Tiptoeing through tipping-off in Jersey

The Proceeds of Crime and Terrorism (Tipping Off – Exceptions) Regulations 2014 (“the Regulations”) have been in place for a while now but after so many years of not daring to tell anyone anything at all about suspicious activity reports (“SARs”), some people are still very wary of taking advantage of the disclosures which are protected under the Regulations. To an extent, that’s entirely understandable – better safe than sorry – especially where Article 35(4) of the Proceeds of Crime Law makes it an offence (punishable by imprisonment of up to 5 years and/or a fine) to disclose to another person that an internal or external SAR has been or will be made, or any information otherwise relating to an internal or external SAR, unless otherwise permitted.

However, the Regulations can be a very useful tool in enabling a firm to share information which will allow it, its staff and certain associates to strengthen defences against money laundering and the financing of terrorism.

There are, of course, all sorts of commercial and confidentiality reasons why you might want to be cautious about disclosing information outside of your own business and the regulatory authorities. However, if you clear those particular hurdles, where a SAR is made about a common client, for example, sharing relevant information within the firm’s wider Group, or even with another regulated firm, can be invaluable.

Needless to say, the sharing must be carefully handled but, as well as alerting the recipient firm to the risk of inadvertently facilitating money laundering or the financing of terrorism, both the donor and recipient firms can potentially benefit from greater pooled resources and expertise and, by learning more about their common client, may be able to better protect themselves and even provide more information to the Joint Financial Crimes Unit.

As a reminder of what disclosures are protected by the Regulations and under what terms, the disclosures must be made in good faith for the purpose of preventing and detecting money laundering and be made in one of the following cases:

Same business (Regulation 3)

• It is protected to share a copy of a SAR if it is disclosed to a person in the same business in Jersey;
• Any further disclosure must not disclose the name of the person who made the internal SAR;

Same financial group (Regulation 4)

• A disclosure within the same financial group (as defined in Article 16(2) of the Money Laundering Order) or with whom the donor shares common ownership, management or compliance control, is protected;
• It is not protected to share a copy of a SAR;
• Any further disclosure must not disclose the identity of the person who made the internal SAR;

Another relevant person (Regulation 5)

• A disclosure with another relevant person (as defined in the Money Laundering Order so a financial services business in Jersey or a Jersey business carrying on financial services business (not trustee) elsewhere in the world) is protected if it relates to a common customer, common former customer or transaction involving both parties;
• It is not protected to share a copy of a SAR;
• Any further disclosure must not disclose the identity of the person who made the internal SAR or the identity of the MLRO;

Supervisory bodies (Regulation 6)

• A disclosure to the Jersey Financial Services Commission or the Joint Financial Crimes Unit is protected but it is not protected to disclose a copy of the SAR;
• Any further disclosure must not disclose the identity of the person who made the internal SAR;

MLRO (Regulation 7)

• The disclosure by the MLRO to his/her colleague or a colleague of the person who made the internal SAR is protected if it is for the purpose of carrying out the MLRO’s functions.

It should also not be forgotten that Article 35(6) of the Proceeds of Crime Law permits disclosure to:

1. Legal advisers, in connection with the provision of legal advice or for the purpose of actual or contemplated legal proceedings, and the legal adviser can discuss the disclosure with the firm; and
2. Accountants, to enable the accountant to provide accounting, tax, audit or insolvency services. However, there is no provision to allow the accountant to discuss the disclosure.

In both cases, the disclosure must not be with a view to furthering a criminal purpose.

Now, none of these provisions permit any form of disclosure to the subject of the SAR, who will often be a client of the regulated business. This is still an absolute prohibition which, as many MLROs can testify, can lead to some tricky situations and very cautiously-worded conversations.

Two of the most common such scenarios are triggered by, firstly, the obligation to apply due diligence measures and, secondly, the receipt of a “no consent” from the JFCU. To take these in turn:

1. Article 13(1)(c) of the Money Laundering Order requires application of due diligence measures where there is a suspicion of money laundering. However, seeking this information may inadvertently tip-off the client about the SAR. The Handbook provides some advice about this in section 8.5.1, advising that the risk of tipping off a client and their advisors may be minimised by providing employees with adequate support, such as specific training or assistance, and obtaining advice from the JFCU where a relevant person is concerned that applying identification measures will lead to the customer being tipped off. It explains that ”Reasonable enquiries of a customer conducted in a tactful manner regarding the background to a transaction or activity that is inconsistent with the usual pattern of transactions of activity is prudent practice, forms an integral part of CDD measures, and should not give rise to the tipping off offence.” Usefully, Article 14(6) of the Money Laundering Order allows that a regulated business need not apply due diligence measures where, having made a SAR and with the consent of the JFCU, it does not complete the transaction, does not carry out the transaction, does not establish the business relationship or terminates the business relationship, as the case requires.
2. The other common problematic scenario is where, following the submission of a SAR, the regulated business does not receive consent to continue the relationship or transact (as appropriate). Under such circumstances, the regulated business obviously has to put a stop to any planned transaction or client activity and this will, inevitably, trigger questions from the client. As the regulated business cannot disclose that a SAR has or is about to be made, or is awaiting consent from the JFCU, there is often no easy way to respond. Thankfully the JFCU are usually very helpful in these circumstances and will do what they can to assist but it is often necessary for the regulated business to seek legal advice and to take great care in finding a way through a veritable maze of prohibitions and demands.

Finally, if the regulated business is subject to legislation in other jurisdictions, it will need to be mindful of the relevant legislation in those jurisdictions. Disclosures protected in Jersey by the Regulations, may be prohibited elsewhere so caution, and legal advice, will likely be required.