What I’d like for Christmas: that Channel Island’s bankers understand their money laundering laws

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Two people claiming to be Channel Island's financial services operators have been making extensive comments on two blogs on this site. Despite the claims of those who suggest I censor this site worse, I have undertaken considerable correspondence with these two precisely because it has been so revealing.

The first correspondent appears to be with a trust company. He (I presume the correspondent mail - these people do not, of course, reveal who they are) said of my suggestion that SARs must be raised when suspicion of evasion exists:

But that is all what you have "suspicion" [of evasion], neither proven nor verified.

And he uses this as a basis to claim that such suspicion of tax evasion gives no reason for reporting a suspicious transaction to the money laundering authorities in Jersey. Indeed, he goes further:

If they [the financial services provider] believe an STR may have a world wide connection then they cannot report on anything until it has gone through the courts. And when they do go through the courts they are reported.

If this person is genuine, and I am presuming he is, then what this claim says is that no one need report a suspicious transaction until it has been proven by a court that a suspicious transaction has occurred.

I replied to this argument saying:

The JFSC says nothing about where the tax evasion takes place in its rule book. It only says suspicion of tax evasion need exist. Your argument is wrong. If I am wrong please refer me to the paragraph and I will advise the IMF.

To the former argument I said:

Now you show just how absurd your argument is. An STR or SAR is in either case a report of a suspicious activity. They must be raised when suspicion exists. Proof is emphatically not needed. So, I have proved my case.

The second correspondent is as absurd. He wrote this when I suggested all banks in the Channel Islands should report all people who have refused to exchange information under the EU Savings Tax Directive for suspected money laundering:

You have a choice of exchanging information or asking your banker to retain the tax and provide you with a certificate which you can then produce to HMRC to recover some of those taxes.

It is and has always been the responsibility of the account holder to declare / disclose.

Are you telling me that we should consider that all UK account holders are money launderers? What about the individuals which are not ordinarily resident in the UK for tax purposes? We have a lot of those in the CI. Are you suggesting that we (the bankers) should investigate these people and have an understanding of their tax affairs? If so, then of course you would expect all bankers to be qualified UK tax experts would you not?

All individuals are advised to seek advice on their tax affairs, we as bankers are not qualified tax advisors and do not hold ourselves out to have anything more than basic knowledge.

For those account holders in the CI who have adopted a wait and see if HMRC can find us approach, then of course they will be found out, the mist is clearing and where we (the banker) notice any suspicious activity or request for increased confidentiality then this is cause for alarm which would then result in an STR and subsequent disclosure to the authorities.

Where STRs / Disclosures have been submitted, you are not talking of just an hour or a days worth of investigation on that account. Sometimes it may take 2 to 3 weeks to gain enough information on that one account that can then be provided to the FIS / FIU.

Again I refer back to the amount of Compliance and FIS / FIU staff you seem to think we have in the CI. 400 STRs if that is the figure, is quite a significant amount - some may have taken a week to prepare some more like a month. Before those STRs / disclosures are made there would have been time to communicate with the account holder and ask for copies of tax advice to satisfy ourselves that they are not evading tax.

As a matter of course we (the banker) will always ask for copies of tax advice where we might have a hightened degree of awareness over the account. If the copy of the tax advice is received and appears to be legitimate then what would you then expect us to do?

I replied:

Your comment is staggering

You say that before submitting an STR there "would have been time to communicate with the account holder and ask for copies of tax advice to satisfy ourselves that they are not evading tax."

Don't you understand the concept of "tipping off"? This is giving those people notice that they are under investigation. That is itself an offence under proper money laundering rules punishable as a crime.

If that is what you do you are by definition complicit in the process of money laundering in my opinion since, as you note, this is not standard practice and will therefore act as a signal to the account holder that an investigation is under way.

The rest of your posting reveals a similar lack of understanding. You need have no knowledge at all of the taxpayers affairs, whether in the UK or any other EU state. All you need do is have suspicion that they may be money laundering. That is why these reports are called suspicious transaction reports. And an account holder's request that information not be disclosed about interest paid to their home tax authority is, in my opinion, a reasonable basis for believing that money laundering is happening because the probability of evasion in that case is high. That is not just sufficient basis to report, it is a basis for requiring a report. You need know no more. Failure to report is, of course, a criminal offence.

This would take no time at all to investigate. I'm sure a bulk submission would also be allowed, say on an Excel spreadsheet. All it would take would be for the bank to list all EU residents who have not agreed to disclose details of their interest earned to their home countries providing name. address and the amount paid and the obligation to report suspected money laundering in the form of tax evasion would be fulfilled.

How can you deny that this is the bank's duty?

Richard

I think this provides overwhelming evidence as to the reason why Jersey had no report criminal money laundering in 2006. There is outright ignorance of how the law should work and a straightforward lack of willing to use it.

In the course of the correspondence I was asked to identify those who must be party to the resulting evasion. I said:

I have argued 45,000 STRs should have been submitted [NB: this is based on the UK tax amnesty]

So far the evidence is 400 have been

That makes it easy to suggest those who have not submitted STRs but who should have done in my opinion

Let's start with Barclays, Lloyds TSB, HBOS, Royal Bank of Scotland and HSBC [Those involved with the UK amnesty]. None of them can have reported as I think appropriate as a consequence of the EU STD. All will have had customers who have said they do not wish to disclose details of interest paid to their home tax authorities. All should have reported that fact to money laundering authorities on the basis of this providing a reasonable basis for suspicion of money laundering of tax evaded funds in my opinion.

All will certainly have held evaded money now declared under the UK tax amnesty

By not reporting reasonable suspicion all these banks will by implication have helped people evade tax in my opinion

They might of course disagree, but I am asking for reason why and you have failed to supply it. Since failure to report is an offence if I can demonstrate, as I have, that reasonable grounds for suspicion exist the onus is entirely on you to prove me wrong now

What would I like for Christmas? I'd like those banks to comply with the money laundering laws of the Channel Islands and Isle of Man and to report all those EU resident people who have not agreed to disclose interest paid to them to their home tax authorities to the money laundering authorities in Jersey, Guernsey and the Isle of Man. I'd like all other banks to do the same.

That's what I'd like for Christmas.