I missed this on Monday in the Telegraph when too busy to notice whilst in Jersey:
In what was otherwise positive feedback from a 2010 International Monetary Fund inspection, the report cited a "disconnect" between the number of money laundering cases investigated and the number of prosecutions and resulting convictions.
The report said: "The law enforcement authorities are adequately resourced and trained and have a sufficient legal arsenal at their disposal to effectively conduct a money laundering investigation, but still the results are modest.”
The IMF warned that that this approach could lead to Guernsey becoming over reliant on foreign enforcement bodies to investigate cases within its own borders.
The IMF also believed Guernsey could do more to identify what it called “high risk customers”, who should be subject to greater due diligence checks. Reliance on introducers such as UK lawyers and accountants to vet such customers was not enough, the report said.
According to the IMF, financial institutions should also be subject to potentially greater fines from the local regulator, the GFSC. The current top level cap of £200,000 was not “dissuasive or proportionate” in terms of financial companies breaking local rules.
Let me add the bit I'll otherwise be criticised for omitting before commenting:
Nevertheless, it said Guernsey’s legal framework provided a sound basis for an effective anti-money laundering and financial crime regime, with the majority of its problems being “technical in nature.”
And now let's say what this really means.
First it means that, as I said in Jersey on Monday, the IMF is saying Guernsey has put all the right bits of paper in place, but has little inclination to use them.
Second, it means those bits of paper are no real deterrent.
Third, it means that the risk of money laundering remains real.
Fourth, if the risk of money laundering is real the risk of tax evasion is even higher.
Fifth, if insufficient checks on exposed people are not being done the risk of being involved in illicit flows from corrupt officials in developing countries is high - and as we know, those flows result in the deaths of children in those countries who are denied access to basic facilities as a result of them.
Sixth, it means that all the claims to be well regulated are utterly hollow. The leopards have not changed their spots. They've just put on a nice overcoat to hide them. The reality is that the risks remain as real as ever - and the deliberate veil of secrecy that Guernsey and similar locations create ensures that we have no real idea what is happening in these places - but the IMF is saying whatever it is, the associated risks are high because there remains a willingness to turn a blind eye.
What else can they mean?
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I’ll comment on your points in order:-
1) Whilst the IMF report has cornered on the lack of convictions (which is an indisputable fact) it did not in anyway suggest that there was little inclination by the authorities to use them. I happen to know that there is keeness to prosecute but there have not been many cases brought to the law officers so far.
2) The fact that the legislation is some of the best in the world (Guernsey is more compliant with the IMF/ FATF then the UK or USA for example) does not mean that they are not a deterrent. Having worked in a number of jurisdictions I know for a fact that much business/ funds are leaving or not going to well regulated jurisdictions like Guernsey and Jersey, instead heading for the easier climes of Hong Kong and Singapore for example. Often the reasons given are the tight regulatory requirements etc.
3) The risk of money laundering is real all over the world not just in Guernsey that is a fact.
4) Tax evasion is a real threat all over the world too however, in Guernsey for example tax evasion is a predicate offence. You cannot say that about several other EU countries or other jurisdictions around the world. As you should know 43% of the suspicious activity reports made to the Guernsey authorities (by the finance sector etc) over the last four years related to suspicion of tax evasion. That does not necessarily say that all issues were tax evasion but it is evidence that suspected tax evasion is being reported.
5) I think you are referring to Politically Exposed Persons and it is an offence to fail to identify a PEP as a client. There is nothing within the IMF report that alleges that insufficient checks (or reporting thereof) are not being done. Regulated firms have been closed down who fail to adhere to the regulations.
6) You’ve simply added up all your ifs and buts to come to a conclusion. The comment about the deliberate veil of secrecy does not wash I am afraid. Please tell me which jurisdictions currently do not have a “veil of secrecy” as you put it…I guess you mean a register of beneficial owners and trusts et al? The CDD process in Guernsey and Jersey is rigorous and I would expect them both to continue to follow internationally recognised expectations. As soon as those expectations are raised and perhaps trust registers etc are brought in I would expect Guerney & Jersey et al to follow suit. I would doubt however, that Delaware, various EU states and others would do that.
6)
“Sixth, it means that all the claims to be well regulated are utterly hollow. The leopards have not changed their spots. They’ve just put on a nice overcoat to hide them. The reality is that the risks remain as real as ever – and the deliberate veil of secrecy that Guernsey and similar locations create ensures that we have no real idea what is happening in these places ….”
Along with their counterparts in Jersey and the Isle of Man the Guernsey government is discerning in its enforcement of “regulation”. Anything of benefit to the Guernsey economy is sacrosanct – while any unfortunate consequences are best ignored.
“Be glad that you’re greedy; the national economy would collapse if you weren’t. “
Mignon McLaughlin
@John Buckles
Respectfully, I hope you are ashamed of such limp apologies for inaction
The IMF rumbled you
Now do something about it
John Buckles
More diversionary nonsense.
Where has any one said anyone is any better than Guernsey. The article was about Guernsey and blog post was about the article.
There is no end of deflection from matters. Guernsey is part of the system. face it. Yeah the Uk and the US are worse. Has anyone else said otherwise.
Being a Guernsey resident, I feel it my responsibility to my children and future generations to learn as much as possible about the intricacies and causality about the industry.
The results of my enquiries are devastating.
Whilst there is no doubt that the finance industry can work with and to the benefit of society, the game is not on that board.
You cannot hide behind pithy industry created controls. It needs to be accountable. The same way that all industry had to become accountable.
It is because of financial instruments and the opacity of its systems that the majority – the overwhelming global majority – are in thrall to the actions of a few thousand bigotted extremists.
By defending them you enter that realm.
Jersey may be better than some despotic jurisdiction elsewhere. But it doesn’t take much for the regimes to become similar.
Keeping the electorate fired up on an anti progressive campaign only entrenches ignorance.
I do believe, however, that it is the responsibility of the uK (in CDs case) and the US (elsewhere) to lead in proclaiming and admitting the gross injustice of their systems.
But it’s all about enlightenment. This blog, and several others, shine a light for camaigners.
Richard
I’ve just read John Buckles’ post and your response and I cannot disagree with what John says. Having read and re-read the IMF report, I see far more to support John’s comments than I can see to report your stance. If the reality was anything like you portray then the IMF report would be far more negative than it actually is.
STRs are regularly filed by the industry. The Guernsey FIS forwards those reports to the countries concerned. The STR is the reporting of suspicion of a crime. What happens to those reports after they leave Guernsey is beyond Guernsey’s control. If there is no progression of the report into a criminal charge in that other jurisdiction then either (a) no crime has taken place, or (b) there is not enough evidence that a crime has taken place. Without such evidence, how can Guernsey possibly bring about a local money laundering prosecution?
Arnald
I think you’ve wandered onto the wrong thread. What has “causality” and your related moral concerns got to do with an IMF report and Richard’s thread stating “Guernsey must do better with money laundering”? Are you seriously suggesting that the Guernsey finance industry should be submitting STRs on non-crimes to achieve more money laundering prosecutions?
@Rupert
Deliberate misinformation again
If you think they’re evading – prosecute them
Don’t blame others
After all, you deliberately created the means for them to do so
Accept the consequence of your actions
The IMF is saying you aren’t
And the rest of the world knows it is true
@Richard Murphy
“If you think they’re evading – prosecute them” – unfortunately the law requires a little more evidence to produce a conviction than someones thoughts.
If I think client A is not paying his UK tax, and I inform HMRC of that fact, then it is up to HMRC to prosecute. If the HMRC decided to do nothing, how can they then be prosucuted in Guernsey?
@Greg
Yes you can
Tax is a predicate offence for money laundering in Guernsey
So of course you can prosecute
Richard
Based on Greg’s example, the likelihood of securing a conviction is non-existent if the tax authorities in the client’s country of residence isn’t interested. The other country has to play a vital role in making the evidence stack up.
And re. your response above (#7) – if I report a suspected tax evader them I’ve done exactly what I’m required to do. The FIS take it on thereafter. Surprisingly enough the industry doesn’t have the power to prosecute. What else do you suggest we can do within our powers? You seem to misunderstand how the legal system works.
With what evidence?
@Greg
No wonder the IMF found you guys could not prosecute
You’re clueless, aren’t you?
Not fir to regulate anything might be the right conclusion
Sorry Richard, but you appear to be the clueless one here. To achieve a prosecution you need evidence. Merely thinking someone is not paying tax is not evidence. And if the client’s tax authorities in his country of residence are not interested in making a prosecution then they are hardly going to provide any evidence either.
Richard
You just don’t get it.
A financial institution in the Channel Islands becomes suspicious that a client is evading tax and reports him to the local FIS. That is all that we are able to do. That is the procedure prescribed by local legislation which in turn was approved by the IMF and by the UK Privy Council. To report to any other party is a severe breach of the law and would expose to the reporting party to all kinds of civil and criminal legal exposure.
The FIS takes up the running and contacts their peers in the jurisdiction in which the client resides (or is domiciled, as applicable). It is then in that country’s hands. If they decide that there is a prima facie case for that client to answer, then they take their own action. Invariably that may result in an out of court settlement by the client, with no criminal trial and no criminal conviction recorded against the client. Nothing comes back from the foreign FIS to the Channel Island’s FIS and so there is no firm evidence of a crime presented to anybody in the Channel Islands. We aren’t actually told whether criminal proceedings were brought against the client. In most cases we can assume that the foreign tax due has been collected (plus penalties paid), and the foreign jurisdiction decides that there is no case to answer and that criminal proceedings are not in the public interest in that country.
Bearing in mind that we don’t get told the outcome of our report to the local FIS (unless it actually proceeds to a criminal trial at which we have to give evidence), how does the local Attorney-General or Procureur bring money laundering proceedings in the Channel Islands with any likelihood of a conviction? The client cannot be extradited here because his home country doesn’t consider him a criminal. The cost of extradiction and custody pending a trial in the Channel Islands with so little evidence and tehrefore no chance of conviction is simply not in anybody’s interests.
The evaded tax will have been paid because the local financial services business “shopped” the client. You surely know that the financial services businesses in the Channel Islands are immune from prosecution once they’ve reported the suspicious transaction or activity to the local FIS. To remove such immunity would discourage anybody from making any such reports, so far less STRs would be filed. The islands have vested interest in driving criminal activity away. The system works in achieving its objectives.
Are you seriously trying to claim that the local financial services business (or its officers) should not be immune from prosecution, despite acting as a “law enforcement officer”, or that the local law officers should waste public money trying to prosecute a foreign tax evader when there is no chance of securing a prosecution?
What exactly is your point?
@Greg
So you don’t tell
And the other authority does not know
So no one gets prosecuted
Good eh?
@Richard Murphy
No, that’s wrong. We do tell. Regularly since the EUSTD was introduced. But if the HMRC (for a UK client) decides not to prosecute then what can be done? A Guernsey court is not going to prosecute someone for tax evasion if the only evidence they have is that the client decided to pay withholding tax under the EUSTD.
@Rupert
Let’s start with the fact that neither or or very clearly the IMF believe this is the whole story…
And why should we when you deliberately set up the structure to let the evasion happen?
The division of jurisdiction is so convenient for facilitating abuse and then not pursuing it, don’t you agree?
That’s what I think the IMF is saying, don’t you? Lots of paper – but no possible consequences. So useful
Isn’t there an argument that once the finalised transaction has entered the jurisdicition’s ‘airspace’, and that it then gets reported as an ST, then there is a responsibility of failure for the receiving administrator for not having reported it before completion?
That’s the whole point of transparency, isn’t it? You wouldn’t be suspicious if you knew what was what, and so the finance industry could work cleanly and efficiently, and society at large could be confident that all manner of filth is caught at source.
The current system described above relies on the skill and experience of a whole sheaf of possibly inexperienced, uncaring, uneducated or undiscerning staff looking out of the window at Grade A views.
It doesn’t wash. The transparency must begin at source. Guernsey can get away from the heat of the argument because of its position as an intermediary layer.
Whilst I understand (and know people in high compliance management) that there is a LOT of movement going on behind the scenes, it only underlines the mockery of information spewed forth by commentators such as Rupert, and worse by Neville of GsyFinance.
The IMF testing spot checked a few procedures written in a rush when the people were warned of the inspection, but it doesn’t mean those procedures are followed.
I know, because I write procedures. I’ve been there.
@Arnald
I am sure you are right
Richard
I can categorically assure you that Arnald is not right. He does not even work in the finance industry. He knows absolutely zilch. You take his word as gospel because he sings your tune. Greg and I are telling you the reality, not the fiction.
As ever you prefer to take your information sources from those who support your moral stance but who don’t even work in the industry. As a result your comments and conclusions are totally flawed.
@Rupert
I am sure Arnald has his cause to promote
But as an auditor I assessed evidence
And the likely credibility of its source
And the bias inherent within it
And candidly, your powers of analysis and your inability to see systemic flaws makes your credibility very low
Much lower than Arnald’s
For all I know you’re a paid industry troll
Arnald has taken risk
OK – that’s his choice – and he may or may not have reason for that – but I suspect the vast majority of people will find his evidence more compelling than any of the whitewash you write
Richard
With respect you’ve been retired from auditing for quite some time. Just how long ago are you talking about having “assessed evidence”? Things have changed an awful lot in the past 5 years. This is a point that I repeatedly make – that what may have used to happen isn’t what happens today. And frankly, carrying out one audit is hardly a reliable sample, regardless of when it was.
Whether I have the power to analyse or see systemic flaws is academic – even I did identify them I do not have to interpret them in the same way as you. In particular, you view my failure to accept your moral stance on tax avoidance as causing me to be non-credible. No – its simply a different viewpoint. Arnald happens to share your view and so sings from your hymn sheet.
I am most certainly not a paid industry troll.
I’m not sure that Arnald has taken any risk at all. His allegations are driven by his extreme motives.
@Rupert
Now I see
I’ve forgotten everything I learned
Just as you’ve forgotten how to tax evade
Of course
Except, I have not forgotten
And nothing has changed in Guernesey – it’s as opaque as ever – and as nothing of consequence has changed my assumption that the tax evasion continues is reasonable
This debate is over
You are wasting my time and that of other people
That’s because they, like me, don’t believe you
With good reason
I refer you to Jon Snows’s comments this morning
Oh dear Rupert
You rely on shades of grey. As long as the transaction is grey then you KYA
You simply have no idea of the movement of money that flows though Guernsey. You are embedded within a coterie of similars.
I was writing procedures forward to the IMF visit last year. Why was I doing that?
The company I worked for had to strip itself of layers of trust and fund admin biz to clear its decks.
I iamgine you may have inherited some, since you are the great and worthy of Guernsey. Make the bad stuff good.
Ignorance is bliss, yeah.
Rather late in voicing comment …
but both Rupert and Greg are attempting to defend the indefensible.
Guernsey, Jersey and Isle of Man do not apply any effective regulation of their respective finance industries (except when it suits them) and to suggest otherwise is simply untrue.
Evidence in the possession of the PSG categorically demonstrates that anyone even thinking of investing, or depositing money on these islands would be making a grave mistake.