Cambridge Financial Crime Symposium: Financial Crime and ...

Cambridge International Symposium on Economic Crime – Financial Crime and Compliance Speech by Barry Faudemer, Director of Enforcement Wednesday 9 September 2015 Thank you to Barry Ryder and his team for the opportunity of addressing you today. I am going to address the subject of Trust and Company Service Providers and the role they play in laundering the proceeds of corruption. “Corruption steals from the poor. It steals the promise of a brighter future”. Jim Yong Kim, President of the World Bank Group The book entitled the “Puppet Masters – How the corrupt use legal structures to hide stolen assets and what to do about it” is an essential read for each and every person in this room. It is free to read on the World Bank Stolen Assets Recovery Initiative (STaR project). I would like to read you a very short extract from this excellent publication. Corruption is estimated by the World Bank to be at least a 40 billion dollar a year business. Corruption, like a disease is eating away at the foundation of people’s faith in government. It undermines the stability and security of Nations. We need mobilization at the highest level so that corruption is tackled effectively” What do the following corruption cases on the STaR website have in common?  Raj Bhojwani  James Ibori  Mohamed Abacha  Jean Claude (baby doc) Duvalier The answer is that that all used the services of trust and company service providers to launder the proceeds of corruption. The research leading to the puppet masters report found that “Financial Centres more typically considered onshore actually exercise less strict due diligence then jurisdictions identified as offshore financial centres.” Imposing due diligence obligations is important for two reasons, firstly it forces Trust and Company Service Providers to evaluate the information and assess the risks but also allows for strong enforcement action if they do not, and secondly investigators have up to date and adequate source of critical information at their disposal.

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Speech by Barry Faudemer, Director of Enforcement, Jersey Financial Services Commission 9 September 2015

Experience has shown over the last ten years that imposing due diligence requirements on paper simply not enough, Countries need to develop adequate resources to effectively police compliance by service providers and impose credible penalties for non-compliance. What do I mean by effectively policing compliance? Such a role naturally falls to regulators but experience has shown that practice varies widely. In Jersey we have staff visiting TCBs every day and opening up client files to assess the service provider’s compliance with the regulators standards. Failure to follow the regulatory standards can and does result in form significant regulatory sanctions – just visit our website to get a flavour of the sanctions imposed. Our experience is that many onshore jurisdictions fail to exercise adequate regulatory oversight of TCBs despite their absolutely key role in laundering the proceeds of significant volumes of money arising from corruption cases. The professional enablers carefully assess where they can operate their money laundering service with as little risk of being subjected to regulatory action as possible. The offshore centres have, admittedly under significant international pressure, upped their game over the last decade but this has dislodged the professional enabler forcing them to move and operate onshore. Jersey has regulated TCBs since 2001. We started with over 220 regulated business and we now have 120. Tough action has been taken against many and forced closures undertaken against those who failed to achieve the regulatory standards. What is interesting is where the dubious operators decide to relocate to ………..perhaps not surprisingly they chose the jurisdiction very carefully and assess the regulatory risks associated with providing trust and company services. Switzerland, France and the UK being the most favoured jurisdictions. We estimate that we have displaced over forty such persons over the last fourteen years and virtually all of them have relocated to other jurisdictions, even with a public statement naming and shaming them. The level of interest shown by the authorities in the jurisdictions where they now operate can best be described as poor to non-existent. They appear to operate with little or no risk of anyone knocking at their door to check on what they are doing. It is hugely frustrating to see such persons offering trust and company business in other jurisdictions when in receipt of intelligence to indicate that they are still operating as a money laundering enabler. Merely registering a Trust or Corporate Service provider and inviting them to comply with a set of rules is not enough without sufficient numbers of and adequately experienced supervisors capable of going onsite and reviewing the AML compliance of these key enablers and ably supported by a tough enforcement capability. The overwhelming majority of money laundering prosecutions or regulatory enforcement actions in Jersey are linked to the TCB sector. Internationally it is generally accepted that TCBs are seen as at high risk of facilitating money laundering and therefore in need of applying strong AML controls. Here in the UK the supervision of a vast Trust and Corporate sector does not fall to a regulator but is the responsibility of HMRC. Virtual offices are permitted to flourish unchecked, and TCBs operate without an effective oversight regime and enforcement capability governing

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Speech by Barry Faudemer, Director of Enforcement, Jersey Financial Services Commission 9 September 2015

their conduct. The FCA has no legal gateway with the Jersey Financial Services Commission in relation to TCBs because they do not regulate them. Working with HMRC and Law Enforcement agencies in proactively targeting underground enablers just is patchy and generally ineffective, yet many of our problem enablers have relocated to the UK. The onshore money laundering enabler now poses am AML risk to businesses located offshore. In our experience, If subject to regulatory or law enforcement interest, those intent in acting as a money laundering enabler will go underground and seek to continue their activities covertly often from their home address often linking up with likeminded individuals in other jurisdictions, records will be scarce as they do not have to operate to any standard and certainly do not want to help law enforcement if they come calling. There is in our a view a significant network of international enablers operating under the radar laundering the proceeds of corruption and taking a significant fee for the money laundering service they operate. We need to be honest with ourselves, Law Enforcement and Regulators are significantly behind the curve with limited capability and capacity to target the above ground let alone the underground enablers providing a trust and company business services to launder the $40 billion a year, yet they contributes to “ undermining the stability and security of Nations”. Some jurisdictions don’t even regulate TCBs or have adopted a half-hearted approach to the problem by merely requiring registration with no supervision or enforcement capability. Finding resources with the capability to unpick a complex structure spread over several jurisdictions is also an important part of the strategy adopted by the enabler intent on providing a money laundering service. So what is the answer, all regulators need to mobilise and Trust and Company Service providers must be subject to effective regulatory oversight. Virtual Offices, the money launderers dream come true and should not be permitted. Regulators and Law Enforcement need to work closely together to avoid duplication of effort and ensure the full use of regulatory and criminal sanctions as appropriate. If we do not, corruption will continue to flourish, stealing from the poor and denying them a brighter future. The refuge crisis will increase as people go in search of a better life. In my view we are losing the battle against corruption and enablers here in the UK and many other reputable jurisdictions are acting with impunity because of the lack of effective regulatory oversight and the lack of capacity to investigate and bring professional enablers to justice. We need to mobilise and target the professional enabler and we need to do it now.

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