The Guernsey MONEYVAL Report: The conundrum of enforcement versus boosting the economy

The report following the Council of Europe’s MONEYVAL 2024 review of the Bailiwick of Guernsey’s approach to combating financial crime, has been issued. As a leading financial centre, the report acknowledges that Guernsey has achieved a pass rating for all 40 of the Financial Action Task Force (FATF) recommendations, making it one of the few jurisdictions (like Jersey) to achieve this distinction. The Bailiwick was also positively rated in six out of the eleven effectiveness measures (Immediate Outcomes). Achieving a high rating for Immediate Outcomes 10 and 11, reflecting on its robust anti-money laundering and counter-terrorist financing (AML/CTF) framework.

Securing a positive outcome was a major priority for the States of Guernsey and for the continued prosperity of the Bailiwick’s financial services sector.

However, the report does highlight a number of areas where further improvement is needed, particularly relating to the investigation and prosecution of international and higher risk financial crime cases. The low and declining number of SARs, the lack of prosecutions for legal persons (entities), and the dominance of domestic natural persons criminal prosecutions was highlighted as a weakness. A more proactive approach to bringing higher risk money laundering cases to court is needed.

The States of Guernsey had already taken steps to establish an independent Economic Financial Crime Bureau (EFCB) and a separate Financial Investigations Unit (FIU), operating independently of the existing Police unit which appears to be regarded as a positive move in the right direction. However, this objective has been somewhat hampered due to resourcing issues.

The actions taken by the Guernsey Financial Services Commission in fining and banning individuals from the finance industry for breaching the AML regulations was recognised  in the report and certainly mitigates the criticism over a lack of overall enforcement action.

As such, the Bailiwick has been placed into what is described as “regular follow-up”. Essentially this means providing regular and ongoing reporting to the Plenary (generally within two years of the report having been issued) to demonstrate progress to address the underlying deficiencies. They can formally apply to be removed from this follow up position within three years. Should the Plenary identify a lack of satisfactory steps being taken, it may decide to increase the frequency of reporting or move the island into “enhanced follow up”.

The Guernsey authorities are reflecting on the relatively small number of recommendations made within the report and will create an action plan to address the measures that need to be taken and that is likely to include bringing more money laundering prosecutions against individuals and corporate entities. Whilst this is not an uncommon finding from MoneyVal and FATF reviews the language used in the report is forthright and leaves no doubt that MoneyVal expects Guernsey to up its game.

There are some positive findings to celebrate, the work by the Bailiwick around its implementation of sanctions legislation and particularly the implementation of the Russian sanctions, drives the two high ratings for Immediate Outcomes 10 and 11. The private sector was also praised for having a very good understanding of its sanctions obligations, which had been robustly implemented. In addition, the work of the Financial Intelligence Unit and Customs in relation to sanctions is positively highlighted, along with their capacity to identify assets or goods that could potentially have had proliferation financing links. The role of the FIU in transmitting sanctions notices via THEMIS the online system is also recognised.

The Bailiwick’s oversight and awareness of the Non Profit Organisation AML obligations and terrorist financing risks is also praised. It has a robust framework and Registry in place, with both its onsite and offsite supervision being described as frequent and detailed.

The following highlights the areas where pass ratings were not achieved and the MoneyVal commentary was particularly hard hitting.

• More direct reference to concrete data used to draw the conclusions of the NRA would be beneficial. Some areas would benefit from more in-depth analysis (eg VAs, TF risks or some sectorial specific areas). Such data is likely to have to be provided by industry.
• Some of the high priority actions (eg the increase of staff of the EFCB and LOC’s ECU) are as yet to be completed, as a significant number of the actions set out in the NRA Action Plan were only implemented towards the end of the review period. This is a key finding. If you create a unit to fill the gap of the weaknesses found in your own National Risk Assessment its important to have the ability to staff it with experienced financial investigators.
• The alignment to the objectives and activities of the competent authorities were not fully demonstrated due to the limited number of referrals for potential criminal proceedings, civil forfeiture, ML investigations and prosecutions or confiscations.

The FIU and other competent authorities have access to a wide range for financial intelligence, however, it is only used to a limited extent to initiate ML and predicate offences investigations

• There was a lack of specific procedures or guidelines for the FIU around producing and disseminating the analysis gathered.
• Concerns were raised about the overall low and declining numbers of SARs raised across all industry sectors, except for e-Gambling. Some high risk and material sectors produced none or very few SARs. Some sectors only produced reactive SARs, and there was a lower-than-expected incidence of corruption-related SARs.
• Sectors such as banks, TCSPs and investment firms had declining or low SAR numbers.
• The SARs raised by the e-Gambling sector tended to be of poor quality with limited intelligence value.
• Further efforts to improve SAR quality and types of SARs related to tax evasion and corruption was needed across all sectors.
• The establishment of the EFCB has only had limited effect to date due to insufficient resourcing, resulting in a low and generally declining number of ML investigations.
• ML investigations and prosecutions have focused on domestic predicate offending, leading to under-representation of sectors with a higher level of risk.
• The few ML prosecutions and convictions in the review period mostly concerned unsophisticated ML conducts related to low-level domestic predicates.
• The limited recruitment results have led to low confiscation cases.
• There were no TF investigations, prosecutions or convictions. However, there was evidence that the few cases reviewed had been thoroughly considered for TF and that the authorities have the skills and knowledge to successfully detect and prosecute TF should cases arise.

• Issues were noted around the lengthiness of enforcement actions
• There was a low number of pecuniary fines in the high-risk sectors
• No criminal sanctions had been imposed for SAR reporting failures

Like so many other jurisdictions facing economic stagnation the challenge for Guernsey is whether they simply address the findings in the MoneyVal report to maintain their standing as a top regulated jurisdiction, or opt to grow the economy taking a more commercial approach through lighter touch enforcement action and a potential dilution of financial regulations.

For more information reach out to Chief Executive Barry Faudemer or Managing Director Zoe Dixon-Smith.