A UK government Statutory Review laid before Parliament in June 2019 states that Jersey has successfully implemented the Exchange of Notes Programme sharing information with law enforcement and tax authorities in the UK in line with the EU’s Fifth Money Laundering Directive. A commitment was also made at a similar time by the Crown Dependencies to allow public access aligned to the approach in the Directive in the future. If questions arise at financial institutions about the implementation of the beneficial ownership requirements or information sharing, then Pinel Advocates are well placed to advise.
Introduction
Following on from FATCA there has been considerable further exchanges of information with the development of the Common Reporting Standard. Significant flows of information are being passed from to overseas authorities.
In 2016 Jersey's government made the decision, along with the other 2 Crown Dependencies and 6 British Overseas Dependencies with international finance centres, to enhance the effectiveness of sharing company beneficial ownership information on a bilateral basis between the UK and participating jurisdictions.. Called the Exchange of Notes (EoN) for Information Sharing, the new rules came into force on 1 July 2017.
The jurisdictions entering into these bilateral agreements were the 3 Crown Dependencies (namely: Jersey, Guernsey including Alderney and the Isle of Man) and the 6 British Overseas Territories (OTs) with international financial centres, namely Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar and the Turks & Caicos Islands.
This was a significant development as requests for Mutual Legal assistance can take considerable time. Law Enforcement Agencies (LEAs) and tax authorities were provided with the ability to find out beneficial ownership information for legal entities incorporated in the respective jurisdictions within 24 hours or 1 hour for urgent requests.
This compares with guidelines on the Jersey Law Officers’ website dealing with Mutual Legal Assistance. Timings depend on the workload and the complexity of the Request. The Guidelines state that it is their target to deal with Requests within three months from receipt. The recent MONEYVAL report stated that the average time to deal with Mutual Legal Assistance cases was around 145 days based on historic data from 2009 to 2014. While requests for beneficial ownership information would not take this length of time there has been a significant shift in the speed and nature of mutual legal assistance in this area.
Beneficial Ownership Register
This was a relatively simple step for Jersey as it had been in a leading position since 1989 holding beneficial ownership information with a register of beneficial information for corporates. This has been recognised internationally. In a report published on 24th May 2016, MONEYVAL, who evaluate Jersey against international financial crime standards set by the FATF, confirmed that:
“Jersey’s combination of a central register of the ultimate beneficial owner combined with a high level of vetting/evaluation not found elsewhere and regulation of TCSPs of a standard found in few other jurisdictions has been widely recognised by international organisations and individual jurisdictions as placing Jersey in a leading position in meeting standards of beneficial ownership transparency.”
Improvements were made to the register. Trust and Company service providers were asked to notify changes of beneficial ownership to the jurisdiction's central registry within 21 days of learning of the change. To comply Trust and Company Service Providers had to install computer systems to automatically deliver updates to the central registry, which is managed by the JFSC, the regulator. Legal questions as to scope and interpretation also arise.
This process gives UK LEAs rapid access to beneficial ownership information on over half a million entities in the 9 jurisdictions.
Key Findings of Review
The key findings of the Review show that Jersey and the other Crown Dependencies are leading the field. It also demonstrates that reputable international finance centres are legitimate places to do business. Jersey had a complete register along with several other jurisdictions.
In total, as of 31 December 2018, these registers contained information on 553,487 legal entities, representing nearly 87% of the 638,942 entities in scope for the EoN programme. The remaining 13% to be completed in other jurisdictions is largely explained by delays in the completion of registers in a small number of OTs. In particular, Anguilla has yet to develop its register and the Turks and Caicos Islands were still in the process of completing their register by December 2018 and were delayed by wider administrative reforms to their Companies Ordinance 2017 law framework. Although the Turks and Caicos Islands were at a relatively low level of completeness by the end of the reporting period, they had reached 100% coverage by May 2019. The Cayman Islands, British Virgin Islands and Gibraltar have substantial registers, with work ongoing to address remaining gaps due to delays in the process of populating their registers.
Further UK LEAs including tax authorities report that the EoN has been extremely useful in accessing the information needed to support ongoing investigations. Case studies published demonstrated that the information gathered under the new powers were helpful in a number of investigations.
UWO Order obtained
The National Crime Agency used the EoN process and reported recently in July 2019 that it assisted it in obtaining the UK’s first Unexplained Wealth Order (UWO) targeted at suspected serious organised crime in the UK. Under scrutiny is a “businessman in the north of England, whose property empire is suspected of being funded by criminal associates involved in drug and firearms trafficking. As a result of the co-operation by one of the International Finance Centres, the EoN return confirmed the beneficial ownership of a company holding high-value London property, enabling investigators to satisfy the requirements of a UWO application. Further requests have also identified additional connected property. The case is currently valued at approx. £25 million.
Case study 2: Fraud investigation
The information received through an EoN request confirmed intelligence received via a Suspicious Activity Report regarding a suspect’s spouse potentially being the beneficial owner of a company under investigation. This helped the Serious Fraud Office to build the profile of the suspect’s spouse and along with other information, led to their affairs also being investigated. This investigation is ongoing.
No of Requests Made
While some teething problems arose in some of the smaller jurisdictions, the results have been impressive. Most issues have been sorted out soon all jurisdictions will be on an even playing field. Across the 9 jurisdictions, during the first 18 months of operation 296 requests were made. In Jersey there were 26 requests made with 7 being requests for multiple pieces of information and all were turned around within the agreed timetable of 24 hours.
Nearly all of the 296 originated from UK LEAs and 118 asked for multiple pieces of information in a single request. This equates on average to nearly 4 requests per week. Responses were provided for all requests made and all but 4 were provided within the agreed time frame. The system has been shown to work well in assisting in the combating of economic crime and fraud.
So while I have only touched upon one small area of co-operation between jurisdictions, the Exchange of Notes programme is one example which demonstrates that international finance centres can co-operate well and place the legal framework and resources in place to do its job.
Future steps
A further commitment was made on 17 June 2019 by the Crown Dependencies to increase further transparency and accessibility, while maintaining high standards of accurate, up-to-date, verified information. It sets out three clear stages which are consistent with the EU’s approach to transparency of beneficial ownership data of companies under the EU’s Fifth Money Laundering Directive within a deliverable time-frame.
The stages are:
• the interconnection of the islands’ registers of beneficial ownership of companies with those within the EU for access by law enforcement authorities and Financial Intelligence Units; then
• access for financial service businesses and certain other prescribed businesses for corporate due diligence purposes; then
• public access aligned to the approach taken in the EU Directive
Conclusion
Jersey and other international financial centres have developed impressive beneficial ownership registers which puts them on a level playing field. The ability of Jersey to co-operate with onshore jurisdictions to fight economic crime and fraud demonstrates that it is a stable and secure jurisdiction to do business. Further steps will be taken to enhance co-operation in line with international standards. If questions arise at financial institutions about the implementation of the beneficial ownership requirements then Pinel Advocates is well placed to advise.