section 13.5: failure to complete identification measures 2.6.1

This section considers the legal obligation to terminate a relationship where a relevant person is unable to apply identification measures under Article 13 of the Money Laundering Order.

2.6.2

Such a requirement can be problematic in the case of a relevant person that is a trustee where its customer is the beneficiary or object of a power of a trust and where: 2.6.2.1

the relationship between a relevant person and its customer is governed by other legislation - e.g. the Trusts (Jersey) Law 1984; and

2.6.2.2

the termination of a relationship with a customer (a beneficiary or object of a power) may have a prejudicial effect on the interests of other customers.

2.6.3

A similar issue applies in the case of a relevant person that is a council member of a foundation.

2.6.4

Statements and guidance are based on existing provisions.

Questions 2.7.1

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the requirement to find out identity and obtain evidence of identity does not extend to legal persons owned by the trusts that are administered by the private trust company (on the basis that information on such legal persons is collected under Section 3.3.2 of Part 1 of the AML/CFT Handbook).

Do you consider any guidance provided in Section 13 of the AML/CFT Handbook to be unclear? If yes, please identify which guidance (by paragraph) and explain why:


Section 13 of the AML/CFT Handbook ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________ 2.7.2

Are there additional areas where guidance on the application of legislation and the AML/CFT Codes of Practice could be provided in Section 13 of the AML/CFT Handbook? If yes, please explain: ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________

2.7.3

Do you consider any requirement (AML/CFT Code of Practice) in Section 13 of the AML/CFT Handbook to be disproportionate and/or ineffective? If yes, please identify which requirement (by paragraph number) and explain why: ______________________________________________________________________ ______________________________________________________________________ ______________________________________________________________________


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Cost Benefit Analysis

3

COST BENEFIT ANALYSIS

3.1

Costs to Industry 3.1.1

3.2

A co-trustee of a trust is not considered to be a customer of a relevant person that is a trustee. Accordingly, there is not a requirement to find out the identity and obtain evidence of identity for such a person.

3.1.1.2

A second general partner of a limited partnership is not considered to be the customer of a relevant person that is a general partner. Accordingly, there is not a requirement to find out the identity and obtain evidence of identity for such a person.

3.1.1.3

A relevant person that is a general partner of a limited partnership need not find out the identity of all limited partners, rather only those with a material interest.

3.1.1.4

Where the customer of a relevant person is a legal person, that relevant person may demonstrate that it has found out the identity of its customer’s beneficial owners where it finds out the identity of individuals ultimately holding a material interest in the capital of its customer, rather than all individuals with a beneficial interest.

It is not expected that the Commission will incur any additional costs as a result of the proposals in this consultation paper.

Benefits 3.3.1

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3.1.1.1

Costs to the Commission 3.2.1

3.3

Depending upon how existing guidance is applied, changes proposed in this consultation paper may reduce the cost of doing business in Jersey. In particular, it is explained that:

The proposals in this consultation paper will improve the clarity of existing statements and guidance.


Appendix A

APPENDIX A List of representative bodies who have been sent this consultation paper. The consultation paper has been sent to all members of the Commission’s AML/CFT Steering Group. Members are listed on the Commission’s website under AML/CFT Steering Group. In addition, copies of this consultation paper have been sent to: 

Association of English Solicitors Practising in Jersey



Association of Investment Companies



Chartered Institute for Securities & Investment – Jersey branch



Institute of Directors – Jersey branch



Jersey Association of Directors and Officers



Jersey Association of Trust Companies



Jersey Bankers’ Association



Jersey Chamber of Commerce and Industry Incorporated



Jersey Compliance Officers Association



Jersey Estate Agents Association



Jersey Finance Limited



Jersey Funds Association



Jersey International Insurance Association



Jersey Motor Traders Association



Jersey Society of Chartered and Certified Accountants



Law Society of Jersey



Personal Finance Society – Jersey branch


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Appendix B

APPENDIX B Draft Section 13 of the AML/CFT Handbook

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Handbook for regulated financial services businesses Part 1: Section 13 - Trust company business

13 TRUST COMPANY BUSINESS 13.1 OVERVIEW OF SECTION 1.

The purpose of this section is to assist with the application of customer identification measures where a relevant person establishes a business relationship or carries out a one-off transaction in the course of carrying on trust company business.

2.

This section applies where a relevant person carries on a business under Article 2(3) of the FS(J) Law that involves the provision of company administration services, the provision of trustee or fiduciary services, the provision of services to foundations or the provision of services to partnerships and, in the course of providing those services, the person provides any of the services specified in Article 2(4) of the FS(J) Law (except any activity that is explicitly excluded from the scope of Part A of Schedule 2 of the Proceeds of Crime Law). Inter alia, those services are:  acting as, or fulfilling the function of, or arranging for another person to act as or fulfil the function of, trustee of an express trust;  acting as, or fulfilling the function of, or arranging for another person to act as or fulfil the function of, a partner of a partnership;  acting as, or fulfilling the function of, or arranging for another person to act as or fulfil the function of, director or alternate director of a company; acting as, or fulfilling the function of, or arranging for another person to act as or fulfil the function of, a member of the council of a foundation;  acting as a partnership formation agent, a company formation agent, or a foundation formation agent;  acting, or arranging for another person to act, as secretary, alternate, assistant or deputy secretary of a company;  providing a registered office or business address for a partnership, a company, a foundation, or for any other person; and  providing an accommodation, correspondence or administrative address for any person.

3.

This section also applies where a relevant person carries on a business that is described in paragraph 8 of Part B of Schedule 2 of the Proceeds of Crime Law. Paragraph 8 extends the provisions that are summarised at paragraph 1 above to legal persons and legal arrangements that are not otherwise covered by the FS(J) Law. For the purpose of this section, such business is covered by the term “trust company business”.

4.

This section does not deal with the provision of any service to a so called “COBO-only” fund. A COBO-only fund is a scheme that would be a collective investment fund (a term that is defined in the CIF(J) Law) except for the fact that the capital, the collective investment of which is the object or one of the objects of the scheme or arrangement, is not acquired by means of an offer to the public of units for subscription, sale or exchange.

5.

Activity that is excluded from the scope of Part A of Schedule 2 of the Proceeds of Crime Law is listed in Section 1 of Part 4 of the AML/CFT Handbook. This list includes an individual who: (i) acts as a director in the course of employment by a trading company (that is not administered by a person carrying on trust company business); (ii) acts as a director of a company that is prudentially supervised by the Commission under the Regulatory Laws; and (iii) acts as, or fulfils the function of, a director to six or less companies.

Effective: TBA

15


13.2 OVERVIEW OF SECTION 13.2.1

Obligation to apply identification measures

OVERVIEW 6.

Inter alia, Article 13 of the Money Laundering Order requires a relevant person to apply identification measures:  before the establishment of a business relationship or before carrying out a one-off transaction; and  in the course of a business relationship, where the relevant person has doubts about the adequacy of information previously obtained under identification measures.

7.

A relevant person (“A”) that provides, acts as or fulfils one or more of the functions listed in paragraph 1 above, or arranges for another person (“B”) to do so (where B is an officer or employee of A) will be considered to have established a business relationship under the Money Laundering Order.

8.

Where B is not an officer or employee of A, then A will not be considered to have established a business relationship each time that it arranges for another person to act as or fulfil such function. However, a relevant person will need to consider whether such an arrangement (a transaction) is a one-off transaction as defined in Article 4 of the Money Laundering Order.

9.

A relevant person that acts only as a formation agent will not be considered to have established a business relationship with its customer. However, a relevant person will need to consider whether forming a legal arrangement or legal person (a transaction) is a one-off transaction as defined in Article 4 of the Money Laundering Order.

10.

For the avoidance of doubt, the requirement to apply identification measures will apply where the relationship that a relevant person has with its customer is conducted through another service provider, e.g. the relevant person provides a director to a company that is administered by another person carrying on trust company business.

13.2.2

Information for assessing risk – Stage 1.4

Note: This section must be read in conjunction with, and is supplemental to, Section 3.3.2 of Part 1 of the AML/CFT Handbook. OVERVIEW Limited services 11.

Section 3.3.2 of Part 1 of the AML/CFT Handbook explains how a relevant person carrying on trust company business may demonstrate that it has obtained appropriate information for assessing the risk that a business relationship or one-off transaction will involve money laundering or financing of terrorism.

12.

Where a relevant person provides only:  registered office services; or  secretarial services, or a combination of the two (hereinafter referred to as “limited services”), that relevant person is unlikely to have any oversight of, or control over, the activities of the legal arrangement or legal person in the way that it would if it also provided one or more directors (or equivalent) or provided full administration services. The absence of oversight or control increases the risk that a legal arrangement or legal person may be used to launder money or to finance terrorism.

13.

16

The effect of this additional risk will be to require a relevant person to request substantially more information on its customer, and on the activities of the legal arrangement or legal person to which it is to provide only limited services, for the purpose of countering money laundering and financing of terrorism than is strictly necessary to provide only limited services.

Effective: TBA


14.

The risk that a legal arrangement or legal person may be used to launder money or to finance terrorism is likely to be mitigated where a customer to whom only limited services are provided is a body corporate the securities of which are listed on an IOSCO compliant market or on a regulated market, or where a customer is a regulated person (or person who carries on equivalent business to any category of regulated business). Co-trustees and other general partners

15.

In some cases, an express trust or limited partnership may have more than one trustee or general partner respectively. In such cases, it will be necessary for a relevant person that is to act as trustee or general partner to obtain information on each co-trustee or other general partner (or limited partner that participates in the management of the limited partnership) in order to consider money laundering and financing of terrorism risk. GUIDANCE NOTES Limited services

16.

In the case of a relevant person that provides only limited services to a legal arrangement or legal person, a relevant person may demonstrate that it has obtained appropriate information for assessing the risk that a business relationship or one-off transaction will involve money laundering or financing of terrorism where it collects (at the time that a limited service is first provided and then on an ongoing basis thereafter) information on activities by reference to:  copies of minutes of directors’ and members’ meetings that must be kept by a company (including, in the case of a protected cell company, copies of minutes of directors’ and members’ meetings of the cell company and each of its cells) under Part 15 of the Companies Law (or equivalent for other legal persons or legal arrangements); and  copies of accounts that must be prepared by the directors of a company (including, in the case of a protected cell company, copies of accounts that must be prepared by the directors of the cell company and each of its cells) under Part 16 of the Companies Law (or equivalent for other legal persons or legal arrangements). Co-trustees and other general partners

17.

In the case of a relevant person that is to act as a trustee of an express trust, a relevant person may demonstrate that it has obtained appropriate information for assessing the risk that a business relationship or one-off transaction will involve money laundering or financing of terrorism where it collects information on any co-trustees of the trust.

18.

In the case of a relevant person that is to act as a general partner of a limited partnership, a relevant person may demonstrate that it has obtained appropriate information for assessing the risk that a business relationship or one-off transaction will involve money laundering or financing of terrorism where it collects information on any other general partners or limited partners that participate in the management of the limited partnership.

19.

Information requested may include information about why it is necessary to have more than one trustee or general partner, and the stature and regulatory track-record of the trustee or general partner.

13.2.3

Assessment of risk – Stage 2.1

Note: This section must be read in conjunction with, and is supplemental to, Section 3.3.4 of Part 1 of the AML/CFT Handbook. OVERVIEW 20.

Section 3.3.4 of Part 1 of the AML/CFT Handbook sets out a number of factors that are to be taken into account by a relevant person carrying on trust company business when assessing the risk that a business relationship or one-off transaction will involve money laundering or financing of terrorism. GUIDANCE NOTES

21.

A relevant person that carries on trust company business may demonstrate that it has assessed the risk that a business relationship or one-off transaction will involve money laundering or financing of terrorism where it also takes into account:

Effective: TBA

17


 Any failure on the part of a customer to be open about the source of funds. In the case of a trust, this could, amongst other things, indicate that a settlor is in fact a “dummy” settlor who is using another’s funds, and not his own.  Any failure to be open about the purpose and intended nature of the business relationship or one-off transaction. In the case of a trust, this could, for example, indicate that a settlor is withholding information on persons really intended to benefit from a discretionary trust, e.g. a settlor nominates only charities as beneficiaries of a trust, where he does not intend that the charity will in fact benefit (known as a “blind” trust).  Any request to include unusual or non-standard clauses in a trust instrument or other constitutive document that might indicate that the disclosed purpose of the structure is not genuine.  Any request for unusually close supervision or control of assets, other than by the relevant person.

13.3 IDENTIFICATION MEASURES:

FINDING OUT IDENTITY AND OBTAINING EVIDENCE

OVERVIEW 22.

The meaning of identification measures is set out in Article 3 of the Money Laundering Order. Inter alia, identification measures are measures for identifying the customer, so the first step will be to determine who the customer is.

23.

In the case of a relevant person that carries on trust company business and is to act as the trustee of an express trust, customers will be the settlor, protector (if any), beneficiaries with a vested right, and any other beneficiaries and persons who are the object of a power and that have been identified as presenting a higher risk (see Section 13.3.1).

24.

In the case of a relevant person that carries on trust company business and is to act as the general partner of a limited partnership, customers will be the limited partners of the partnership (see Section 13.3.4).

25.

In the case of a relevant person that carries on trust company business and is to provide a service, e.g. registered office, in respect of a limited partnership, the customer will be the general partner acting for the limited partnership – a third party (see Section 4.4.3 of Part 1 of the AML/CFT Handbook).

26.

In the case of a relevant person that carries on trust company business and is to provide a service to a company, the customer will be the company (see Section 4.5.1 of Part 1 of the AML/CFT Handbook).

27.

In the case of a relevant person that carries on trust company business and is to provide a service to a foundation, the customer will be the foundation (see Section 4.5.3 of Part 1 of the AML/CFT Handbook).

28.

In the case of a relevant person that carries on trust company business and is to provide a service to a separate limited partnership, incorporated limited partnership or limited liability partnership, the customer will be the partnership (see Section 4.5.5 of Part 1 of the AML/CFT Handbook).

29.

In the case of a relevant person that carries on trust company business and is to form a company, partnership or foundation, the customer will be the persons who are to be the beneficial owners and controllers of the legal person (see Section 4.3.1 and 4.5 of Part 1 of the AML/CFT Handbook).

13.3.1

Finding out identity – legal arrangement that is a trust

GUIDANCE NOTES 30.

A relevant person that is to act as trustee of an express trust may demonstrate that it has applied identification measures under Article 3(2) of the Money Laundering Order to its customer, where it applies those measures to:  the settlor (except if deceased) and any persons subsequently settling funds into the trust;

18

Effective: TBA


 any protector(s);  beneficiaries with a vested right; and  any other beneficiaries and persons who are the object of a power and that have been identified as presenting a higher risk. 31.

In any case where a settlor, beneficiary or object of a power is not an individual, a relevant person may demonstrate that it has identified each individual who is that person’s beneficial owner where it has identified each individual with a material interest in the capital of that person.

32.

A general threshold of 25% is considered to indicate a material interest in capital. However, where the distribution of interests is uneven the percentage where effective control may be exercised (a material interest) may be less than 25% when the distribution of other interests is taken into account i.e. interests of less than 25% may be material interests.

13.3.2

Finding out identity – legal arrangement that is a charitable trust (capital markets)

GUIDANCE NOTES 33.

A relevant person that is to act as the trustee of a charitable trust which is established to hold an investment in a security-issuing vehicle, or to hold security (as bare trustee for security-holders) over assets held within such a vehicle, may demonstrate that it has applied identification measures under Article 3(2) of the Money Laundering Order to its customer, where it applies those measures to:  the originator or instigator of the capital market transaction; and  each security-holder that is able to exercise effective control over the underlying securityissuing vehicle.

13.3.3

Obtaining evidence of identity - legal arrangement that is a trust

OVERVIEW 34.

The measures that must be applied to obtain evidence of identity of beneficiaries and persons who are the object of a power and that have been identified as presenting higher risk will necessarily reflect the verification methods that are available at a particular time to the trustee. For example, it may not be appropriate to request evidence directly from the beneficiary or object of a power.

35.

Where a relevant person is not familiar with a document obtained to verify identity, appropriate measures may be necessary to satisfy itself that the evidence is genuine. AML/CFT CODE OF PRACTICE

36.

All key documents (or parts thereof) obtained as evidence of identity must be understandable (i.e. in a language understood by the employees of the business), and must be translated into English at the request of the JFCU or of the Commission.

13.3.4

Finding out identity – legal arrangement that is a limited partnership

GUIDANCE NOTES 37.

A relevant person that is to act as the general partner of a limited partnership may demonstrate that it has applied identification measures under Article 3(2) of the Money Laundering Order to its customer where it applies those measures to limited partners holding a material interest in the capital of the partnership.

38.

In any case where a partner is not an individual, a relevant person may demonstrate that it has identified each individual who is the partner’s beneficial owner where it has identified each individual with a material interest in the capital of the partnership.

39.

For lower risk relationships, a general threshold of 25% is considered to indicate a material interest in the capital of a limited partnership. Whilst this principle may also apply to other relationships, where the distribution of interests is uneven the percentage where effective control may be exercised (a material interest) may be less than 25% when the distribution of other interests is taken into account i.e. interests of less than 25% may be material interests.

Effective: TBA

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13.3.5

Obtaining evidence of identity - legal arrangement that is a limited partnership

OVERVIEW 40.

Where a relevant person is not familiar with a document obtained to verify identity, appropriate measures may be necessary to satisfy itself that the evidence is genuine. AML/CFT CODE OF PRACTICE

41.

All key documents (or parts thereof) obtained as evidence of identity must be understandable (i.e. in a language understood by the employees of the business), and must be translated into English at the request of the JFCU or of the Commission.

13.3.6

Finding out identity - legal person that is a protected cell company

Note: This section must be read in conjunction with, and is supplemental to, Sections 4.5.1 and 4.5.2 of Part 1 of the AML/CFT Handbook. OVERVIEW 42.

Under Article 127YDA(1) of the Companies (Jersey) Law 1991, in the case of both PCCs and ICCs, a cell shall have the same registered office and secretary as the cell company, and the registered office must be in Jersey.

43.

Where a relevant person carrying on trust company business provides a registered office or secretary to a PCC; it will also do so for each cell of that PCC. Because the cell of a PCC does not have the ability to enter into arrangements or contract in its own name, for the purposes of Article 3 of the Money Laundering Order, the PCC will be taken to be a customer acting for a third party and each cell will be taken to be a third party that is a person other than an individual. It follows that identification measures must be applied under Article 13 of the Money Laundering Order to the PCC (the customer) and each cell of the PCC (a third party).

13.3.7

Finding out identity - legal person that is a private trust company

OVERVIEW 44.

Schedule 2 of the Proceeds of Crime Law provides that a private trust company (a “PTC”) - a company the purpose of which is to provide trust company business services in respect of a specific trust or trusts, that does not solicit from or provide trust company business services to the public, and the administration of which is carried out by a person that is registered to carry on trust company business - is not subject to the Money Laundering Order.

45.

The basis for this concession is that CDD measures will be applied by the person that is registered to carry on trust company business (a relevant person) to the specific trust or trusts that are serviced by the PTC - in line with Article 13 of the Money Laundering Order. This assumes that the relevant person will provide the PTC with a correspondence or administrative address.

46.

A relevant person will consider the PTC to be its customer and each of the trusts to be third parties (which are not a person). AML/CFT CODE OF PRACTICE

47.

A relevant person that administers a PTC must apply CDD measures, record-keeping and reporting requirements to that PTC in line with the Money Laundering Order.

13.4 TIMING OF IDENTIFICATION MEASURES Note: This section must be read in conjunction with, and is supplemental to, Section 4.7 of Part 1 of the AML/CFT Handbook. OVERVIEW 48.

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In line with Article 13(8) of the Money Laundering Order, a relevant person that is to act as trustee may delay obtaining evidence of the identity of a customer after the time that a business relationship is established so long as:

Effective: TBA


 it does so at the time of, or before, distribution of trust property or income; and  it is satisfied that there is little risk of money laundering or financing of terrorism occurring as a result of obtaining evidence after entitlement is conferred. 49.

Similar provisions should apply in a case where the customer of a relevant person that is a trustee changes during a business relationship. GUIDANCE NOTES

50.

During a business relationship, a relevant person that is the trustee of an express trust may demonstrate that it has obtained evidence that is reasonably capable of verifying the identity of each beneficiary with a vested right where:  it does so at the time of, or before, distribution of trust property or income; and  it is satisfied that there is little risk of money laundering or financing of terrorism occurring as a result of obtaining evidence after entitlement is conferred.

51.

During a business relationship, a relevant person that is the trustee of an express trust may demonstrate that it has obtained evidence that is reasonably capable of verifying the identity of a beneficiary or person who is the object of a trust power where it does so at the time that the person is identified as presenting a higher risk.

13.5 FAILURE TO COMPLETE IDENTIFICATION MEASURES Note: This section must be read in conjunction with, and is supplemental to, Section 4.8 of Part 1 of the AML/CFT Handbook. OVERVIEW 52.

Under Article 14 of the Money Laundering Order, if a relevant person is unable to apply identification measures when required to do so then it must terminate that relationship and consider whether to make a SAR to the JFCU.

53.

Such a requirement can be problematic in the case of a relevant person that is a trustee where its customer is the beneficiary or object of a power of a trust and where:  the relationship between a relevant person and its customer is governed by other legislation e.g. the Trusts (Jersey) Law 1984; and  the termination of a relationship with a customer (a beneficiary or object of a power) may have a prejudicial effect on the interests of other customers.

54.

Such a requirement can also be problematic in the case of a relevant person that is a council member where its customer is a foundation and the foundation is governed by the Foundations Law. In particular, under Article 12(3) of the Foundations Law, the retirement or removal of the qualified member of a foundation does not take effect until immediately before the appointment of a new qualified person to be the qualified member of the council has taken effect.

55.

In order to address such tension, termination of a business relationship may be delayed until such time as compliance with Article 14 of the Money Laundering Order does not conflict with another legal requirement, and/or does not have any prejudicial effect on the interests of other customers, so long as the risk of money laundering or financing of terrorism is effectively managed.

Effective: TBA

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