## cr07157

## Source details

**Canonical URL:** [cr07157](https://www.imf.org/-/media/files/publications/ofca/english/cr07157.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/ofca/english/cr07157.pdf.md)
- [Structured JSON version](/-/media/files/publications/ofca/english/cr07157.pdf.json)

---

### Assessment scope, team, and purpose
- Assessment basis: FATF Forty Recommendations 2003 and Nine Special Recommendations on Terrorist Financing 2001 using the AML/CFT Methodology 2004.
- Mission dates: March 1 to 17, 2006; report reflects measures as of March 17, 2006.
- IMF assessment team: Joseph Myers (IMF Legal Department, team leader), Joy Smallwood (IMF Legal Department), Tanya Smith (IMF Monetary and Financial Systems Department), Andrew Gors (IMF Monetary and Financial Systems Department).
- Outputs:
  - Summarizes AML/CFT measures in Gibraltar as of March 17, 2006.
  - Describes and analyzes measures and provides recommendations to strengthen the system.
  - Sets out Gibraltar’s levels of compliance with the FATF 40+9 Recommendations.

### Key findings — overall risks and sectoral observations
- Financial center context:
  - Gibraltar is an important international financial centre with strong ties to London, the Channel Islands, Israel, Cyprus and other financial centers.
  - Population: about 30,000; per capita GDP: some £18,000 in 2002–2003.
  - Financial sector orientation: primarily branches or subsidiaries of international firms serving mostly nonresidents.
- Principal ML/TF risks:
  - Main AML risk lodged in the professional sector (lawyers and accountants), likely involved in layering and integration.
  - Placement-stage risks: drug trafficking, migrant smuggling, and organized crime in southern Spain.
  - Most Gibraltar ML cases arise from investigations into international fraud schemes; traditional organized crime and drug-related cases are a minority.
- Notable statistics (sector counts and activity, preserved verbatim):
  - 18 banks.
  - 49 insurance companies (as of mid-March 2006).
  - 23 non‑bank firms that provide investment services.
  - 48 collective investment schemes (CIS) registered of which only five are domiciled in Gibraltar.
  - 82 groups authorized to provide company management and/or professional trusteeship services.
  - Bureaux de change decreased from 26 in 1998 to 14 currently; total turnover from licensed Bureaux de Change was £ 89 million for the year ending March 2006.
  - Online gaming: Fifteen licenses issued; employment increased from 550 to about 1,350; land-based casino annual turnover about £6 million per year.
  - Professional services: 250 lawyers; 100 auditors/accountants registered with the Auditors Registration Board.

### Legal framework and prosecution issues
- Criminalization and statutes:
  - ML offences found in Criminal Justice Ordinance 1995 (CJO) and Drug Trafficking Offences Ordinance 1995 (DTOO); Terrorism Ordinance 2005 addresses FT and related asset measures.
  - DTOO Sections 54–56, Section 57 and DTOO ancillary rules (Drug Trafficking (Detention and Forfeiture of Cash) Rules 1995; Drug Trafficking (Prescribed Sum) Regulations 1995; DTOO (Designated Countries and Territories) Order 1999).
  - CJO Sections 2–5 create offences for laundering proceeds of criminal conduct.
- Predicate connection and evidentiary standard:
  - Judicial practice requires proof to a criminal standard that property represents proceeds of a specific criminal conduct; conviction is not required but Crown must prove to a criminal standard provenance.
  - The Montilla (2005) House of Lords precedent constrains prosecution where predicates occur abroad and curtails domestic prosecutions.
- Prosecutions and enforcement record:
  - Gibraltar authorities have not successfully prosecuted anyone on a money‑laundering charge.
  - Arrests in last four years: 17 for money‑laundering offences; in many cases charges were dropped due to difficulties proving foreign predicates or legal challenges; one charge outstanding.
  - Confiscation: Section 23 (CJO) provides confiscation where defendant derived ₤10,000 or more in “benefit.”
- Sanctions (preserved verbatim examples):
  - DTOO Section 54 (concealing or transferring proceeds of drug trafficking): Summary maximum imprisonment six months, fine up to £2,000 or both; Conviction on indictment maximum imprisonment 14 years, unlimited fine or both.
  - DTOO Section 57 (failure to disclose knowledge or suspicion of money laundering): Summary maximum imprisonment six months, fine up to £2,000 or both; Conviction on indictment maximum imprisonment 5 years, unlimited fine or both.
  - CJO Section 4 (concealing or transferring proceeds): Summary maximum imprisonment 6 months, fine up to £5,000 or both; Conviction on indictment maximum imprisonment 14 years, unlimited fine or both.
  - CJO Section 9 (systems to prevent money laundering): Fine up to £5,000 (Summary conviction); Conviction on indictment maximum imprisonment 2 years, unlimited fine or both.

### Confiscation, freezing and provisional measures (R.3 & R.32)
- Domestic frameworks:
  - Confiscation statutes: CJO Section 23 (non-drug indictable offences), DTOO Sections 3 and 6 (drug offences), Drugs (Misuse) Ordinance 1973 Section 28, Criminal Procedure Ordinance 1961 Section 248, Terrorism Ordinance 2005 Section 11.
  - DTOO includes a rebuttable presumption and reversal of burden of proof in drug cases for the prior six years (DTOO Section 5).
  - DTOO Section 48 allows customs and police to seize and detain cash being imported/exported if ≥ ₤10,000 (seizure/detention and forfeiture procedures described; detention up to two years in renewals).
- Gaps and practical limits:
  - Only DTOO provides suspicion‑based detention of cash at the border (threshold ₤10,000); no parallel suspicion‑based seizure for non‑drug proceeds.
  - Confiscation under CJO limited: practical difficulties detaining suspect cash at border unless linked to a specific offence.
  - Authorities do not maintain consolidated statistics on assets frozen, seized, or confiscated.
- International measures:
  - DTOO (Designated Countries and Territories) Order 1999 lists 27 countries for external confiscation cooperation; planned legislation to extend enforcement to all UNTOC parties.
- Non‑consent letters and STR freezing:
  - GFIU issues “consent” or “non‑consent” letters after STRs; legal basis for “non‑consent” letters is described as somewhat tenuous and lacks documented criteria/duration.
  - Bank of Scotland orders used by institutions to justify continuing freezes where equitable liability concerns exist.

### Financial Intelligence Unit (GFIU) — functions, staffing, and statistics (R.26, 30 & 32)
- Structure and staffing:
  - GFIU established January 1, 1996; embedded in Gibraltar Coordinating Centre for Criminal Intelligence and Drugs (GCID); GFIU staffing total: 2; GCID staff (including GFIU staff): 5.
  - GFIU Head traditionally a seconded customs officer; functionally responsible to GCID Executive Coordinator who reports to chief minister and Governor.
  - GFIU is a member of the Egmont Group.
- Core functions and operations:
  - Receive, research, allocate intelligence from STRs; maintain financial intelligence database; liaise with financial/business community; provide training and education.
  - STR acknowledgement may include “consent” or “non‑consent” instruction.
  - Analytical capacity: primarily tactical analysis; strategic analysis limited due to small disclosure numbers; training planned with UK Asset Recovery Agency.
  - Domestic dissemination restricted to police and customs; feedback required within 28 days.
  - International exchange via Egmont secure link; no MOU required.
- STR volumes and sector breakdown (Disclosures received 2001–2005 — preserved verbatim):
  - Aggregate totals: 2001: 182; 2002: 180; 2003: 130; 2004: 123; 2005: 108.
  - Banks & Building Societies: 2001: 139; 2002: 136; 2003: 69; 2004: 72; 2005: 68.
  - Company managers: 2001: 19; 2002: 24; 2003: 31; 2004: 27; 2005: 27.
  - Lawyers: 2001: 2; 2002: 3; 2003: 20; 2004: 10; 2005: 5.
  - Money Transfer Services: 2001: 0; 2002: 0; 2003: 0; 2004: 4; 2005: 2.
  - Noted trend: STRs declined significantly since 2001; lower 2003–2005 levels attributed to FSC remedial action and remediation of retrospective due diligence.
- Assessment observations and recommended FIU actions:
  - Public statement clarifying GFIU authority/functions recommended.
  - Document internal procedures, criteria and guidance on consent/non‑consent letters.
  - Prioritize outreach to DNFBP sectors not regulated by FSC; provide numerical‑only reporting‑performance statistics to supervisors where appropriate.
- FATF compliance snapshot:
  - R.26 — Largely compliant (public record of functions should be issued).
  - R.30 — Largely compliant (training limited to the GFIU analyst; staffing risk if analyst absent).
  - R.32 — Partially compliant (disclosure statistics comprehensive but may understate true levels).

### Preventive measures and supervisory framework (FSC and AMLGNs)
- FSC role and AMLGNs:
  - FSC has established risk‑based AML framework and issued Anti‑Money Laundering Guidance Notes (AMLGNs) requiring CDD, ongoing monitoring, designation of MLRO, STR reporting.
  - AMLGNs initially issued improperly by the Commission; commissioner and government jointly re‑issued AMLGNs during the Mission to validate issuance.
  - AMLGNs considered “other enforceable means” for assessment purposes; several legal/regulatory CDD requirements are found only in AMLGNs rather than law.
- Supervisory coverage and gaps:
  - FSC supervises banks, building societies, investment businesses, insurance companies, and controlled activities (investment services, company management, professional trusteeship, insurance management and insurance intermediation).
  - Entities outside FSC scope: Gibraltar Savings Bank (state‑owned), bureaux de change, and stand‑alone (non‑bank) money transmitters.
  - Weaknesses: limited oversight of bureaux de change and lack of oversight/licensing/supervision of stand‑alone money transmitters; one non‑bank money transmitter had no licensing until December 2005.
  - Proposed Money Services Business Ordinance to capture bureaux de change and money transmitters under government Committee headed by FSC Commissioner.
- Enforcement tools and supervisory practice:
  - FSC mechanisms: letters of agreement, reporting accountants, directions/conditions; revocation of authorization is ultimate sanction; no fines available currently.
  - Reporting Accountants engaged for remediation in 13 financial institutions required to undertake CDD remediation programs.
  - On‑site inspection cycle: maximum 3 year cycle; shorter cycles for higher risk.
  - FSC staffing for supervision: five on‑site examiners fiduciary services, six for banks/investments, four for insurance (one more to be hired); average person‑days for risk assessment on‑site 12 man days; bank prudential visits average 2 man days.
- AMLGNs and specific CDD provisions (R.5–8, R.9, R.11, R.21):
  - Section 11 CJO: identity “as soon as reasonably practicable after contact is first made”; one‑off transaction threshold €15,000.
  - AMLGNs expand beneficial ownership, PEPs, correspondent banking, non‑face‑to‑face, wire transfer rules, and reliance on third parties; many criteria exist in AMLGNs rather than statute.
  - R.5 assessment: Partially compliant because several CDD criteria are only in AMLGNs not law.
  - R.6 assessment: Partially/Largely compliant issues — PEP requirements applied unevenly across sectors.
  - R.7, R.8, R.9: variously Partially or Largely compliant with gaps for non‑bank entities and intermediaries; introducer/eligible introducer regimes detailed in AMLGNs but controls relative to intermediaries not fully aligned to FATF.
  - R.11 and R.21: Largely compliant overall, but bureaux de change and stand‑alone money transmitter need to apply risk‑based procedures and TF considerations should be extended.
- Record keeping and wire transfers:
  - Part V AMLGNs requires records retained for at least five years; wire transfer originator/beneficiary data and retention requirements set out (originator details and five year retention).
  - R.10 rated Partially compliant due to some record‑keeping criteria in AMLGNs not law; recommended to place criteria in law/regulation.

### Supervisory gaps and DNFBPs
- DNFBPs scope and supervision:
  - DNFBP remainder (lawyers, notaries, accountants, high value goods dealers, real estate agents) subject to CJO but no further AML/CFT regulations promulgated specifically.
  - TCSPs are licensed, regulated, supervised by FSC and subject to AMLGNs; internet gambling covered by AMLGNs but largely unsupervised pending Gambling Ordinance implementation.
  - Charities: Charities Ordinance provides registration and supervision via Charities Board; 166 registered charities; 95 percent local; blanket exemption for religious charities under Section 6(4) recommended for review.
- Practical deficiencies:
  - No oversight by competent authorities for many DNFBP industries to ensure systems and controls are in place.
  - Lawyers required by local law to comply with English AML regulations but no local monitoring of compliance.
  - High Value Dealer Guidance Notes issued on information‑only basis; HVD Guidance Notes indicate records need only be kept for HVPs and not payments < €15,000 unless by check/credit card.
  - Real estate agents not licensed; no monitoring authority; auditors/Auditors Registration Board lack inspection resources for compliance oversight.
- Recommendations for DNFBPs:
  - Develop and apply strong CDD and record‑keeping requirements in law/regulation for all DNFBPs not covered by FSC AMLGNs.
  - Ensure DNFBPs subject to PEP, non‑face‑to‑face/new‑technology, ongoing monitoring, and large/complex transaction review requirements.
  - Designate appropriate monitoring and sanctioning authority for DNFBP categories not supervised by FSC/GRA; consider FSC expertise given jurisdiction size.
  - Implement Gambling Ordinance 2005 and resource GRA; require AMLGNs/Code of Conduct compliance as license condition.

### Non‑profit organizations (SR.VIII)
- Charities framework and practice:
  - Charities Ordinance (CO) establishes Charities Board and registration; 166 registered charities; 95 percent purely local.
  - Board exercises gatekeeper and supervisory functions: registration, requirement of audited accounts, review of accounts, investigation powers (Sections 4, 6, 8, 9, 10, 17, 19, 31).
  - Blanket exemption for religious charities under Section 6(4) recommended for review in light of TF risks.
- FATF SR.VIII rating: Largely compliant; recommendation to review exempt religious charities and apply FATF guidance/best practices.

### Mutual legal assistance (MLA), international cooperation, and extradition
- MLA framework and recent legislation:
  - MLA (International) Ordinance passed but not effectively in force pending schedule of countries; recommendation to enact and implement promptly and to deem UNTOC parties eligible.
  - Transnational Organized Crime Ordinance (2006) implementing Palermo Convention came into operation on April 20, 2006.
  - Evidence Ordinance 1948 Part II used where Schengen or DTOO not applicable; flexible but outdated.
- Practical cooperation:
  - Statistics mutual legal assistance requests (preserved verbatim where given): 2006 (to date) Cases 11, Letters 17; 2005 Cases 22, Letters 28; 2004 Cases 12, Letters 14; 2003 Cases 20, Letters 26; 2002 Cases 23 (letters incomplete).
  - AG’s office processed 40 cases in 2005: 27 fraud/corruption/theft/false accounting etc.; 8 alleged money laundering; 4 drug trafficking.
  - Mutual assistance in drug cases more streamlined via DTOO designated countries list; non‑drug external confiscation/enforcement limited pending governor scheduling under CJO/Section 42.
- Extradition:
  - EAWO and Fugitive Offenders Ordinance apply in appropriate contexts; money‑laundering extraditable but evidentiary hurdles have limited practical success in at least one case tied to Montilla precedent.
  - Recommendation: elaborate procedures/checklists for extradition requests in ML/TF cases.
- FATF international cooperation ratings:
  - R.36 — Largely compliant (limitations: pre‑proceedings assistance outside EU limited to drug cases).
  - R.38 — Partially compliant (no general power to secure restraint/charging orders or detain suspect cash outside drug context).
  - R.39 — Partially compliant (extradition feasible but evidentiary/legal constraints exist).

### Enforcement, law enforcement capacity and operational experience (R.27, 28, 30)
- Law enforcement resources and units:
  - Royal Gibraltar Police (RGP): approximately 220 officers.
  - Financial Crime Unit (FCU): staff of six dedicated investigators with fraud and ML experience.
  - Customs: approximately 105 officers; Investigating Branch with five investigators.
  - GCID and GFIU integration: GCID staff five; GFIU two; GFIU has full access to customs and police data, Interpol, Egmont.
- Investigative powers and practice:
  - Search warrants (CPO Section 25), production orders (Magistrates’ Court Ordinance Section 28), Schedule10 Companies Ordinance inspectors, DTOO Sections 60–61 for drug cases (including computer evidence), DTOO Section 48 seizure of cash ≥ ₤10,000 at border for drug suspicion.
  - Police lack current wiretap authority; Interception of Communications Act draft pending.
- Operational experience highlights:
  - Successful narcotics seizure: 500 kilograms cocaine on yacht; forfeiture and 10‑year convictions.
  - Two instances of freeze orders issued under Terrorism Orders 2001/2002.
  - Sting operation targeting a local lawyer assisted by local authorities; case and litigation experience noted.
- FATF ratings: R.27 — Compliant; R.28 — Compliant; R.30 — Largely compliant.

### FATF compliance overall — summary ratings (selected)
- R.1 (ML offence) — Partially compliant.
- R.3 (Confiscation & provisional measures) — Largely compliant.
- R.5 (CDD) — Partially compliant.
- R.6 (PEPs) — Largely/Partially compliant (sectoral weaknesses).
- R.9 (Third parties) — Partially compliant.
- R.12 (DNFBP CDD) — Partially compliant.
- R.13 (STRs) — Largely compliant (confusion over reporting channels).
- R.17 (Sanctions) — Largely compliant (shortfalls for bureaux de change and money transmitters).
- R.18 (Shell banks) — Compliant.
- R.23 (Supervision) — Partially compliant (no supervision for bureaux de change/non‑bank remitter).
- R.26 (FIU) — Largely compliant.
- SR.II (Criminalization of TF) — Compliant.
- SR.III (Freeze/confiscate TF assets) — Largely compliant (operational gaps in guidance to licensees).
- SR.VI (MVTS) — Non Compliant (no overall framework for non‑bank MVTS provider).
- SR.VIII (NPOs) — Largely compliant.
- SR.IX (Cross‑border currency controls) — Not compliant (no declaration/disclosure system).

### Selected priority recommendations and action plan (extracted)
- Legal and prosecutorial:
  - Consolidate ML offences in DTOO and CJO into a single Proceeds of Crime Act.
  - Criminalize migrant smuggling as an indictable offence.
  - Consider criminalizing export of cigarettes as indictable to allow predicate treatment.
  - Enact proposed MLA legislation and place UNTOC parties on schedule for external confiscation.
  - Repeal legislation allowing share warrants to bearer.
- Confiscation, freezing and seizure:
  - Consolidate asset forfeiture provisions of CJO and DTOO; extend reversal of burden beyond drug cases; allow detention of border cash suspected of being proceeds of any crime.
  - Clarify legal basis and provide guidance for GFIU “non‑consent” letters; consider promulgating explicit freezing authority to GFIU/GCID.
  - Maintain consolidated asset confiscation and forfeiture statistics; develop procedures for delisting/unfreezing.
- Supervisory and AMLGNs:
  - Update AMLGNs to reflect TF risks and consider moving key AMLGN provisions into law/regulation.
  - Strengthen oversight of bureaux de change and non‑bank money transmitters; finalize Money Services Business Ordinance swiftly.
  - Ensure FSC rule‑making/guidance powers are explicit in FSCO (proposed amendment).
  - Introduce fines or additional sanction mechanisms to improve dissuasive effect.
- FIU and reporting:
  - Issue clear public statement of GFIU authority and functions.
  - Document internal GFIU procedures and consent/non‑consent criteria and timings.
  - Clarify STR filing channels for ML and TF (GFIU vs police vs governor vs Gambling Commissioner).
  - Extend outreach and education to DNFBPs, internet gambling, real estate, HVDs.
- DNFBPs and gambling:
  - Implement AML/CFT supervision for internet gambling sector urgently; finalize Gambling Ordinance implementation and resource GRA.
  - Extend AML/CFT requirements and supervision to lawyers, accountants, real estate agents, HVDs, and non‑FSC DNFBPs; ensure PEP, CDD, record keeping, ongoing monitoring, and audit testing are mandated.
  - Require reporting of attempted transactions and ensure appropriate protections against tipping‑off and civil liability.
- MVTS and border controls:
  - Ensure all money/value transfer service providers are licensed, supervise agents, require agent lists, and provide sanctioning mechanism.
  - Implement cross‑border currency/bearer negotiable instrument declaration or disclosure system and powers to detain suspected currency.
- Corporate and trust transparency:
  - Make Companies House searchable by relevant fields; provide FSC with full access to Companies House files.
  - Consider abolishing or limiting asset protection trusts or require settlor disclosure; restrict enforceability of flee clauses.
- Statistics and coordination:
  - Maintain consolidated statistics on prosecutions, convictions, charges, STRs, confiscations and MLA requests.
  - Ensure DNFBP oversight authorities are represented on the Enforcement Committee.

*IMF assessment of Gibraltar’s AML/CFT regime (mission March 1–17, 2006; report reflecting measures as of March 17, 2006).*

*Source: IMF assessment mission report (cr07157).*

### Preface.................................................................................................................

### Preface

### Assessment scope and team
- The assessment of Gibraltar’s anti-money laundering (AML) and combating the financing of terrorism (CFT) regime was conducted on the basis of the Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2001 of the Financial Action Task Force (FATF), using the AML/CFT Methodology 2004.
- The assessment considered laws, regulations and other materials supplied by the authorities, and information obtained by the assessment team during its mission from March 1 to 17, 2006, and subsequently.
- The IMF assessment team: Joseph Myers (IMF Legal Department, team leader), Joy Smallwood (IMF Legal Department), Tanya Smith (IMF Monetary and Financial Systems Department), and Andrew Gors (IMF Monetary and Financial Systems Department).

### Purpose and outputs
- The report summarizes AML/CFT measures in place in Gibraltar as of March 17, 2006.
- It describes and analyzes those measures and provides recommendations to strengthen the system (see Table 2).
- It sets out Gibraltar’s levels of compliance with the FATF 40+9 Recommendations (see Table 1).

### Key findings — general
- Authorities have implemented significant improvements in the banking sector and the Financial Services Commission (FSC) is making progress in other financial intermediation areas.
- Gibraltar’s financial center, though relatively small in absolute terms, is important to the overall economy and authorities prioritize maintaining Gibraltar’s reputation as a well regulated center.
- The principal AML risk is lodged in the professional sector (lawyers and accountants), which is likely to be involved in layering and integration of proceeds of crime.
- Placement-stage risks exist in connection with drug trafficking, migrant smuggling, and organized crime in southern Spain.
- Most money-laundering cases involving Gibraltar arise from investigations into international fraud schemes; traditional organized crime and drug-related cases are a minority.

### Legal framework and institutional measures — findings and issues
- Gibraltar’s criminal prohibitions on money laundering derive primarily from the Drug Trafficking Offenses Ordinance (DTOO) and the Criminal Justice Ordinance (CJO); a Terrorism Ordinance 2005 addresses FT and related asset measures.
- After the House of Lords decision in Montilla (2005) and local rulings, the Attorney General concluded he cannot pursue domestic money-laundering prosecutions without clear and convincing proof (though not necessarily a conviction) of the underlying offense. Because most predicate offenses occur abroad, this has curtailed domestic prosecutions—a serious weakness in the AML/CFT regime.
- The confiscation regime is split between drugs-related and non-drugs-related schemes:
  - Drugs-related confiscation authorities are broad and include reversals of the burden of proof, enforcement of external confiscation orders, and ability to seize cash suspected of being proceeds of drug trafficking.
  - Non-drugs-related confiscation authorities are more limited, creating practical difficulties (for example, inability to detain suspect cash at the border unless it can be proven to represent proceeds of a specific offense).
- Gibraltar has a small FIU embedded in the Gibraltar Coordinating Centre for Criminal Intelligence and Drugs (GCID); the FIU is a member of the Egmont Group and functions effectively within the Gibraltar system.
- The FIU should provide a clearer public statement of its authority and functions, including with respect to suspicious transaction reports.
- Authorities should consider promulgating explicit freezing authority to the GFIU and/or GCID in light of the questionable legal basis for the practice of freezing accounts on the basis of “non-consent” letters.
- Prosecutors’ powers could be enhanced by consolidating the provisions of the CJO and the DTOO into a single statute to extend powers currently available only in drug-related money-laundering cases.
- Given two money-laundering cases from Gibraltar overturned on appeal, a training session for the bench and bar on international developments in the criminal law of money laundering may be advisable.

### Preventive measures — financial institutions
- The FSC has established a strong, risk-based AML framework for financial institutions and has issued Anti-Money Laundering Guidance Notes (AMLGNs) that amplify provisions in the CJO.
- The AMLGNs require customer due diligence, ongoing monitoring, designation of a money-laundering reporting officer, and reporting of suspicious transactions.
- The AMLGNs need further strengthening to better capture financing of terrorism considerations, which were largely absent at the time of assessment.
- The FSC conducts on-site inspections and off-site analysis, can compel production of records, and can impose sanctions for non-compliance.
  - The FSC has a maximum 3 year cycle of on-site inspections with a number of institutions on a shorter cycle based on risk.
- The FSC supervises banks and building societies, investment businesses, insurance companies, and controlled activities (including investment services, company management, professional trusteeship, insurance management and insurance intermediation).
- The following entities operate outside the FSC’s scope:
  - Gibraltar Savings Bank (state-owned), bureaux de change, and stand-alone (non-bank) money transmitters.
- Weaknesses identified:
  - Limited and ineffective oversight of bureaux de change and lack of oversight of stand-alone money transmitters.
  - Licensed bureaux de change are overseen by a Bureaux de Change Committee headed by the Financial and Development Secretary; an “investigating officer” from customs provides the only oversight but lacks a remit to conduct supervision.
  - The Bureaux de Change Committee can only suspend or cancel a license and cannot impose conditions or directions to ensure corrective action.
  - One non-bank money transmitter had no licensing until it was registered under the Bureaux de Change license in December 2005 and has not been subject to supervision.
  - Total turnover from licensed Bureaux de Change was £ 89 million for the year ending March 2006.
- The government has developed a draft Money Services Business Ordinance to capture bureaux de change and money transmitters under oversight by a government committee; current proposal contemplates the FSC Commissioner heading this Committee.

### Preventive measures — DNFBPs and NPOs
- Trust and company service providers (TCSP) are licensed, regulated, supervised by the FSC, and subject to regular inspections and significant regulatory requirements.
- Oversight for the gambling industry is limited and in transition following the Gambling Ordinance (GO) 2005 (enacted but yet to be placed into effect).
  - The new system under the GO 2005 will comprise a ministerial-level licensing authority, a regulatory authority and an ombudsman.
- Both TCSP and the internet-based gambling sector are subject to the AMLGNs, but only TCSP are actually supervised against them.
- Given the emerging importance of the internet gambling sector to Gibraltar’s economy, authorities should move quickly to impose AML/CFT supervision.

### Key recommendations (selected)
- Consolidate criminal laws on money laundering (CJO and DTOO) into a single statute to extend powers available only in drug-related cases to other predicate offenses.
- Enhance prosecutorial follow-up on credible suspicions and pursue cases to create deterrence against professional-service-provider misfeasance.
- Enact proposed legislation on mutual legal assistance.
- Update the FSC’s Anti-Money Laundering Guidance Notes to reflect terrorist financing risks and, where appropriate, reflect key provisions currently only in the AMLGNs into law or regulation.
- Supervise bureaux de change and non-bank money transmitters for AML/CFT compliance and finalize the Money Services Business Ordinance swiftly.
- Government should conduct risk assessments of DNFBPs not supervised by the FSC or GRA and extend monitoring authority as appropriate.
- FIU should clarify publicly its authority and functions; consider explicit legal freezing powers for GFIU and/or GCID.
- Implement AML/CFT supervision for the internet gambling sector urgently.

*IMF assessment of Gibraltar’s AML/CFT regime (mission March 1–17, 2006; report reflecting measures as of March 17, 2006).*

### 17.      The remainder of the DNFBP, including lawyers, notaries, accountants, high

### 17.      The remainder of the DNFBP, including lawyers, notaries, accountants, high value goods dealers, and real estate agents

### DNFBPs: legal framework and supervision
- The remainder of the DNFBP, including lawyers, notaries, accountants, high value goods dealers, and real estate agents are subject to the Criminal Justice Ordinance.
- No further rules or regulations on AML/CFT have been promulgated in Gibraltar for DNFBPs.
- The government has issued guidance to high value goods dealers on an information-only basis.
- There is no oversight by competent authorities in these industries to ensure that systems and controls are in place to combat money laundering and the financing of terrorism.
- Lawyers are required by local law to comply with English AML regulations, but there is no local monitoring of compliance with these requirements.

### Charities supervision
- The Charities Ordinance (CO) provides a solid framework for supervision of charities by the Charities Board (the “Board”).
- The Board performs a gatekeeper role by requiring registration after application and disclosure of material information.
- The blanket exception granted to religious charities under Section 6(4) of the CO should be reviewed.
- Adequate legal provisions are in place for ongoing supervision, investigation, and intervention regarding charities to prevent abuse.
- In practice, all charities are required to file annual audited accounts with the Supreme Court registry and these accounts are reviewed by the Board.
- Should clandestine diversion of funds be discovered, adequate legal provisions exist for the Board to undertake immediate and effective actions to halt terrorist financing.

### Legal persons and arrangements (fiduciary services, company formation)
- Only persons licensed under the Financial Services Ordinance can form and manage companies in Gibraltar.
- Licensed fiduciary service providers are subject to the full panoply of preventive measures and oversight on the same terms as banks and other prudentially supervised financial service providers.
- The FSC has applied a risk-based supervisory system to the fiduciary services industry; industry appears generally to be compliant.
- The government should:
  - repeal legislation allowing share warrants to bearer (a promise made four years earlier in negotiations with the OECD);
  - ensure that Companies House’s data base is searchable by all relevant fields;
  - abolish asset protection trusts; and
  - limit the operability of flee clauses.

### National and international cooperation
- Domestic cooperation on AML/CFT is facilitated by the on-going forum of the Enforcement Committee, which brings together law enforcement, intelligence, regulatory, policy and financial development authorities.
- The Committee is an effective mechanism for sharing information on trends and vulnerabilities in money laundering and terrorist financing.
- The United Kingdom has not extended to Gibraltar the Vienna Convention or the International Convention for the Suppression of the Financing of Terrorism (ICSFT).
- Gibraltar has legislated a number of key provisions that mirror many of those in the Conventions.
- The Transnational Organized Crime Ordinance (2006) implementing the Palermo Convention came into operation on April 20, 2006.
- The mission recommends that the Vienna and ICSFT Conventions are also swiftly extended to Gibraltar.
- As a member of the EU, Gibraltar can provide full cooperation at the investigative stage to other EU member states.
- Legislation was enacted last year extending the same investigative privileges to non-EU member states, provided such states agree to reciprocity.
- Recently published draft legislation would:
  - extend such privileges automatically to all states that have ratified the UN Transnational Organized Crime Convention; and
  - permit foreign states in non-drug related money laundering cases to obtain restraint orders or register and enforce their confiscation orders in Gibraltar (addressing a current limitation).

### Financial Intelligence Unit and information sharing
- The FIU has played an important role in national and international cooperation.
- Since being admitted to the Egmont Group in 2004, the GFIU regularly shares information with other FIUs through the Egmont secure web system.
- The GFIU has responded to 46 requests received, and has initiated ten requests.
- In several cases, the GFIU has contributed to overseas investigations by proactively cooperating with other Egmont Group members.
- The Financial Services Commission regularly shares information with other international competent authorities.
- In the case of the Queen (on the application of a Gibraltar company, X, Y, and Z and other respondents) (2003), the court found that for the commissioner to share information with foreign supervisors the commissioner must:
  - satisfy himself that the requesting body performs a function similar to his own;
  - be satisfied that disclosure is necessary to assist the requesting body; and
  - conclude that it is in the interests of the public of Gibraltar that disclosure should be made.
- The mission was advised that the FSC has in fact shared information.

### Background: Gibraltar context and macro/legal developments
- Gibraltar is an overseas territory of the United Kingdom.
- A reform of the Constitution to transfer further powers exercised by the U.K. government to Gibraltar was approved by referendum on 30 November, 2006.
- Gibraltar has been a constituent of the European Union (EU) since 1973 under the U.K. Treaty of Accession, but is excluded from the common external tariff, the common agricultural policy, and the requirement to levy value added tax (VAT).
- Gibraltar’s economy is dominated by three sectors—tourism, ports and shipping, and financial services.
- Population and income:
  - Gibraltar has a population of about 30,000 with per capita GDP of some £18,000 in 2002–2003.
- Tax and fiscal features:
  - Since 1967 an exempt company regime has applied to corporate taxation.
  - Effective corporate tax rates range from 20 to 35 percent.
  - There is no capital gain tax, wealth tax, inheritance tax, estate duty, VAT, or sales tax.
  - There are no exchange controls but there is a customs duty of 12 percent with some exemptions (e.g., computer equipments and food items).
  - Personal income tax contributes the bulk of fiscal revenue.
- Planned tax reforms:
  - A new tax regime is expected to be in place by July 2007.
  - The exempt tax regime is to be phased out by 2010 and starting July 2006 no new entities will be given an exempt status.
  - In this context a package of reforms has been submitted to the EU for approval; the EU’s response is expected by end-2006.
  - Main features of the tax package include: abolition of tax on profits for all companies; introduction of a profit tax on financial service providers; introduction of a payroll tax; introduction of a business property occupation tax; introduction of annual company registration fee; and additional profit tax on utility companies.

### General money laundering and terrorist financing risks
- Gibraltar is an important international financial centre with strong ties to London, the Channel Islands, Israel, Cyprus and other financial centers.
- Geographic and criminal risks:
  - Located at the southern tip of Spain, near the north coast of Africa, Gibraltar is proximate to known drug trafficking and human smuggling routes.
  - Gibraltar is a retail banking centre for northern European expatriates with property in southern Spain.
  - Southern Spain has experienced a recent influx of criminal elements from Eastern Europe who engage in a wide range of proceeds-generating crimes.
- These factors contribute to money laundering and terrorist financing risks in Gibraltar.

### Financial services sector and DNFBPs: structure and key statistics
- Financial sector orientation:
  - The financial sector consists primarily of branches or subsidiaries of international firms serving mostly nonresidents.
- Banking:
  - There are 18 banks; all except one are branches or subsidiaries of international banks.
  - Seven banks provide retail services to the very small domestic market.
- Investment services and asset management:
  - The provision of investment services to nonresident clients is the most important function conducted by the banks in Gibraltar.
  - Fiduciary deposits from parent banks are common.
- Insurance sector (as of mid-March 2006):
  - There were 49 insurance companies licensed in Gibraltar.
  - Seven had notified that they would be passporting their services by establishing a branch in other EEA states.
  - Twenty-six had notified that they would provide services to other EEA states.
  - Three companies licensed in other EU states provide services in Gibraltar.
  - There are two locally incorporated firms that provide insurance service to Gibraltar residents.
  - There are 14 captive insurance companies.
  - There are six insurance managers; some provide brokering and accounting services.
  - There are 34 insurance intermediaries—17 provide both life and non life insurance products; six provide only life insurance products; and 11 provide general insurance products.
- Investment firms and collective investment schemes (as of mid-March 2006):
  - There are 23 non-bank firms that provide investment services.
  - Of these, 19 provide portfolio management services and three serve as securities brokers (investment dealers).
  - There are two investment dealers who buy and sell securities for their own account.
  - There are 48 collective investment schemes (CIS) registered of which only five are domiciled in Gibraltar.
  - Forty-three are recognized as UCITS or by the U.K. FSA.
  - Under the Financial Services (experienced investor funds) Regulations (2005), six experienced investor funds have been established.
- Company and trust service providers:
  - There are 82 groups authorized by the FSC to provide company management and/or professional trusteeship services in or from within Gibraltar.
  - The sector includes international firms and domestic firms (professional accountant firms, legal firms, pure company management firms).
- Bureaux de change and money transmission:
  - Bureaux de change are licensed by a committee chaired by the Financial and Development Secretary.
  - The number of bureaux de change decreased from 26 in 1998 to 14 currently.
  - Money transmission services are primarily conducted by the banks, but there is one stand-alone money transfer business.
- Online gaming and gambling:
  - There has been significant growth in the online gaming industry since 2001.
  - Fifteen licenses have been issued; employment increased from 550 to about 1,350.
  - These firms provide online gambling and sports betting services; several are listed on the London Stock Exchange and two firms are very large global players.
  - There is a land-based casino with an annual turnover of about £6 million per year.
  - The new Gambling Ordinance (entered into force on October 26, 2006, subsequent to the on-site mission) will extend coverage of the AML/CFT provisions to all forms of remote gambling, not just casinos.
- Professional services and real estate:
  - There are 250 lawyers in Gibraltar, and 100 auditors/accountants registered with the Auditors Registration Board.
  - Lawyers are subject to the practice rules of the Law Society of England and Wales, and to discipline by the Supreme Court.
  - Auditors, but not accountants, are subject to a minimal level scrutiny under the Auditors Registration Board.
  - The real estate industry has been experiencing a boom; home ownership and price levels increased significantly.
  - Non residents and high net worth individuals are restricted in the range of property they can purchase.
  - The vast majority of purchases are from the United Kingdom and expatriate community.
  - Real estate agents do not have to be licensed to practice in Gibraltar.

### Enforceability of the Anti-Money Laundering Guidance Notes (AMLGNs)
- For the purposes of the assessment, the mission determined that the AMLGNs are considered to be “other enforceable means.”
- The AMLGNs were issued by the Financial Services Commission (FSC).
- Legal authority questions:
  - The CJO lists the FSC as a supervisory authority in Section 19(2) and mandates reporting of evidence of money laundering by Section 20, but the CJO contains no authority for the FSC to issue guidance.
  - Section 9(3) of the CJO indicates a court may take account of relevant supervisory or regulatory guidance, but it does not itself grant authority to issue guidance.
  - Authority to issue regulations is granted to the government of Gibraltar by Section 45 of the CJO, but none have been issued to date.
  - Within the FSC Ordinance the mission could not locate a provision authorizing the FSC to issue guidelines, circulars or similar documents.
  - Section 6 of the FSC Ordinance 1989 sets out the duties of the Commission:
    - Section 6(2)(b) allows the commission to monitor compliance with Community law and establish and implement standards; this is a monitoring power only, not authority to issue guidance.
    - Section 7(2)(f) allows the Commission to publish material conductive to attainment of its objects, but assessors concluded the Commission has no authority to issue the AMLGNs.
- The AMLGNs were initially issued improperly, which was the subject of significant discussion with the authorities during the on-site mission.

*Source: IMF assessment mission report (cr07157).*

### 44.      In contrast, Section 8(2) of the FSC Ordinance grants the commissioner the

### Section: FSC Ordinance, AML Guidance, and Supervisory Framework

### Issuance and legal status of the AML Guidance Notes (AMLGNs)
- Section 8(2) of the FSC Ordinance grants the commissioner the power to “supervise institutions to be licensed to provide any financial services with a view to ensuring that such supervision complies with any applicable Community obligates and, where these obligations apply, establish and implement standards which match those required by legislation and supervisory practice governing the provision of financial services with the United Kingdom.”
- Community directives have been issued on anti-money laundering and combating the financing of terrorism.
- The commissioner has authority to issue the AMLGNs, but they were initially issued by the Commission; the Gibraltar authorities agreed with the Mission’s analysis that the Commission’s initial issuance was a mistake.
- During the Mission, the commissioner jointly re-issued the AMLGNs with the government (to cover bureaux de change) so that the AMLGNs are now validly issued.
- Pursuant to Section 9(3) of the Criminal Justice Ordinance (CJO), the AMLGNs may be issued and may be taken into account by a court of law.
- The introduction to the AMLGN links issuance to the CJO with clear language and a lengthy discussion that the FSC believes compliance with the AMLGN is mandatory.

### Enforcement mechanisms, supervisory actions, and sanctions
- The FSC may use mechanisms including letters of agreement, use of reporting accountants (“commissioned auditors”), and issuance of directions or conditions.
- The FSC required firms to employ reporting accountants to audit their AML systems and controls after onsite examinations identified breaches of AML/CFT controls.
- Reporting Accountants are required to fully assess discovered issues and provide:
  - systems of control improvements to which management is accountable to the FSC;
  - an action plan for remediation with target dates agreed between senior management and the FSC.
- Reporting Accountants may be further engaged to monitor the effectiveness of remediation and its attainment.
- Thirteen financial institutions have been required to undertake a remediation program on CDD for AML purposes and to implement the remediation program with regular follow-up reports to the FSC.
- The FSC may impose conditions or directions on firms for failure to comply with the AMLGNs, but no such condition or direction has been imposed on a financial institution for failure of AML/CFT systems.
- Revocation of authorization remains the ultimate sanction; no revocation of licenses has occurred for failure of AML/CFT controls.
- Fines are not part of the FSC’s sanctions. The Mission noted that fines would be a useful addition but the absence of fines does not prevent classifying the AMLGNs as “other enforceable means” for the purposes of the assessment.
- The Mission observed that sanctions have been used sparingly but that a clear ability exists for the FSC to sanction failures to comply with the AMLGNs.

### Court consideration and regulatory reform proposals
- Section 9(3) of the CJO allows a court to take into account guidelines issued by industry bodies in determining violations of the CJO by a financial institution.
- The FSC indicates the AMLGNs were drawn up in light of Section 9(3) of the CJO and are intended to interpret the CJO practically.
- The commissioner provided a proposed amendment to the FSCO to:
  - specifically include both rule-making and guidance issuance powers for the commissioner;
  - provide the commissioner the power to petition the court directly for an order of winding up without relying upon other authorities.
- The proposed amendments would enhance the commissioner’s powers.

### Overview of commercial laws and mechanisms governing legal persons and arrangements

### Companies
- Gibraltar provides for incorporation of public companies limited by shares or guarantee and private companies limited by shares or guarantee; also possible: unlimited company with share capital, a European Economic Interest Grouping, and a protected cell company (limited to insurance companies with permission from the FSC).
- The vast majority of the approximately 25,000 active companies in Gibraltar are private companies (defined as having not more than 50 shareholders).
- The number of active companies in Gibraltar has declined by approximately 5,000 since 2001.
- Companies House Gibraltar has a staff of 20 people (including several experienced company formation lawyers) and serves as the Registrar of Companies.
- Companies House is obliged to keep a public record of share ownership; this information is updated annually or whenever a change of ownership takes place.
- Gibraltar companies must file annual returns including names, nationality, profession, and address of shareholders. Failure to file may result in striking off the register and confiscation of property.
- Gibraltar’s Companies Ordinance allows nominee shareholders and corporate directors; directors need not be residents of Gibraltar.
- Bearer shares are not permissible, but “share warrants” to bearer (redeemable to their holder) are permitted; the government intends to repeal legislation relating to share warrants to bearer as part of an OECD commitment.
- All Gibraltar companies must have a registered office in Gibraltar and maintain a Register of Members (name, address, nationality and profession of all shareholders) open to public inspection.
- Companies are required to maintain accounts that give a true and fair view of assets, liabilities, financial position, and profit and loss; companies must file accounts with the Registrar in accordance with Gibraltar legislation transposing relevant EU Directives.

### Partnerships
- Limited Partnerships must register: name, nature of business, place, names of partners, terms of partnership, statement of limitations, and sums contributed, and update this information as it changes.
- Companies limited by shares may register as limited partnerships if the Registrar is satisfied they qualify.
- Limited partnerships must file annual accounts with the Registrar.
- Simple partnerships are not required to register.

### Trusts and asset protection trusts
- There are currently over 2000 trusts under administration in or from within Gibraltar by licensed service providers.
- Types of trusts include accumulation and maintenance settlements, non-interest in possession settlements, interest in possession settlements, bare trusts, discretionary trusts, and charitable trusts.
- Gibraltar trust legislation does not significantly differ from other common law jurisdictions, with English equitable principles applied via the English Law (Application) Ordinance.
- Resident trustees of domestic and foreign trusts must have and maintain information on identity of settlors, protectors and enforcers, and beneficiaries under relevant trust law and AML legislation; trustees must maintain trust deeds/declarations, letters of wishes, records of trust assets and general correspondence files.
- Except for “asset protection” trusts, trusts are not required to be registered in Gibraltar.
- Asset Protection Trusts: Gibraltar law provides for asset protection trusts under Section 42A of the Bankruptcy (Registry of Dispositions) Ordinance, explicitly exempting certain trusts from the Fraudulent Conveyances Act of 1571 as a condition of registration with the Financial and Development Secretary and the FSC.
  - Approximately 70 such trusts are registered.
  - Applications for registration must disclose: the name and address of the trustee, the name of the disposition, the date of making of the disposition and the duration thereof, and the country of ordinary residence of the settlor.
  - There is no statutory requirement to disclose beneficiaries, although AML/CFT requirements require licensed Trust or Company Service Providers to maintain such information.
- Gibraltar legislation does not proscribe the inclusion of “flee clauses” in trust instruments; trusts may include such clauses.

### Strategy, risk approach, and supervisory practice

### Strategy to prevent ML/TF and domestic cooperation
- The government of Gibraltar is very conscious of reputational risk posed by money laundering and financing of terrorism; public officials and the private sector recognize the damage from unreputable business.
- Domestic cooperation on AML/CFT is facilitated by the on-going forum of the Enforcement Committee, which brings together law enforcement, intelligence, regulatory, policy and financial development authorities and provides a mechanism for information sharing on trends and vulnerabilities.
- Gibraltar’s small jurisdiction provides operational efficiencies and appropriate gateways exist for information sharing between relevant authorities.

### Risk approach and supervisory methodology
- The government does not conduct a formal or comprehensive inter-agency risk assessment program, but the FSC and the GCID assess risks that various forms of criminality pose to Gibraltar and its financial system.
- The Financial Services Commission has adopted a risk-based approach to supervision of licensees; risk assessments are conducted on all licensees and results affect the supervisory program.
- The supervisory program was updated in 2005 to permit more accurate identification of risks in each institution; the program focuses on consistency while allowing flexibility and supervisory judgment.
- The FSC’s risk-based approach targets “areas and firms where there is a higher probability of a risk crystallizing and its impact having repercussions for consumers as well as the stability and reputation of the jurisdiction.”
- The FSC assesses six evaluation factors known as risk groups: financial soundness and capital, environment, business plan, controls, organization and management.
  - AML/CFT risk is incorporated into the controls, organization and management groups.
  - Each risk group for each financial institution is graded as either a material risk, a perceptible risk or a negligible risk.
  - The FSC uses both onsite assessments and offsite information from required filings to assess the risk groups.
- The main risk in the financial sector arises from professions (accountants and lawyers) and trust and company service providers both within and outside Gibraltar who refer clients to financial institutions for wealth management and transactional business.
  - Introduced business and situations where the “mind and management” of clients are not based in Gibraltar but transactions are executed locally are identified as especially risky and may limit ongoing monitoring and identification/reporting of suspicions.

### Progress since last IMF/World Bank assessment

- Authorities have undertaken steps to address recommendations of the last IMF assessment; the status of specific recommendations is maintained on the FSC’s Website as part of transparency of process.
- Recommendations relevant to AML/CFT have generally been addressed, including:
  - strengthening the language of the FSC’s AMLGNs;
  - eliminating the all-purpose exemption from KYC requirements available through senior management override;
  - integrating AML assessments as part of the FSC’s risk-based ongoing supervisory program with a more robust and focused on- and off-site program;
  - increasing supervisory resources;
  - extending licensing requirements to all professional trustees and company service providers;
  - addressing intermediaries in the KYC process within the AMLGNs.

### Detailed assessment — legal framework for money laundering offences

- Overview: The money-laundering offence is found in both the Criminal Justice Ordinance 1995 (CJO) and the Drug Trafficking Offences Ordinance 1995 (DTOO).
  - Prosecutors’ powers could be enhanced by replacing the CJO and DTOO with a Proceeds of Crime Act to consolidate offences and avoid the need to prove predicate offences between criminal conduct and drugs.
  - There have been very few prosecutions for money laundering in Gibraltar; two money-laundering cases from Gibraltar were overturned on appeal.
  - A training session for the bench and bar on international developments in criminal law of money laundering may be advisable.
- Ratification of conventions:
  - The United Kingdom has not extended either the Vienna Convention or the Palermo Convention to Gibraltar.
  - On April 20, 2006, the Transnational Organised Crime Ordinance came into operation bringing into effect the Palermo Convention.
- Definition and scope:
  - The statutory framework divides money laundering into two regimes:
    - (A) Money laundering with regard to the proceeds of drug trafficking;
    - (B) Money laundering with regard to the proceeds of criminal conduct, excluding drug trafficking.
  - (A) DTOO Sections 54–56 create offences for laundering proceeds of drug trafficking; DTOO reflects the government’s policy to adopt provisions of the Vienna and Palermo Conventions and the elements of the drug-proceeds money-laundering offences are consistent with both conventions.
  - Section 54 covers concealing, disguising, converting or transferring the proceeds of drug trafficking with the intent of avoiding prosecution.

*Source: IMF assessment (cr07157).*

### Section 56 covers acquisition, possession or use of such proceeds. Section 55 covers assisting another person in

### cr07157 - Section 56 covers acquisition, possession or use of such proceeds. Section 55 covers assisting another person in

### Legal and statutory framework
- The statutory regime is established by the Drug Trafficking Offences Ordinance (DTOO) and the Criminal Justice Ordinance (CJO).
- DTOO is supplemented by:
  - Drug Trafficking (Detention and Forfeiture of Cash) Rules 1995
  - Drug Trafficking (Prescribed Sum) Regulations 1995
  - Drug Trafficking Offenses Ordinance 1995 (Designated Countries and Territories) Order 1999
- Sections 2–5 of the CJO create criminal offenses for laundering proceeds of criminal conduct.
  - Section 3: acquisition, possession or use of property which represents another person’s proceeds of criminal conduct.
  - Section 4: concealing, disguising, converting or transferring his own or other people’s proceeds of crime.
- The CJO was amended in 2004 to transpose Directive 2001/97/EC (the Second Money-Laundering Directive).
  - The 2004 amendment abolished the dual criminality test for relevant financial institutions; the test is now whether the conduct would have constituted an offense in Gibraltar (DTOO) or an indictable offense in Gibraltar (CJO).

### Definition of property and the predicate connection
- Both DTOO and CJO extend to any property which in whole or in part directly or indirectly represents the proceeds of drug trafficking or criminal conduct respectively.
- Property is defined identically in both statutes (Section 2(17) DTOO; Section 44(1) CJO) as:
  - “money and all other property, real or personal, heritable or moveable, including things in action and other intangible or incorporeal property.”
- Judicial practice requires proof of a specific criminal act corresponding to a predicate offense under DTOO or CJO to establish that property is proceeds of crime.
  - A conviction is not legally required, but the Crown must prove to a criminal standard that the property is proceeds of a specific criminal conduct or of drug trafficking.
  - Exact date and location need not always be proved, but proving the juris of the funds may necessitate proving all elements of the offense.
  - This approach follows the precedent set in the UK House of Lords ruling in the Montilla case (2005).
- Implication: The requirement to prove a specific predicate offense can create an additional hurdle for ML prosecutions and may contribute to a low rate of money laundering charges relative to charges for predicate offenses.

### Extraterritoriality and self-laundering
- Extraterritorial predicate offenses:
  - Under DTOO and CJO, where proceeds derive from conduct in another country that would have been a predicate offense had it occurred in Gibraltar, a money-laundering offense may be charged in Gibraltar (see Section 5(7) CJO; Section 57(7) DTOO).
- Self-laundering:
  - Money-laundering offenses apply to persons who also committed the predicate offense; prosecution for self-laundering is possible (Section 4 CJO; Section 54 DTOO).

### Predicate offense categories (threshold approach: 1 year)
- All designated categories of offenses must be indictable offenses for predicate purposes. Offenses triable either way have been treated as indictable for assessment.
- Listed predicate categories and statutory references include (selection preserved verbatim):
  - Participation in an organized criminal group and racketeering: Part IV Criminal Offenses Ordinance; Section 11 Criminal Offenses Ordinance.
  - Terrorism, including terrorist financing: Sections 10 and 30 Terrorism Ordinance 2005; Article 11 Terrorism (United Nations Measures) (Overseas Territories) Order 2001.
  - Trafficking in human beings and migrant smuggling: Section 63A Immigration Control Ordinance; Sections 62–65 Immigration Control Ordinance—Summary only offenses.
  - Sexual exploitation, including sexual exploitation of children: Sections 121–137 Criminal Offenses Ordinance.
  - Illicit trafficking in narcotic drugs and psychotropic substances: Section 59 Drug Trafficking Offenses Ordinance 1995.
  - Illicit arms trafficking: Paragraph 2 Export Control (Sanctions etc.) Order 2005; Export Control Ordinance (2005) Schedule 1; Regulation 5 Export of Goods (Control) Regulations 1997; Section 14(1)(f) Imports and Exports Ordinance (1986); Section 3 Firearms Ordinance (1958).
  - Illicit trafficking in stolen and other goods: Section 183 Criminal Offenses Ordinance.
  - Corruption and bribery: Sections 236–239 Criminal Offenses Ordinance.
  - Fraud: Sections 196–200 Criminal Offenses Ordinance.
  - Counterfeiting currency: Sections 223–232 Criminal Offenses Ordinance.
  - Counterfeiting and piracy of products: Sections 128, 237, 240 and 256 Intellectual Property (Copyright and Related Rights) Ordinance 2005; Merchandise Marks Ordinance Sections 3–5; Tobacco Ordinance 1997 (export of cigarettes requires license—failure is summary only and therefore not a predicate).
  - Environmental crime: Section 11 Environmental Protection (Disposal of Dangerous Substances) Ordinance, 2000—either way offence; Public Health Ordinance—summary only offenses.
  - Murder, grievous bodily injury: Section 59 Criminal Offenses Ordinance (Murder); Section 75 Criminal Offenses Ordinance (Grievous Bodily Harm with Intent); Section 76 Criminal Offenses Ordinance (Grievous Bodily Harm).
  - Kidnapping, illegal restraint and hostage-taking: Section 143 Criminal Offenses Ordinance (Kidnapping of children); Sections 138–142 Criminal Offenses Ordinance (Abduction of women and heiresses); common law offenses for kidnapping of men (False Imprisonment and Kidnapping).
  - Robbery or theft: Sections 170–177 Criminal Offenses Ordinance (Theft); Section 178 (Robbery).
  - Smuggling: Sections 102–106 Imports and Exports Ordinance and Drug Trafficking Offenses Ordinance.
  - Extortion: Section 204 Criminal Offenses Ordinance (Demand with Menaces).
  - Forgery: Sections 206–217 Criminal Offenses Ordinance.
  - Piracy: Tokyo Convention Act 1967 (Overseas Territories Order); 1968 Hijacking Act 1971 (Overseas Territories) Order 1971; application by derogation from the UK to Gibraltar of piracy offenses from English Piracy Acts of 1698 and 1867 and Piracy Act of 1722.
  - Insider trading and market manipulation: Section 9 Market Abuse Ordinance; Paragraphs 1 and 3 of Schedule 1 derived from Directive 2003/6/EC. Noted risk: defenses are cast very broadly and may create broad exceptions that could impair offenses; no other legislation regarding conduct of investment firms in the market is in place to curb such broad defenses.

### Ancillary offenses, mental element, intent and legal persons
- Ancillary offenses:
  - Attempts: Sections 7 and 8 of the COO; wide application and conviction for attempt may carry same punishment as substantive offense where no separate penalty is specified.
  - Accessory offenses: Section 9 COO.
  - Conspiracy: Sections 11–13 COO; penalties match underlying crime and may be higher; conspiracy to commit money laundering maximum penalty would be 14 years.
  - Aiding and abetting, counseling and procuring: Section 17 COO—such persons can be indicted, tried and punished as principal offenders.
  - Assisting offenders (including assistance in concealing or transferring proceeds): Section 18 COO—penalties include seven years where the principal offense carried 14 years and the person had not been previously convicted.
  - Concealment of offences and false information: Section 19 COO—sentence of two years.
- Mental element:
  - Sections 54 DTOO and 2(1) CJO: mental standard is “knowing or having reasonable grounds to suspect that the property is in whole or in part directly or indirectly represents another person’s proceeds of criminal conduct (drug proceeds).”
  - Other money-laundering offenses listed use the standard “knowingly.”
- Intent:
  - Section 4 COO allows inferences as to intent to be drawn by reference to all the evidence; courts/juries are instructed to consider facts objectively.
  - English common law standard for reasonable inferences (the “man on the Clapham omnibus” test) applies in addition.
- Legal persons:
  - Criminal liability extends to corporations by Section 2 of the Interpretation and General Clauses Ordinance (person includes corporations, clubs, societies, other bodies).
  - Liability of company officers: Section 201 COO; false statements by company directors: Section 202; suppression of documents: Section 203.
  - Trusts are not legal persons; trustee may be a corporate entity and thus captured, but trusts themselves cannot be charged.
  - Majority of trusts conducting transactions in Gibraltar are foreign trusts with trustees in other jurisdictions; Gibraltar authorities face resource constraints and often provide mutual legal assistance rather than prosecute foreign trustees domestically.

### Sanctions and enforcement tools
- The attorney general has discretion to charge either summarily or by indictment for either-way offenses.
- For indictment: sanctions include 14 years’ incarceration and possible fines, in addition to confiscation of proceeds of crime.
- Corporate defendants: fines, confiscation, and possible winding up via Schedule 10 Companies Ordinance. Both incarceration and unlimited fines are permitted for individual defendants.
- Separate sanctions by the Financial Services Commission (FSC) are available where an individual is an FSC registrant.
- Criminal charges cannot be brought against a trust (trust is not a “person”), but the trustee or settlor could be charged. The attorney general may freeze trust assets if evidence supports a freezing action.

- Summary of available sanctions under Drug Trafficking Offenses Ordinance 1995 (preserved verbatim):
  - Section 54, concealing or transferring the proceeds of drug trafficking.
    - Maximum imprisonment six months, fine up to £2,000 or both (Summary conviction).
    - Maximum imprisonment 14 years, unlimited fine or both (Conviction on indictment).
  - Section 55, assisting another person to retain the benefit of drug trafficking.
    - Maximum imprisonment six months, fine up to £2,000 or both (Summary conviction).
    - Maximum imprisonment 14 years, unlimited fine or both (Conviction on indictment).
  - Section 56, acquisition, possession or use of proceeds of drug trafficking.
    - Maximum imprisonment six months, fine up to £2,000 or both (Summary conviction).
    - Maximum imprisonment 14 years, unlimited fine or both (Conviction on indictment).
  - Section 57, failure to disclose knowledge or suspicion of money laundering.
    - Maximum imprisonment six months, fine up to £2,000 or both (Summary conviction).
    - Maximum imprisonment 5 years, unlimited fine or both (Conviction on indictment).
  - Section 58, tipping-off.
    - Maximum imprisonment six months, fine up to £2,000 or both (Summary conviction).
    - Maximum imprisonment 5 years, unlimited fine or both (Conviction on indictment).
  - Section 3, confiscation order: available in respect of the defendant’s own drug trafficking. The level of confiscation is dependent on a determination of the amount by which the defendant is found to have benefited from drug trafficking.
- Drug Trafficking (Detention and Forfeiture of Cash) Rules 1995:
  - Importation or exportation of cash that is proceeds of drug trafficking or intended for use in drug trafficking.
    - Forfeiture of cash (if more than £10,000)
- Summary of available sanctions under Criminal Justice Ordinance 1995 (preserved verbatim):
  - Section 2, assisting another to retain the benefit of criminal conduct.
    - Maximum imprisonment 6 months, fine up to £5,000 or both (Summary conviction).
    - Maximum imprisonment 14 years, unlimited fine or both (Conviction on indictment).
  - Section 3, acquisition, possession or use of property representing proceeds of criminal conduct.
    - Maximum imprisonment 6 months, fine up to £5,000 or both (Summary conviction).
    - Maximum imprisonment 14 years, unlimited fine or both (Conviction on indictment).
  - Section 4, concealing or transferring proceeds of criminal conduct.
    - Maximum imprisonment 6 months, fine up to £5,000 or both (Summary conviction).
    - Maximum imprisonment 14 years, unlimited fine or both (Conviction on indictment).
  - Section 5, tipping-off.
    - Maximum imprisonment 6 months, fine up to £5,000 or both (Summary conviction).
    - Maximum imprisonment 5 years, unlimited fine or both (Conviction on indictment).
  - Section 9, systems to prevent money laundering.
    - Fine up to £5,000 (Summary conviction).
    - Maximum imprisonment 2 years, unlimited fine or both (Conviction on indictment).
  - Section 10, offenses by bodies corporate, partnerships and unincorporated associations.
    - Fine up to £5,000 (Summary conviction).
    - Maximum imprisonment 2 years, unlimited fine or both (Conviction on indictment).

*International Monetary Fund*

### Section 23, confiscation order. This is available in respect of the defendant’s own conduct. The level

### Section 23, confiscation order

### Confiscation order (availability and basis)
- A confiscation order is available in respect of the defendant’s own conduct.
- The level of confiscation is dependent on a determination of the amount by which the defendant is found to have benefited.

### Prosecutions, convictions, and implementation (money laundering)
- Gibraltar authorities have not successfully prosecuted anyone on a money-laundering charge.
- In the last four years there have been 17 arrests for money-laundering offences; in some cases charges were laid.
- There have been no successful prosecutions and in the vast majority of cases charges have been dropped because of:
  - difficulties associated with proving the predicates committed abroad, or
  - legal challenges to the process (one significant case).
- There is currently one charge of money laundering outstanding.
- The attorney general’s office does not keep statistics on the number of prosecutions, convictions or charges for money laundering; the police keep statistics on the number of charges laid for money laundering.
- Implementation note from Gibraltar authorities: they have been involved in complex international money-laundering cases and have attempted to bring charges in some of them, but with limited success.

### Case examples (summaries from authorities)
- Cross-border stolen vehicle: A car stolen in France was discovered in Gibraltar; the defendant was charged with handling stolen property and money laundering, but after the car was returned to France the French authorities were not interested in pursuing the case and the case was dismissed.
- Alleged laundering of proceeds of fraud in Spain:
  - Six people were arrested in connection with money laundering.
  - A successful judicial review in the Supreme Court required the Crown to prove to a prima facie level that a predicate offense had been committed prior to investigation.
  - The prosecutor successfully appealed to the Court of Appeal; the Privy Council upheld the Court of Appeal decision.
  - Defendants had fled; the case is still pending but no charges have been laid since the appeal decision.
  - Spanish authorities reportedly have tended not to recognize Gibraltar’s jurisdiction and have refused to permit Spanish investigators to give evidence in Gibraltar’s courts.
- Two local men accused of money-laundering activities in the UK:
  - Local authorities cooperated with UK authorities.
  - The UK prosecution was stayed for abuse of process on the basis of alleged "state-created crime" (entrapment).
  - The UK judge stated that one Gibraltarian defendant’s conduct, “based on his admissions”, was incompatible with continued membership of the bar; the defendant claimed he was moving money for a client engaged in tobacco smuggling.
- Foreign national with Gibraltar bank accounts:
  - A local financial institution disclosure alerted local authorities to assets in Gibraltar; information was passed to foreign authorities.
  - Local authorities were unable to restrain the assets because the matter did not involve drug trafficking.
  - The Attorney and police assisted foreign authorities in obtaining a civil restraint order through a local solicitor.
  - Pursuant to a global settlement, the defendant agreed to disgorge the proceeds and to cease doing business in Gibraltar; no extradition request was made and no charges were filed.
- Involvement of Gibraltar professionals in international transactions:
  - Local bar confirmed active practice in litigation discovery and injunction issues in civil fraud cases involving Gibraltar companies.
  - Reference to the unresolved matter involving Stephen Curtis (London lawyer based in Gibraltar, managing director of Group Menatep) highlights potential involvement in extremely complicated international transactions.

### Attorney general’s prosecutorial approach and resource allocation
- The attorney general’s view: to secure a conviction for money laundering the Crown would need to prove the predicate crime to a criminal standard in a Gibraltar court.
- Because most predicate offenses occur abroad, the attorney general has chosen to use limited resources to grant mutual legal assistance to a number of countries.
- Resource allocation: 2.5 person-years of his seven-person office are devoted to international matters.
- Where the predicate offense takes place in Gibraltar, the attorney general considers adding a separate money-laundering charge to be superfluous.
- Legal standard reference: The Montilla case (2005) in the House of Lords held that the prosecution cannot rely on proving that a person suspected he was laundering proceeds of crime; the prosecution must prove that the provenance of the monies was in fact illicit.
- The attorney general would need to prove the type of offence that generated the proceeds of crime; relying on proving a “proceeds of crime” predicate is not enough because there are two separate money-laundering offences under the CJO and the DTOO.

### Policy implications and operational concerns
- Prosecutions and convictions have a powerful deterrent effect; without them authorities must rely on professional integrity and regulatory oversight to ensure AML/CFT compliance.
- Money-laundering risk in Gibraltar is lodged principally in the professional sector; several Gibraltarian professionals have been implicated in foreign prosecutions.
- Gibraltar authorities are advised to redouble efforts to follow up on credible suspicions or intelligence and aggressively pursue money-laundering cases involving professional advisors, subject to proof of the predicate crime.

### Recommendations and comments (criminal law and operational)
- Consolidate the ML offences laid out in the DTOO and the CJO into one consolidated ordinance to avoid a two-track approach to the ML offence.
- Criminalize migrant smuggling as an indictable offence so that it may be considered a predicate offence for money laundering.
- Consider criminalizing the export of cigarettes as an indictable offence (rather than a summary conviction only offence) so it becomes a predicate crime for money laundering as part of the required category of offences for “illicit trafficking in stolen and other goods.”
- Consider charging domestic persons in the financial industry with money laundering when a mutual legal assistance request reveals complicity by Gibraltar residents.
- Hold seminars for the bench and bar on money-laundering prosecutions.
- Maintain statistics on the number of charges laid, the number of prosecutions brought and the number of convictions for money-laundering offences.

### Compliance with FATF Recommendations (money laundering)
- R.1 — Partially compliant
  - Factors: Migrant smuggling is not an indictable offense and so is not a predicate offence for money laundering; very few cases of money laundering have been charged in the eleven years since the offense was enacted; only 17 arrests in the last four years, no prosecutions, no convictions and only one case currently under investigation.
- R.2 — Compliant
  - This Recommendation is fully met.
- R.32 — Partially compliant
  - No statistics kept by the attorney general on prosecutions and convictions. The police have statistics on the number of money-laundering charges laid.

### Criminalization of terrorist financing (SR.II & R. 32)
- Terrorist financing is an “either way” offense and is criminalized by:
  - Terrorism Ordinance 2005 (TO);
  - Terrorism (United Nations Measures) (Overseas Territories) Order 2001 (UN Order 2001);
  - Terrorism (United Nations Measures) (Overseas Territories) Order 2001—New Consolidated List Pursuant to Security Council Resolutions 1267 (1999) and 1333 (2000) (UN Consolidated List Order);
  - Al-Qaida and Taliban (United Nations Measures) (Overseas Territories) Order 2002 (UN Order 2002).
- TO Section 5 creates three offenses: (i) inviting another person to provide money or property, (ii) receiving money or property, (iii) providing money or property knowing or having a reasonable suspicion that it would be used for the purposes of terrorism.
- TO Sections 6, 7, and 8 prohibit use of money for terrorism, arranging for funds to become available for terrorism, and arrangements facilitating retention and control of terrorist property.
- Definition of terrorist property (TO Section 4):
  - (a) money or other property which is likely to be used for the purposes of terrorism;
  - (b) proceeds of the commission of acts of terrorism;
  - (c) proceeds of acts carried out for the purposes of terrorism.
- UN Order 2001 Section 2 defines “funds” as “financial assets and economic benefits of any kind including (but not limited to) gold coins, gold bullion, cash, checks, documents evidencing an interest in funds or financial resources and any other instrument of export financing” and aligns with Article 1 of the ICSFT.
- Link to terrorist act: Sections 5, 6, and 7 only require a link to terrorism; terrorism is defined by TO Section 3 to include actions designed to:
  - (i) intimidate the public;
  - (ii) compel the government to perform or abstain from performing any act;
  - (iii) destabilize or destroy the government or the economic or social structure of Gibraltar; and actions that result in death, serious bodily violence, serious damage to property, endanger a person’s life.
- Attempt: Attempt of terrorist financing is not specifically provided for in the TO or UN Order 2001; general provisions of the CPO apply.
- Ancillary offenses: regulated by the CPO.
- Predicate offense for ML: Financing of terrorism, when charged as an indictable offense, would be a predicate offense for ML; charging mode (indictable or summary) is at the attorney general’s discretion.
- Extraterritoriality: TO Section 3 and Section 27 indicate financing of terrorism may relate to actions or persons outside Gibraltar.
- Intentional element: In the absence of judicial case law, the intentional element can be inferred from objective factual circumstances under Section 4 of the COO and English common law.
- Liability of legal persons:
  - Section 2 of the Interpretation and General Clauses Ordinance extends criminal liability for financing of terrorism to legal persons (trusts are not legal persons; trustees would be charged).
  - TO Section 30(1), (2), (3), (4) sets out liability of bodies corporate, officers, and potential court remedies including declaration of ineligibility for public benefit or disqualification from commercial activities.
- Sanctions:
  - Under Section 10 of the TO, indictable offenses carry a maximum penalty of 14 years in prison as well as monetary penalties.
  - Under Section 11 of the UN Order 2001, a person may be subject to seven years in prison and, under Section 11(4) for corporate vehicles, winding up and other measures may be sought.
- Implementation: Gibraltar has issued targeted freezing orders on two occasions related to specific terrorist incidents under Section 5 of the UN Order 2001; in neither case was a person charged as neither of the beneficial owners of the accounts were located in Gibraltar.

### Compliance with FATF Recommendations (terrorist financing)
- SR.II — Compliant
  - This Recommendation is fully met.
- R.32 — Partially compliant
  - The attorney general does not keep statistics.

*Source: IMF assessment of Gibraltar AML/CFT framework (Section 23).*

### 1.3  Confiscation, freezing and seizing of proceeds of crime (R.3 & 32)

### 1.3  Confiscation, freezing and seizing of proceeds of crime (R.3 & 32)

### Confiscation framework
- Legal framework reflected in five statutes: The Criminal Justice Ordinance 1995 (CJO), the Drug Trafficking Offences Ordinance 1995 (DTOO), the Drugs (Misuse) Ordinance 1973, the Criminal Procedure Ordinance 1961 (CPO), and the Terrorism Ordinance 2005 (TO).
- CJO (Section 23):
  - Provides for confiscation of property obtained as a result of or in connection with a conviction for any indictable offense other than a drug trafficking offence.
  - Confiscation proceedings must be initiated through a request by the prosecutor.
  - A confiscation order may issue where the offender derived ₤10,000 or more in “benefit” (pecuniary advantage or value of property obtained).
  - Orders specify the amount to be recovered; they do not target particular assets.
  - Standard of proof: preponderance of the evidence (civil standard).
  - Court may consider information that a victim has instituted or intends to institute civil proceedings (CJO, Section 24(3)).
- DTOO (Section 3 and Section 6):
  - Provides for conviction-based confiscation of benefits from a drug trafficking offense.
  - Proceedings may be initiated by prosecutor or by the court.
  - Standard of proof: preponderance of the evidence (civil standard).
  - Subject to practical limitations by ability to pay, allows confiscation of the full value of a defendant’s proceeds from drug trafficking.
  - Orders specify amounts to be recovered and do not target particular assets.
  - Court generally obliged to apply a rebuttable presumption that property obtained by the defendant over the past six years constitutes proceeds subject to confiscation.
- Drugs (Misuse) Ordinance 1973 (Section 28):
  - Provides for conviction-based forfeiture of anything shown to relate to a drug offense, including instrumentalities.
  - Proof required to criminal standard: beyond a reasonable doubt.
- Criminal Procedure Ordinance 1961 (Section 248):
  - Provides for conviction-based confiscation of instruments used in or intended to be used in the commission of an offense.
  - Applies only to property seized from the offender or in possession/control at the time apprehended or when a summons was issued; does not provide for confiscation of instrumentalities identified or seized subsequently.
- Terrorism Ordinance 2005 (Section 11):
  - Provides for conviction-based forfeiture related to raising funds for terrorism, providing money or property usable for terrorism, using money/property for terrorism, arranging funds, or arranging retention/control of terrorist property.
  - Forfeiture orders may extend to money or property in the defendant’s possession or control at the time of the offense that was intended to be used for an offense, and to property related to arrangement offenses.
  - De facto covers proceeds of raising funds for terrorism and proceeds used to finance terrorism.
  - TO is the only statute noted that provides for confiscation of proceeds of a criminal organization (terrorist organization).

### Property derived indirectly from proceeds of crime
- CJO Section 2(2): proceeds include any property which in whole or in part directly or indirectly represented in the offender’s hands his proceeds of criminal conduct.
- DTOO Section 5(1): proceeds include any payment or other reward received in connection with drug trafficking carried out by the person or any third person; value is aggregated value of all payments or rewards.
- Both statutes provide for calculation of “realizable property” to account for market valuations, interest, subsequent changes in value of money, and discounts for sham or undervalued sales (CJO Sections 27(4) and 36; DTO Sections 8–11).
- TO Sections 5–11 provide for forfeiture of property involved in arrangements designed to facilitate retention or control of property by terrorists.

### Property held by a third party
- CJO Section 27 and DTOO Section 7(2): confiscation orders extend to property held by a person to whom the defendant has directly or indirectly made a gift.
- Confiscation orders under CJO and DTOO are against the defendant/offender for a specific sum, not particular property; amount calculated on benefit from the underlying crime(s).
- Statutes provide for payment of preferential debts (e.g., bankruptcy, tax obligations).
- TO Section 11(6): subject to notice and opportunity to be heard, court may order forfeiture of any money or property wholly or partly received as payment or reward in connection with commission of the offence.

### Provisional measures (restraint and charging orders)
- CJO Sections 29–31 and DTOO Sections 26–29 provide for restraint orders and charging orders in domestic cases in substantially identical terms.
- Restraint and charging orders can be issued:
  - When criminal proceedings against the defendant have been instituted and are ongoing and either a confiscation order has been made or it appears that one will be made;
  - After a confiscation order is already in effect when the court finds the order was made for less than the actual value of proceeds and greater amounts might be realized; or
  - Before criminal proceedings have been instituted, if the court is satisfied a person will be charged and a confiscation order may be made.
- Restraint and charging orders can be applied to all “realizable” property or interests held beneficially by the defendant or by persons to whom the defendant has gifted property.
- Charging orders may be imposed on land, securities, trustee interests, units of a unit trust, and interest and dividends payable on the property.
- Provisions exist for authorities to take possession of property subject to orders or to appoint receivers.

### International and external confiscation measures
- DTOO (Designated Countries and Territories) Order 1999, Section 26:
  - Gibraltarian court may issue a restraint or charging order if proceedings against a defendant have been instituted and are ongoing in any designated country and an External Confiscation Order has been made, or where proceedings may be instituted and an External Confiscation Order reasonably may be made.
  - An External Confiscation Order is defined as “an order made by a court in a designated country for the purpose of recovering payments or other rewards received in connection with drug trafficking or their value.”
  - Order may be issued upon application by a government of a designated country.
  - Authorities plan to enact legislation extending this power to all countries party to the UN Transnational Organized Crime Convention (UNTOC).
- As of the time of the report, 27 countries were listed in Schedule1 of the DTOO order (Anguilla, Australia, the Bahamas, Bahrain, Barbados, Bermuda, Canada, The Cayman Islands, Denmark, Guernsey, Hong Kong, India, Isle of Man, Italy, Jersey, Malaysia, Montserrat, Netherlands, Nigeria, Saudi Arabia, South Africa, Spain, Sweden, Switzerland, United Kingdom, United Mexican States, and United States of America).

### Provisional measures for terrorist financing
- Terrorism (United Nations Measures) (Overseas Territories) Order 2001 Section 5, Al-Qaida and Taliban (United Nations Measures) (Overseas Territories) Order 2002 Section 8, and TO Section 13 provide for provisional measures in connection with terrorist financing matters.

### Non-consent letters and STR-related freezing
- Gibraltar’s suspicious transaction reporting (STR) regime enables “freezing” effects via “consent” or “non-consent” letters issued by the Gibraltar Financial Intelligence Unit (GFIU) in response to each STR.
- Section 2(3) of the CJO: making a disclosure is a defense to a money-laundering charge, but the discloser remains potentially criminally liable for acts facilitating another’s retention or control of proceeds unless such act is done with consent of the police or customs service.
- Until a reporting institution receives a “consent” letter from the GFIU, it proceeds with transactions at its peril and will often cease activity on an account while authorities decide.
- Authorities advised that general operational guidelines for processing consent and non-consent letters are being considered.
- Assessment view: legal authority for issuing a “non-consent” letter is somewhat tenuous; no regulations or guidelines set criteria for consent/non-consent decisions or duration of non-consent letters; non-consent letters may create a legal dilemma for filers.

### Bank of Scotland orders
- Filing institutions that suspect client accounts may be involved in crime or fraud may face a conflict between potential liability in equity if they pay out moneys and the risk of “tipping off” under Section 5 of the CJO and Section 58 of the DTOO.
- Institutions in Gibraltar have sought court orders (known as “Bank of Scotland” orders) that set forth what information the institution may rely upon to defend subsequent actions challenging freezes; government appears as the other party; such orders justify continuing freezes.

### Ex parte applications
- CJO Section 5, DTOO Section 27(1), and TO Section 13(4) provide for ex parte applications by the prosecutor for restraint orders.
- DTO (Designated Countries and Territories) Order 1999 Section 27(4) allows governments of designated countries to apply ex parte for restraint orders.
- Under Section 5 of the Terrorism (UN) Order 2001 the governor may direct that funds be frozen on reasonable grounds for suspecting the funds are held for or on behalf of a person who commits, facilitates, or participates in acts of terrorism.

### Legal powers to identify and seize assets
- CPO contains compulsory powers for arrest and search for evidence.
- CPO Section 25: courts may issue search warrants to search premises, vessels, vehicles, boxes, receptacles or places; seize items necessary for investigation and carry them before magistrates’ court; warrants issued upon showing of reasonable cause.
- Supreme Court may issue subpoenas duces tecum for documents in criminal matters upon showing reasonable cause that documents are of substantial value to an investigation.
- Targets of search warrants or subpoenas may seek limitation or quashing if overbroad or unjustified.
- DTOO Sections 60 and 61:
  - Police or customs with reasonable grounds suspecting drug trafficking may apply ex parte for production orders or search warrants.
  - Section 60(9) addresses information retained in a computer; authorities authorized to take possession of relevant material.
- DTOO Section 48:
  - Grants customs and police authority to seize and detain cash (currency) being imported into or exported from Gibraltar upon reasonable grounds for suspecting it represents proceeds of drug trafficking or is intended for use in drug trafficking.
  - Applies only to amounts of ₤10,000 or more.
  - Currency seized may be held for 48 hours, after which continued detention must be authorized by a justice of the peace upon a finding that reasonable grounds exist and continued detention is justified while origin is investigated.
  - Orders by justice of the peace may extend up to three months, renewable in three month intervals up to a total period of two years from the first such order.
  - If, during detention under Section 48, a magistrate finds on a preponderance of the evidence that the cash represents proceeds of drug trafficking or is intended for use in drug trafficking, the court may order forfeiture of the cash.
  - This is the only mechanism in Gibraltar for confiscation of proceeds of crime without a conviction; no similar provision for suspicion-based seizure of cash suspected to be proceeds of crimes other than drug trafficking.
- Police and customs officers assigned to the GFIU may request additional information from reporting institutions as follow-up to STRs under general police powers; some reporting institutions refuse without legal process, others have informal communications; final responsibility for reporting disclosures rests with the reporting entity.
- Assessment team could not locate clear guidance addressing appropriate behavior of police or reporting institutions in this area.

### Rights of bona fide third parties
- Confiscation and forfeiture statutes generally protect bona fide third parties’ rights to retain assets and collect legitimate debts.
- CJO Section 33(8), DTOO Sections 23 and 30(8), and TO Section 11(7) provide that persons holding an interest in confiscated property have the right to make representations before final confiscation.

### Provisions to counter disposal of assets subject to confiscation
- Statutes give broad discretion to courts to make factual determinations, including findings related to attempts by defendants to conceal or dispose of assets (e.g., DTOO Sections 7–20; CJO Sections 26, 33–37).
- Authorities reported that contracts entered to further a criminal offence are void under common law rule that a contract tainted with illegality is voidable; courts consider individual circumstances and public policy issues where one party may not have intended to commit fraud against the state.

### Reversed burden of proof (drug trafficking)
- DTOO Section 5:
  - Court required to apply a rebuttable presumption in drug trafficking cases that:
    - (a) any item held by the defendant at any time since his conviction or transferred to him during the six year period prior to proceedings constitutes proceeds of drug trafficking;
    - (b) any item of expenditure during the six year period was met out of such proceeds; and
    - (c) for purposes of valuing any item of property received by him, he received the property free of any other interests in it.
  - Presumption does not apply to confiscation proceedings for crimes other than drug trafficking.

### Implementation and statistics
- Authorities do not maintain statistics on assets frozen, seized, or confiscated under the various authorities.
- Attorney general and chambers, Supreme Court judges, police and customs demonstrated understanding of authorities and described cases where powers were used.

*Source: IMF — 1.3 Confiscation, freezing and seizing of proceeds of crime (cr07157).*

### Section 248 of the CPO is used with some regularity to seize vehicles and other instrumentalities linked to

### cr07157 - Section 248 of the CPO is used with some regularity to seize vehicles and other instrumentalities linked to

### Asset forfeiture and narcotics-related seizures
- Section 248 of the CPO is used with some regularity to seize vehicles and other instrumentalities linked to narcotics crimes.
- Customs authorities have seized more than a ₤250,000 being carried across the border since 1995.
- Examples of major narcotics-related forfeitures:
  - A multinational operation led to boarding of a yacht that crossed the Atlantic from the Caribbean and moored in Gibraltar; 500 kilograms of cocaine were found hidden on board. The drugs and yacht were forfeited, and the defendants were convicted to 10–year prison sentences in Gibraltar.
  - Authorities confiscated ₤40,000 in a UK-based drug trafficking case.

### Cross-border cooperation and civil restraint measures
- A foreign national with an active presence as a company service provider in Gibraltar was investigated by foreign authorities; a disclosure from a local financial institution alerted local authorities to assets in Gibraltar.
- Local authorities could not restrain the assets because the matter did not involve drug trafficking and the investigation was ongoing.
- The attorney general and police assisted foreign authorities to obtain—through a local solicitor acting on their own behalf—a civil restraint order against the proceeds.
- Outcome: pursuant to a global settlement, the defendant agreed to disgorge the proceeds and to cease doing business in Gibraltar.

### Legal framework, problems, and suggested consolidations
- Gibraltar’s asset forfeiture and confiscation regime reflects the transposition of English law; the DTOO and CJO are substantially identical in many respects but contain important differences in the confiscation area.
- Domestic authorities find the split between the CJO and DTOO problematical, especially when dealing with suspect moneys whose provenance cannot clearly be traced to drug trafficking.
- Recommendation to consolidate the asset forfeiture provisions of the CJO and DTOO, taking advantage of the best features of each:
  - Extend reversal of burden of proof provisions beyond drug-related confiscation to all crimes.
  - Allow cash seized at the border to be detained on suspicion that it is proceeds of or intended to be used in any crime, not just drug trafficking.
- Recommendation to enact proposed legislation extending to all states that are parties to the UNTOC the ability to enforce external confiscation orders.
- Recommendation to clarify the authority of the GFIU to issue “non-consent” letters and provide guidelines for their use.
- Recommendation to maintain consolidated asset confiscation and forfeiture statistics.

### Terrorism financing: legal authorities and practice
- The United Kingdom has issued two significant terrorism orders to implement UN resolutions on terrorist financing throughout the UK and its overseas territories; Gibraltar enacted a Terrorism Ordinance 2005 to elaborate criminal provisions and restraint order powers.
- Sections 7–10 of the Al Qaida and Taliban (United Nations Measures) (Overseas Territories) Order 2002 implement sanctions under UNSCR 1267:
  - Section 7 implements sanctions against listed persons.
  - Section 8 sets forth the governor’s power to issue by notice a freezing order directed at particular financial assets, economic benefits and economic resources upon reasonable grounds to suspect they are held by, for or on behalf of any individual listed pursuant to UNSCR 1267 (1999).
- Section 5 of the Terrorism (United Nations Measures) (Overseas Territories) Order 2001 vests the governor with power to issue by notice a freezing order where there are reasonable grounds to suspect assets are held by, for, or on behalf of a person committing or facilitating terrorist activity.
- EC regulation 2002/881 (implementing UNSCR 1267) applies to Gibraltar; funds and economic resources belonging to listed persons/groups/entities in the regulation’s annex shall be frozen.
- UNSCR 1373 is implemented through EU common position 2001/931/CSFP and EC Regulation 2580/2001; EC Regulation 2580 applies only for non-EU citizens; for EU “domestic terrorists” freezing requires bilateral agreement pursuant to a framework decision dated April 15, 2003.
- Gibraltar law addresses the gap for EU “domestic terrorists” that EC Regulation 2580 does not cover.

### Institutional practice, gaps, and operational experience
- Aside from the obligation to report suspicious transactions, Gibraltar law/regulation impose no specific obligation on financial institutions to inform competent national authorities about assets they have frozen pursuant to the UNSCR list and EC regulations; the FSC has issued no guidance to licensees concerning affirmative obligations to implement measures with respect to the UNSCR list and EC regulations.
- Restraint orders under the Terrorism Ordinance 2005:
  - Section 13 provides for issuance of a restraint order upon ex parte application to the Chief Justice where an investigation is ongoing or proceedings have been instituted for an offense under the Act and a forfeiture order has been or is expected to be made.
  - Section 13(2)(b) allows court flexibility with respect to accepting applications from the prosecutor or “a person who the .Court is satisfied will have the conduct of any proceedings for the offence.”
- Orders issued by the governor under the Al Qaida and Taliban Order 2002 and the Terrorism Order 2001 may be issued for a limited or unlimited amount of time; a violation constitutes an offense under the Terrorism Ordinance 2005.
- The Orders do not explicitly (a) provide that a freezing order can be made without delay and prior notice; (b) elaborate procedures to follow when issuing a freezing notice; or (c) designate a party responsible for administering frozen funds or enforcing freezing/unfreezing actions.
- Operational practice: RGP special services have investigative lead, the attorney general prepares applications, and the governor issues orders promptly and without prior notice where necessary; Gibraltar authorities have invoked the governor’s authority under the Terrorism Order 2001 on two occasions to issue freeze orders directed at specific Gibraltar institutions suspected of holding terrorist funds.
- Communication to financial sector:
  - The Financial Services Commission (FSC) monitors UN press releases concerning individuals/entities listed under UNSCR 1267 and EC Regulation 881 and notifies licensed firms promptly of list changes via an e-mailing list maintained through the FSC’s database.
  - Freeze orders previously issued have been directed confidentially at specific institutions or persons; an order of general applicability could be communicated via the official gazette and the FSC e-mail alert system and website.
- Guidance and compliance gaps:
  - The FSC’s Anti-Money-Laundering Guidance Notes (AMLGNs) contain no guidance concerning obligations to freeze funds of designated terrorists or to check accounts against UN or EU lists; FSC’s website links to lists but lacks guidance.
  - International banks operating in Gibraltar largely comply with UN and EU expectations; other licensees showed significant lack of knowledge of obligations and would benefit from FSC guidance.
- Notification requirement under Orders: financial institutions holding frozen assets must send without delay a copy of the received notification to the person whose funds have been frozen or on whose behalf they are held; failure to do so is an offense under both Orders.

### Delisting, unfreezing, and remedies
- No authority has promulgated formal procedures for delisting requests or unfreezing funds when a person/entity is removed from international lists.
- Practically, unfreezing would involve joint action by the FSC, the attorney general, RGP special services, the governor, and the Chief Justice as necessary.
- Recommendation: the Enforcement Committee should develop procedures for delisting requests and an appropriate entity (the Government or the FSC) should publish them.
- Under both Orders the governor can revoke a freezing order at any time; neither the Orders nor the TO include specific listing/delisting procedures.
- Access to frozen funds: Sections 13–14 of the TO provide for exceptions and conditions to be included in restraint orders; the Terrorism Orders provide for licenses.
- Remedies before courts: both Orders allow persons on whose behalf funds are frozen to apply to the Supreme Court for the freezing order to be set aside; applicants must provide the governor with a copy of the application and all supporting witness statements or affidavits at least seven days before the hearing.
- No general procedure exists for protecting rights of bona fide third parties except in the homonym case.

### Effectiveness, monitoring, and identified deficiencies
- Gibraltar authorities have successfully issued freeze orders promptly on two occasions based on intelligence from foreign liaison.
- Deficiencies identified:
  - Aside from international banks, many financial services providers and licensees lack knowledge of the international asset freezing regime.
  - The FSC has failed to update guidance notes, develop appropriate procedures, and communicate clear expectations (including sanctions for non-compliance) to licensees.
- Recommendation: FSC should promptly remedy guidance, procedural gaps, and communication to licensees.

### Compliance with FATF Recommendations (ratings and factors)
- R.3 — Largely compliant
  - Authorities’ power to seize suspect cash at the border is limited in non-drug related cases, and the post-conviction burden to show that proceeds were legitimate shifts only in drug-related cases, as well.
- R.32 — Partially compliant
  - Authorities can remember the big cases and construct tables from records, but they do not keep consolidated statistics readily available.
- SR.III — Largely compliant
  - Despite very broad legal authorities successfully applied in two cases, there is a disconnection in the financial community concerning affirmative obligations under UNSCR 1267 and EU regulations.
- R.32 — Partially compliant (terrorism context)
  - The FSC has no information on the level of compliance in the financial sector with UN Security Council Resolutions.

### Consolidated recommendations (policy actions)
- Consolidate CJO and DTOO asset forfeiture provisions; extend reversal of burden beyond drug-related cases; allow detention of seized border cash on suspicion of proceeds of any crime.
- Enact proposed legislation to permit enforcement of external confiscation orders to all states party to the UNTOC.
- Clarify GFIU authority to issue “non-consent” letters and provide usage guidelines.
- Maintain consolidated asset confiscation and forfeiture statistics.
- Develop and publish procedures for delisting requests and unfreezing of funds.
- FSC should issue guidance to the financial services community concerning affirmative obligations to freeze assets of persons listed by the UNSCR 1267 Committee and the EU, including incorporation of such obligations into AML/CFT programs and reporting to authorities any transactions that may be connected to terrorist financing.
- FSC should update AML Guidance Notes, develop procedures, and communicate clear expectations and sanctions for non-compliance to licensees.

*Source: IMF assessment of Gibraltar’s AML/CFT framework and legal authorities.*

### 1.5  The Financial Intelligence Unit (FIU) and its functions (R.26, 30 & 32)

### 1.5 The Financial Intelligence Unit (FIU) and its functions (R.26, 30 & 32)

### Authority, operational independence, and staffing
- The Gibraltar Financial Intelligence Unit (GFIU) was jointly established by the RGP and customs within the Gibraltar Coordinating Centre for Criminal Intelligence and Drugs (GCID) on January 1, 1996.
- The GFIU derives authority from the general police powers of the RGP and customs and from specific authority to receive STRs lodged in the CJO and DTOO.
- Stated GFIU functions:
  - To receive, research, and allocate intelligence from suspicious reports;
  - To maintain a financial intelligence database;
  - To liaise with the financial and business community;
  - To develop quality financial intelligence;
  - To provide training and education.
- Staffing and reporting lines:
  - Total GFIU staffing: 2.
  - GFIU Head of Unit: traditionally a seconded customs officer.
  - Other GFIU staff member: a financial analyst from the Royal Gibraltar Police with five years experience at the GFIU.
  - GCID staff (including GFIU staff): 5.
  - GFIU Head is functionally responsible to the GCID Executive Coordinator.
  - The Executive Coordinator of GCID is responsible for the budget and operations of the FIU and reports directly to both the chief minister and the Governor of Gibraltar.
  - The Head of the GFIU is a member of Gibraltar’s AML Enforcement Committee.

### FIU core functions: receipt, analysis, dissemination
- Receipt of STRs:
  - STRs are reported to the GFIU despite some private-sector confusion; AMLGNs (Paragraphs 6–29 and 6–30) designate the GFIU as the “central reception point for disclosures.”
  - Reports typically use the FSC AMLGNs reporting form and are sent via secure or hand-delivered letter; sometimes initial informal disclosure by telephone is followed up in writing.
  - GFIU formally acknowledges receipt of disclosures to the money-laundering reporting officer; acknowledgment may include “consent” or “non-consent” for the filer to process a transaction.
  - Under Section 18 of the CJO, relevant financial businesses must identify an “appropriate person” (money laundering control or reporting officer) to consider internal reports and make disclosures; GFIU reverts to these persons when seeking further information.
- Analysis:
  - GFIU performs initial evaluation and rating on all STRs received.
  - Enhancement of disclosures via information sources: GCID criminal and intelligence databases, police, customs (including immigration), Interpol, Companies House (the Gibraltar Registrar of Corporations), World Check, and internet searching.
  - GCID criminal intelligence database is not linked to the GFIU database, though GCID records that disclosures have been received.
  - All disclosures are held on an Ibase database platform; link chart analysis is undertaken where appropriate.
  - Analytical function is solely tactical; strategic analysis is not undertaken due to the small number of disclosures.
  - Training in financial analysis was being arranged with the Asset Recovery Agency of the United Kingdom.
  - Legal powers to request further information are neither specified nor specifically excluded; in practice intelligence is obtained through relationships with reporting officers or via referral to police/customs for production orders.
- Dissemination:
  - Domestic dissemination restricted to police and customs by virtue of AMLGN Paragraph 6.36 and related secrecy/disciplinary requirements.
  - Key dissemination consideration: whether proceeds of crime appear available locally.
  - When disseminating, GFIU directs case to one service (police or customs) with an information copy to the other.
  - Police and customs are required to provide feedback to the GFIU within 28 days of receiving GFIU intelligence on the use made of the intelligence.
  - GFIU exchanges intelligence with other FIUs via the Egmont secure link; adheres to Egmont Principles and does not require an MOU for such sharing.

### Information security, handling and consent/non-consent letters
- Information and operational security:
  - Appropriate physical and IT security measures are in place to prevent unauthorized access.
  - Business practice: disclosures and disseminations conducted by secure hand delivery or secure mail.
  - GFIU staff subject to disciplinary measures and the Official Secrets Act.
- Consent and non-consent letters:
  - After an STR, GFIU issues “consent” or “non-consent” letters instructing whether the filing institution may proceed with transactions related to the STR subject.
  - Legal context: Section 2(3) of the CJO provides that disclosure is a partial defense to a money-laundering charge, but subsequent acts that facilitate retention or control of proceeds may still incur liability unless done with police or customs consent.
  - Concerns:
    - Legal authority for issuing “non-consent” letters described as somewhat tenuous.
    - No documented criteria or guidance for consent/non-consent decisions or for duration of non-consent letters.
    - Risk that adhering to a “non-consent” letter may create a “tipping off” issue under the CJO and DTOO.

### Guidance, education, and outreach
- Current GFIU education activities:
  - Face-to-face presentations and newsletters targeting licensed financial services providers and professional bodies such as the Association of Compliance Officers.
  - Education focuses on reporting requirements, typologies from past disclosures, trends and vulnerabilities from Egmont Group, FATF, and other international sources.
  - Formal guidance on the disclosure form is provided in the FSC AMLGNs.
- Planned outreach:
  - GFIU intends to extend education to the DNFBP sector not regulated by the FSC.

### STR statistics and trends (Disclosures received by sector: 2001–2005)
- Aggregate yearly totals:
  - 2001: 182
  - 2002: 180
  - 2003: 130
  - 2004: 123
  - 2005: 108
- Disclosures by sector (counts recorded per year):
  - Banks & Building Societies: 2001: 139; 2002: 136; 2003: 69; 2004: 72; 2005: 68
  - Exchange Bureaux: 2001: 1; 2002: 0; 2003: 0; 2004: 1; 2005: 1
  - Company managers: 2001: 19; 2002: 24; 2003: 31; 2004: 27; 2005: 27
  - Supervisory Bodies: 2001: 1; 2002: 1; 2003: 0; 2004: 4; 2005: 2
  - Lawyers: 2001: 2; 2002: 3; 2003: 20; 2004: 10; 2005: 5
  - Accountants: 2001: 0; 2002: 0; 2003: 0; 2004: 1; 2005: 2
  - Investment Consultants: 2001: 2; 2002: 0; 2003: 0; 2004: 0; 2005: 0
  - Financial Advisors: 2001: 0; 2002: 1; 2003: 1; 2004: 1; 2005: 0
  - Government Departments: 2001: 2; 2002: 1; 2003: 8; 2004: 2; 2005: 0
  - Car Dealers: 2001: 5; 2002: 11; 2003: 0; 2004: 0; 2005: 1
  - Private mail Boxes: 2001: 1; 2002: 2; 2003: 1; 2004: 0; 2005: 0
  - Couriers: 2001: 3; 2002: 0; 2003: 0; 2004: 0; 2005: 0
  - Money Transfer Services: 2001: 0; 2002: 0; 2003: 0; 2004: 4; 2005: 2
  - Telecommunications: 2001: 6; 2002: 1; 2003: 0; 2004: 0; 2005: 0
  - Individuals: 2001: 0; 2002: 0; 2003: 0; 2004: 1; 2005: 0
  - Estate Agents: 2001: 1; 2002: 0; 2003: 0; 2004: 0; 2005: 0
- Disseminations (to domestic authorities) — results (aggregate presented as reported):
  - Directly resulted in arrest: 1; 1; 0; 0
  - Contributed to arrest: 1; 0; 0; 0
  - Intelligence enhanced: 82; 37; 14; 11
  - Unresolved: 17; 6; 3; 5
- Allocation of disclosures (by year shown where available):
  - Royal Gibraltar Police: 103; 83; 46; 48
  - Customs: 63; 57; 39; 20
  - Not Allocated: 16; 40; 45; 55
- Feedback received (suitability for allocation) (years where available):
  - Suitable for allocation (for investigation): 102; 43; 27; 13
  - Not Suitable for allocation: 6; 1; 0; 6
- Observed trend: level of STRs disclosed to the GFIU significantly declined since 2001; reduction since 2002 attributed primarily to completion of FSC required remedial action of retrospective due diligence requirements. The true level of disclosures may be closer to the lower 2003 to 2005 levels.

### Analysis and operational observations
- GFIU analytical capacity is focused on tactical analysis; lack of strategic ML/TF analysis due to small number of disclosures.
- GFIU does not routinely invoke law enforcement powers to obtain further information, preferring informal inquiries and referral to police/customs for production orders where necessary.
- GFIU does not require MOUs for international FIU exchanges and adheres to Egmont Principles.
- GFIU information-handling policies are not documented; documentation recommended including guidance on consent/non-consent letters.
- The distinction between the GFIU and GCID is not clearly understood outside the financial sector; multiple legal reporting directives (CJO, DTOO, TO, Terrorism Orders, AMLGNs) create confusion about where to report, particularly for suspected financing of terrorism.
- GFIU could generate and share numerical-only reporting-performance statistics on individual businesses with supervisory authorities (e.g., FSC, GRA) but has not been asked to do so.

### Recommendations (as provided)
- Provide clearer public explanations of the roles and responsibilities of the GFIU vis-à-vis the GCID and the police particularly with respect to TF.
- Clarify the implications, if any, on the GFIU of legal requirements that suspicious transactions related to terrorism be reported variously to the governor and the police.
- Amend Sections 33(2) and (3) of the GO to require holders of gambling licenses to report disclosures of suspected money laundering to the GFIU instead of the Gambling Commissioner.
- Analyze possible relationships between observed trends in disclosures and other criminal intelligence.
- Consider providing the FSC, the GRA and any other authority having AML/CFT oversight responsibility with numerical only statistical data on the reporting performance of specific individual businesses to assist supervisory programs.
- GFIU should give priority to establishing contact with the sectors not regulated by the FSC to:
  - provide clear education and guidance as to reporting obligations and procedures for making disclosures to the GFIU;
  - foster sharing of information on potential ML/TF risks in these sectors.
- Document internal procedures for all GFIU functions.
- Consider ways to clarify the circumstances and extent to which the GFIU can and will obtain access to further information from reporting businesses.

### Compliance with FATF Recommendations (assessment summary)
- R.26: Largely compliant
  - A clear public record of GFIU’s functions should be issued.
  - The Gambling Ordinance (GO) would require disclosures to be made to the Gambling Commissioner, with copies to the GFIU; GO allows the Gambling Commissioner, not the GFIU, to decide to disseminate copies to law enforcement authorities.
  - Legal requirements for STRs relating to financing of terrorism are confusing. The March 2006 amendment to the AMLGNs partly addresses this issue for the sector regulated by the FSC.
  - The circumstance and extent to which the GFIU can obtain additional information from reporting businesses are not clearly delineated.
- R.30: Largely compliant
  - Training in financial analysis techniques has been provided only to the GFIU analyst. As the GFIU staffing is two, the absence of the analyst may compromise the analytical capacity of the GFIU.
- R.32: Partially compliant
  - Statistics regarding disclosures are comprehensive, but they may understate the true level of suspect activity because limited education of the real estate, internet gaming and legal/accounting sectors or High Value Dealers has been undertaken.

*Source: IMF assessment section titled "1.5 The Financial Intelligence Unit (FIU) and its functions (R.26, 30 & 32)".*

### 1.6  Law enforcement, prosecution and other competent authorities–the framework for

### 1.6  Law enforcement, prosecution and other competent authorities–the framework for the investigation and prosecution of offences, and for confiscation and freezing (R.27, 28, 30 & 32)

### Police and customs — organization, capabilities, and operations
- The Royal Gibraltar Police (RGP) force is comprised of approximately 220 officers. The Police Commissioner reports to the governor; the government funds the police.  
- The Financial Crime Unit (FCU) has been in existence since the early 1990s, with a staff of six dedicated investigators experienced in fraud, money laundering, and other financial investigations (false accounts, benefit frauds, counterfeit currency, etc.). Two FCU officers were trained as financial investigators in the UK. Three FCU officers are trained in computer forensic techniques.  
- The FCU investigates ML and FT offences both locally and internationally and works closely with the head of the RGP’s special branch on ML and TF cases and on matters involving intelligence. Current major cases under investigation in the FCU include a ₤10 million domestic fraud and responding to several foreign requests for assistance.  
- The customs service has approximately 105 officers, and is responsible for collecting approximately 30 percent of government revenue. The Investigating Branch (IB) has five investigators, two clerks and an assistant, and responsibility for investigating ML matters.  
- Customs uses the UN’s automated system for customs data and maintains comprehensive computerized data on 81,000 annual declarations, tariffs, penalties and violations, immigration filings, etc. Enforcement cases may be generated at several points during an import inspection; the IB generates cases by searching the data on file. Drug sniffing dogs are deployed at the land frontier with Spain; x-ray machines are used to detect “swallowers.” Customs has recently focused on interdicting counterfeit goods and is involved in a cooperative initiative with cigarette manufacturers.

### Investigative discretion, powers, and techniques
- Enforcement discretion: FCU and IB supervisors treat each investigation case-by-case, monitor progress, and decide when and if suspected persons are to be arrested. Trade-offs between preventing crime and gathering intelligence, and potential seizure of funds, are considered before arrests. Arrests may be made when suspects may leave the jurisdiction.  
- Special investigative powers: The FCU uses electronic and human surveillance techniques, including “covert human intelligence sources” pursuant to UK Association of Chiefs of Police guidelines endorsed by the RGP. The FCU participated with Metropolitan Police London in a “sting” operation involving a Gibraltar lawyer charged in the UK for narcotics-related money laundering.  
- The police do not currently have wire tap or other electronic eavesdropping authority. A draft bill, the Interception of Communications Act, is being prepared for consideration by the Gibraltar parliament; this statute may also contain provisions regulating undercover and other surveillance techniques.

### Gibraltar Coordinating Centre for Criminal Intelligence and Drugs and Financial Intelligence Unit
- The GCID is a combined unit of five police and customs officers located in their own office separate from headquarters. GCID focuses on intelligence and international cooperation and houses the two-person Gibraltar Financial Intelligence Unit (GFIU).  
- The GFIU has full access to customs and police data, Interpol, the Egmont secure web system, GCID criminal intelligence, and open source information. It uses i2 database technology to assist with analysis.  
- The GFIU is closely integrated with police and customs but operates as a stand-alone unit. Assessors are not aware of any factor inhibiting its operational independence or subjecting it to undue influence or interference. However, the GFIU’s separate role vis-à-vis the financial and non-financial sectors, as well as police, customs, and—to the extent it is separate from it—the GCID, is not entirely clear to those sectors.  
- The GFIU produces statistics on the collection and use of disclosures it receives and the disseminations it makes to police and customs.

### International cooperation, training, and ethics
- The FCU, IB and GFIU have extensive experience dealing with competent authorities in other countries and use available powers in circumstances encountered. The RGP is a member of CARIN (Camden Assets Recovery Inter Agency Network), a Europol initiative supported by Eurojust to facilitate informal contacts and cooperation on criminal asset identification and recovery. The IB has similar extensive contacts. The GFIU is a member of the Egmont Group of financial intelligence units and frequently exchanges information with other FIUs.  
- ML and FT methods, techniques and trends are disseminated and shared among the GFIU, police, customs, and other agencies in the interagency enforcement group. Gibraltar police and customs officials communicate regularly with foreign colleagues and maintain especially close links to the UK, including through mutual secondments.  
- Both police and customs staff are required to adhere to a code of conduct and are subject to prosecution for unauthorized disclosures of information. All staff met during the mission demonstrated sensitivity to confidentiality issues; assessors observed a strong law enforcement culture and a theme of protecting Gibraltar’s reputation.

### Powers of search, seizure, production orders, and company inspectors
- Section 25 of the Criminal Procedure Ordinance (CPO) authorizes a justice of the peace to issue search warrants where there is reasonable cause to believe that items related to an offense or necessary to an investigation are on premises, vessels, aircraft, vehicles, boxes, receptacles or places named in the warrant; found items may be seized and carried before the magistrates’ court. (Section 38 of the CPO provides for detention of property seized pursuant to a warrant.)  
- Section 25 authority may be used by police or customs to obtain transaction records, identification data obtained through the CDD process, account files and business correspondence, and other records, documents or information held or maintained by financial institutions and other businesses or persons upon a showing of reasonable cause.  
- Production orders may be issued by the court pursuant to Section 28 of the Magistrates’ Court Ordinance. As general practice, records of banks, trust and company service providers, and others in Gibraltar sought in ML investigations are obtained through production orders in the vast majority of cases. The court’s power is enforceable through criminal contempt proceedings. Persons may refuse to produce documents on grounds such as privilege or self-incrimination.  
- The governor has authority under Section 12 of Schedule10 of the Companies Ordinance to appoint an inspector to investigate and report on ownership and control of companies formed in Gibraltar, with broad powers to compel production of documents, execute search warrants, and hold persons in contempt for failing to comply; authorities have used this authority on occasion.

### Drug-specific powers and provisions
- Drugs (Misuse) Ordinance: Section 26(3) authorizes warrants in drug cases where there are reasonable grounds to suspect documents relating to a drug transaction are in a person’s possession; such warrants may authorize entry, search, and seizure within one month. Persons intentionally obstructing powers under this section commit an offence.  
- DTOO provisions: Section 60 allows customs or police officers to obtain a production order for particular material for local drug trafficking investigations, including ex parte orders and provisions ensuring preservation of computer information. Section 43(a) of the DTO provides similar assistance for overseas investigations, provided proceedings have been initiated or a person arrested by authorities from a signatory to the Vienna Convention. Section 61 of the DTOO authorizes search warrants and seizure of evidence for local drug trafficking investigations where specified thresholds and justifications are met.  
- Subject to dual criminality requirements, similar authorities are available in support of drug trafficking investigations by Vienna Convention signatories pursuant to Section 43 of the DTOO, provided that criminal proceedings have been instituted against a person or that a person has been arrested.

### Witness statements, information sharing, and interagency coordination
- Gibraltar police and customs may take statements from witnesses; witnesses may make statements before a magistrate or swear statements before a commissioner of oaths. The court may summon witnesses under Section 70 of the CPO; depositions may be read under Section 80; Section 90 provides for proof by written statement.  
- Law Enforcement and Intelligence authorities discuss and review money laundering and terrorist financing trends and techniques through the Enforcement Committee forum. Membership includes the GFIU and other competent authorities such as the FSC and Legislative Support Unit.

### Recommendations and comments
- Update production order and warrant statutes to make them more effective in non-drug related financial investigations: specify types of documents that may be made available, include provisions protecting information retained on computers, and provide authority for police and customs to enter premises to execute production orders. Use Schedule 10 of the Companies Ordinance as a model.  
- Clarify and document the roles and responsibilities of the GFIU within the GCID vis-à-vis the private sector.

### Compliance with FATF Recommendations — ratings and factors
- R.27 — Compliant  
  - Dedicated, specialized law enforcement resources are responsible for ML and TF cases. Authorities work closely with foreign counterparts and have discretion to postpone or waive arrest of suspects or seizures of funds. Law enforcement authorities have authority to use—and do use in ML and FT cases—special investigative techniques. Authorities keep abreast of trends and techniques and discuss developments with colleagues at home and abroad.  
- R.28 — Compliant  
  - Through production orders and search warrants authorities may obtain relevant documents held by financial institutions and others. Witness statements may also be obtained.  
- R.30 — Largely compliant  
  - The RGP, customs, and GFIU are adequately staffed by qualified, specialized professionals. Independence of police is ensured by their reporting to the governor. Customs is a major revenue source for the Government. As a police-style body, the FIU is integrated into the police and customs framework, but could benefit from formal clarification of its role.  
- R.32 — Partially compliant  
  - GFIU produces statistics on STR disclosures and the usefulness of disseminations to the police and customs. Police and customs authorities maintain logs to track investigations, but could not readily produce statistics.

---

*International Monetary Fund — Assessment content unit cr07157*

### 2.2  Customer due diligence, including enhanced or reduced measures (R.5 to 8)

### 2.2 Customer due diligence, including enhanced or reduced measures (R.5 to 8)

### Description and analysis — supervisory framework and scope
- The Financial Services Commission (FSC) is the designated supervisor for the financial sector and for the trust and company services (fiduciary services) sector.
- The FSC has adopted a risk-based approach to customer due diligence for all of its licensees.
- Authorities have set minimum requirements that apply to all customers, with enhanced requirements where the risk presented by the customer or the nature of their business is higher.
- Basic statutory obligations exist in the Criminal Justice Ordinance (CJO), but the vast majority of the requirements that institutions must address are found in the Anti-Money Laundering Guidance Notes (AMLGNs).
- Both the CJO and the AMLGNs are applied across the full spectrum of financial institutions including:
  - banks,
  - insurance firms,
  - investment activities,
  - bureaux de change,
  - money transmitters.
- The Gibraltar Savings Bank, a government department, is included in the scope of application of the CJO and AMLGNs.

### Legal instruments and key provisions
- Part III of the Criminal Justice Ordinance (CJO) covers “Measures to Prevent the Use of the Financial System for Purposes of Money Laundering.”
- The CJO addresses:
  - identification requirements,
  - record keeping procedures,
  - training as key issues in the fight against money laundering.
- Identification requirements under the CJO are specifically covered in Sections 11 and 13 of the CJO.

*International Monetary Fund report cr07157*

### Section 11 requires that, “as soon as reasonably practicable after contact is first made” between the financial

### Section 11–13, AMLGNs, and CDD: Identity, Beneficial Ownership, PEPs, Correspondent Banking, and New Technologies

### Identity verification and Section 11
- Section 11 requires that, “as soon as reasonably practicable after contact is first made” between the financial institution and the client, a client must produce “satisfactory evidence of their identity” and that procedures, established by the financial institution, are followed to ensure “satisfactory evidence of his identity.”
- Where this information is not obtained, “the business relationship or one-off transaction in question shall not proceed any further.” (CJO, Section 11(1))
- For telephone business the AMLGNs state it is acceptable to await settlement by an investor to ascertain whether the payment is made from an account held in the investor’s name; “The proceeds of any dealing in an investment should not be remitted to the investor until identification is verified.” (AMLGNs, Paragraph 4–103)
- AMLGNs require institutions to make “every effort” to complete verification before settlements take place; money‑laundering risks where CDD procedures are not finalized must be managed.

### Beneficial ownership (Section 13) and AMLGNs expansion
- Section 13 establishes that a financial institution must know the beneficial owner where the “applicant for business is or appears to be acting otherwise than as principal.”
- The AMLGNs expand statutory requirements and require institutions to:
  - “look behind a corporate entity to identify those who have ultimate control over the business and the company’s assets” (Paragraph 4–54);
  - confirm company existence, conduct company searches, obtain information on all directors and authorized signatories, and identify beneficial owner(s) (Paragraphs 4–54 through 4–62);
  - for trusts and fiduciary accounts, identify settlor, trustee, and controllers and, for discretionary and non‑Gibraltar based trusts, identify the trust company or corporate service provider and the underlying principals (Paragraphs 4–57 to 4–74).

### One-off or occasional transactions
- One-off or occasional transactions are defined as either a single transaction of €15,000 or two or more one-off transactions that are linked and are equal to or greater than €15,000.
- Evidence of identity is required in these cases, in accordance with Sections 11(4) and 11(5).
- Where this evidence cannot be obtained, Section 11(1) requires that the one-off transaction not proceed.
- The CJO does not require that consideration be given to having an STR filed in this situation; AMLGNs Paragraph 4–104 instructs institutions to consider whether refusal due to lack of identification “give rise to a requirement to make a disclosure to the GFIU.”

### AMLGNs as “other enforceable means” and legal/regulatory gaps
- The AMLGNs are considered “other enforceable means” and do not qualify as a law or regulation; several Recommendation 5 provisions required by law/regulation are instead in the AMLGNs.
- Functionally, the industry applies nearly all these criteria via the AMLGNs, but the absence in law/regulation affects the formal rating.

### Coverage of specific Recommendation 5 criteria (AMLGNs vs CJO)
- Criteria 5.1: Requirement that financial institutions should not offer anonymous or fictitious accounts is not covered in CJO or other law/regulation; covered in AMLGNs Paragraph 3–11: “no institution may maintain accounts or business relationships which are either anonymous or in fictitious names.”
- Criteria 5.2(c): Not in CJO; covered by AMLGNs Paragraph 5–21 on wire transfers: meaningful and accurate originator and beneficiary information must be established for all outgoing funds transfers and related messages and remain with the transfer or message throughout the payment chain.
- Criteria 5.2(d): CJO, the Terrorism Order 2001, and the Terrorism Ordinance 2005 require reporting but none explicitly indicate identity must be checked when there are suspicions of ML/TF. AMLGNs Paragraph 4–8: “Identity must also be verified in all cases where money laundering is known, or suspected.” FSC expanded Paragraph 4–8 during assessment to cover financing of terrorism.
- Criteria 5.2(e): Not specifically addressed by the CJO nor AMLGNs; FSC expects CJO should be amended to require CDD when there are doubts as to veracity or adequacy of previously obtained customer identification data.
- Criteria 5.5.2(b): Not in CJO; covered by AMLGNs Paragraph 4–54 to “look behind a corporate entity…”
- Criteria 5.7 (ongoing due diligence): Not captured in the CJO; AMLGNs updated (Paragraph 4–3) to require ongoing monitoring appropriate to nature and scale of business and risks posed by the customer.
- The AMLGNs expand “satisfactory evidence of identity” to require “the best identification documents possible…those that are most difficult to obtain illicitly.” Specific requirements for natural persons are in AMLGN 4–23 to 4–41; partnerships/unincorporated businesses in Paragraph 4–55 require verification of at least two partners or equivalent.

### Purpose, source of funds/wealth, and record updating
- Purpose and intended nature of business relationship: AMLGNs Paragraphs 4–32 and 4–33 require institutions to establish the “anticipated level and nature of the activity to be undertaken” and to record to a level of “plausible verifiability” the anticipated activity; independent verification required for higher risk situations.
- Source of funds: Section 4–33 requires collection and verification of expected source of funds; verification to “plausible verifiability” for low risk and independent verification for higher risk.
- Source of wealth: captured under Section 4–36.
- Record updating: Paragraph 4–35 requires reasonable steps to keep descriptive information up-to-date as opportunities arise; extent depends on sector, product, and level of personal contact; higher risk customers subject to more frequent updates.

### Risk‑based approach
- Paragraph 4–21: “Institutions must therefore design and adapt their KYC processes and remediation processes using a risk-based methodology.”
- The FSC’s framework: a minimum standard (customer identification, customer verification, and suspicious activity reporting) for all institutions; higher risk customers require enhanced scrutiny.
- Limited exceptions for simplified/reduced due diligence: only “financially excluded, elderly, and students” may be treated differently; such individuals should not be precluded from banking services if they do not “possess evidence of identity or address where they cannot reasonably be expected to do so” (Paragraph 4–50), but institutions must have internal procedures to address these cases and provide staff advice on how identity can be confirmed.

### Non-face-to-face relationships and new technologies (R.8)
- CJO does not differentiate non-face-to-face from face-to-face; evidence of identity satisfied if the institution can reasonably establish applicant identity.
- CJO Section 12(1) exemption: where payment and details are sent by post or any other electronic means (including telephone), evidence of identity is satisfied if the payment is debited from an account held in the applicant’s name at an institution (Gibraltar or EU credit institution), unless institutions suspect money laundering or the payment opens an account.
- AMLGNs originally repeated this exemption but Paragraph 4–148 introduced problematic language about contacting the originating bank to confirm account holder name; FSC removed the loophole and applied new language to ensure evidence of identity is required either directly or as permitted by the CJO.
- AMLGNs Paragraph 4–43: for non-face-to-face cases where photographic identification is inappropriate, procedures must ensure sufficient documentary or electronic evidence to confirm address and personal identity and “At least one additional check must be undertaken to guard against impersonation.” FSC added language to strengthen monitoring for non-face-to-face customers.
- New technologies: Paragraph 1–29 was added: “With the growth in new technologies, like e-money, care must be undertaken to treat such payment systems in much the same manner as cash…” Internet banking monitoring requirement strengthened by changing “should consider regular monitoring” to a requirement in Paragraph 4–154.
- Implementation gaps: bureaux de change, the Gibraltar Savings Bank, and money transmitters show weak oversight/implementation for non-face-to-face and new technology risks; money transmitters lack appropriate licensing/regulatory framework.

### Correspondent banking (R.7)
- Correspondent banking relationships in Gibraltar are extremely limited; many Gibraltar banks route payments through the parent bank.
- Two types observed: 1) correspondent relationships for bank’s own business (e.g., currency purchasing conduits); 2) one arrangement between a Moroccan bank branch in Gibraltar and an EU-based Gibraltar bank to transfer funds for local Moroccan workers (approximate transfer per worker: US$200–US$300).
- AMLGNs (Paragraphs 4–93 to 4–100) require institutions to:
  - assess AML/CFT controls of respondent institution and determine effectiveness;
  - obtain senior management approval before establishing the relationship;
  - document AML/CFT responsibilities for both institutions;
  - monitor volume and nature of transactions from high risk jurisdictions;
  - terminate relationships where correspondents do not provide satisfactory answers on customer identification or suspicious transactions.
- FSC amended AMLGNs to address Criteria 7.1 by requiring institutions to “gather sufficient information about the respondent’s business and to determine from publicly available information the reputation of the institution and the quality of supervision including whether it has been subject to a money laundering or terrorist financing investigation or regulatory action.”
- Payable through accounts: AMLGNs Paragraph 4–98 strengthened to require that “the institution must be satisfied that the respondent institution is able to provide KYC documentation on the underlying customer, upon request.” Authorities report no payable through accounts.

### Politically Exposed Persons (R.6)
- PEPs are not covered specifically under the CJO beyond broad customer identification (Section 15); AMLGNs Part IV, Sections 4–87 to 4–92 set out PEP policies.
- AMLGNs consider PEPs as those holding “important public positions”, “persons or companies clearly related to them” and include “heads of state, ministers, high-level civil servants, judges, military commanders, and directors or managers of public enterprises.” No differentiation between domestic or foreign PEPs.
- AMLGNs require institutions to:
  - develop clear policy and internal guidelines on PEPs;
  - maintain risk management systems to determine whether a potential customer is a PEP;
  - ensure decision to enter into business with PEPs is taken by senior management;
  - proactively monitor PEP account activity and pay attention to large receipts from government bodies or state-owned activities;
  - assess countries more vulnerable to corruption;
  - apply additional monitoring to customers from high-risk countries and vulnerable lines of business.
- Source of wealth/source of funds capture: Section 4–33 and 4–36 require collection and verification; beneficial ownership checks are required for all accounts (Section 4–54).
- Implementation: PEP requirements well understood in banking sector (strong parent bank links); less well implemented in investment and insurance sectors, bureaux de change, and the Gibraltar Savings Bank.

### Supervisory and implementation observations
- Industry largely follows AMLGNs in CDD; understanding strongest in banking sector, weaker in investment, insurance, and some company service providers.
- FSC has identified weaknesses through on-site programs and is addressing affected institutions.
- Bureaux de change and Gibraltar Savings Bank: aware of AMLGNs but supervisory effort is limited; unclear whether bureaux de change keep records to identify linked transactions totaling over €15,000.
- One stand-alone money transmitter implements identification on a self-regulated basis; lack of licensing/regulatory framework raises effectiveness concerns.
- FSC required institutions to review all existing accounts, identify missing documentation, and remediate; remediation covered accounts existing before AMLGNs came into effect.

### Recommendations (as stated)
- Prohibit anonymous and fictitious accounts in law or regulation;
- Address in law or regulation the need to undertake customer due diligence when: carrying out occasional transactions that are wire transfers; there is a suspicion of money laundering or terrorist financing; and the financial institution has doubts about the veracity or adequacy of previously obtained customer identification data;
- Require through law or regulation that the financial institution determine the natural person who ultimately owns or controls the customer, when the customer is a legal person or arrangement;
- Address in law or regulation the requirement for financial institutions to conduct ongoing due diligence on its business relationships;
- Determine if institutions, having refused business because full KYC information was not provided, have provided STR reports to the GFIU;
- Ensure that bureaux de change, the Gibraltar Savings Bank, and money transmitters are subject to and implementing PEP requirements;
- Review existing correspondent banking arrangements to ensure that the institution has gathered sufficient information on the reputation and supervisory arrangements for the respondent;
- Ensure that bureaux de change, the Gibraltar Savings Bank, and money transmitters are looking at the risks associated with new technologies;
- Ensure effective implementation of the new language in the AMLGNs requiring that institutions carefully consider the risks associated with new technologies;
- Generally review the AMLGNs for language and tone which may read as permissive or informational in places.

### Compliance with FATF Recommendations (ratings and key factors)
- R.5 — Partially compliant
  - Several criteria have not been appropriately addressed in law or regulation; they are instead part of the Guidance Notes.
- R.6 — Partially compliant
  - Bureaux de change, the Gibraltar Savings Bank, and money transmitters (outside of banks) are weak as to implementation of requirements. Investment and insurance institutions are not as strong as the banking sector in implementation.
- R.7 — Largely compliant
  - Need to ensure that information has been gathered on respondents.
- R.8 — Partially compliant
  - Implementation of new language on non-face-to-face and new technologies for all institutions and lack of oversight for bureaux de change, the Gibraltar Savings Bank, and money transmitters on these issues.

*Source: Assessment of the CJO, the AMLGNs, and FSC findings as reflected in the AML/CFT assessment material.*

### 2.3  Third parties and introduced business (R.9)

### 2.3  Third parties and introduced business (R.9)

### Description and analysis
- The FSC has defined its overriding principle on KYC as “every institution must know who their customers are, and have the necessary documentary evidence to verify this,” covered in Paragraph 4–3 of the AMLGNs.
- Exceptions for intermediaries stem from the EU’s Third Money Laundering Directive and are covered under Paragraphs 4–85 and 4–86 of the AMLGNs. For introducers or other third parties, no exceptions exist; requirements are covered under Paragraphs 4–119 through 4–126 of the AMLGNs.
- Transposition status:
  - Some, but not all, elements of the Third EU Directive have been transposed into Gibraltar law; EU members have until December 2007 to complete the transposition process.
- Key divergences between the AMLGNs and the Third EU Directive / FATF Recommendation 9:
  - Ultimate responsibility:
    - Article 14 of the Directive: “the ultimate responsibility for meeting those requirements (customer due diligence requirements) shall remain with the institution or persons covered by this Directive which relies on the third party.”
    - AMLGNs Paragraph 4–85: “In each case, it is the intermediary who is the institution’s customer.”
  - Process for determining intermediary status:
    - Article 11(3) of the Directive requires institutions to “gather sufficient information to establish if the customer qualifies for an exemption as mentioned in these paragraphs.”
    - AMLGNs are largely silent on process, except two intermediary scenarios in Paragraph 4–86 where an institution obtains a “general undertaking” from the third party with no further requirements.
  - Access to information on underlying clients:
    - FATF Recommendation 9 criteria 9.1 and 9.2 and Article 18 of the Directive require information on the underlying customer to be available upon request of the institution.
    - AMLGNs do not provide for intermediary-held underlying customer information to be made available in scenarios in Paragraph 4–85.
- Specific concern with the fourth scenario in original AMLGNs Paragraph 4–85:
  - Originally allowed an intermediary from a country without equivalent money-laundering legislation to conduct due diligence on underlying clients with the institution taking “reasonable measures” or relying on a “general undertaking in writing.”
  - Revised language during the assessment: when the intermediary is from a country without equivalent money-laundering legislation, exemptions in Section 13 of the Criminal Justice Ordinance do not apply; there is a requirement to verify the identity of underlying customers and the institution may not rely on the general assurance from the intermediary that KYC has been conducted by them.
  - The assessment team was advised of instances where the original scenario had been relied upon.
- Overall conclusion:
  - AMLGNs have incorporated provisions allowing reduced CDD for accounts opened by intermediaries but have not established the proper controls identified in the FATF 40 and the EU Third Directive. Controls relative to reliance on pooled accounts operated by a certain class of intermediaries have not been established.
- Introduced business:
  - Treated differently and stringently under the AMLGNs; introduced business represents a significant component of financial services in Gibraltar.
  - Paragraph 4–119 requires institutions to have copies of all documentation or ready access to that documentation for introduced accounts.
  - Four-part test to determine eligible introducer — all four conditions must be met:
    - Regulated by the FSC or an equivalent institution if carrying on business outside Gibraltar;
    - Subject to equivalent or more stringent AML legislation than Gibraltar;
    - Based in Gibraltar or a country with an equivalent AML regime;
    - No secrecy or other obstacles preventing the Gibraltar institution from obtaining the original documentation when necessary.
  - Paragraph 4–122 requires institutions to scrutinize entities outside Gibraltar to ensure they meet eligible introducer standards, noting “some activities are regulated by professional bodies and not by a public or quasi public regulatory body.”
  - Eligible introducer must provide the Applicant Introduction Certificate in Appendix F for every introduced account; business relationship may not begin until certificate received.
    - The Applicant Introduction Certificate requires introducer information (name and license/authorization) and certifies that identity verification and documentary evidence have been obtained and that the applicant is “applying on his/her own behalf and not as a nominee, trustee or in a fiduciary capacity for any other person.”
  - Paragraph 4–123: once criteria satisfied, Gibraltar financial institution “simply obtain copies of the relevant documentation rather than be required to see the original documentation.”

### Recommendations and comments
- Require financial institutions relying on intermediaries to immediately obtain from that intermediary information on the identity of the customer, and beneficial owner of the account and the legal status of legal persons or arrangements. Beneficial ownership requirements should be included in law or regulation;
- Require that financial institutions have access, without delay, to the identification or other relevant documentation housed with the intermediaries;
- Require that institutions have processes to assess whether or not an institution within the EU may be accepted as an intermediary;
- Determine to what extent the industry has been allowing intermediaries under the fourth scenario of the AMLGNs (Paragraph 4–85) and ensure that all institutions are now obtaining the appropriate due diligence information;
- Ensure that the ultimate responsibility for customer identification and verification remains with the financial institution relying on the third party.

### Compliance with FATF Recommendations
- R.9 — Partially compliant
  - Summary of factors underlying rating: Controls relative to reliance on intermediaries have not been established.

*Source: Assessment — 2.3 Third parties and introduced business (R.9).*

### 2.6  Monitoring of transactions and relationships (R.11 & 21)

### 2.6 Monitoring of transactions and relationships (R.11 & 21)

### R.11 — Description and analysis
- The Financial Services Commission (FSC) takes a risk-based approach to AML/CFT reflected in the AMLGNs; guidance is relatively limited on specific types of transactions that must be reviewed and instead focuses on identifying suspicious transactions and activities and taking appropriate actions.
- During the assessment, the FSC added the passage to Paragraph 4–22 of the AMLGNs: “Institutions must pay special attention to all complex, unusual transactions or patterns that have no apparent economic or lawful purpose.”
- Paragraph 6–2 of the AMLGNs highlights four questions financial institutions “must consider when determining whether an established customer’s transaction” might be considered suspicious:
  - Is the size of the transaction consistent with the normal activities of the customer?
  - Is the transaction rational in the context of the customer’s business or personal activities?
  - Has the pattern of transactions conducted by the customer changed?
  - Where the transaction is international in nature, does the customer have any obvious reason for conducting business with the other country involved?
- Where responses to the four questions generate the need for further investigation, employees must report suspicions to the MLRO.
- Section 6–25 requires that all suspicions that are reported must be documented and include the full details of the customer and a statement regarding what has given rise to the suspicions; the MLRO will acknowledge receipt of the report.
- Paragraphs 6–18 and 6–19 require the MLRO to review the transaction, take steps to “validate the suspicion in order to judge whether or not a report should be submitted to the GFIU,” and maintain a written record of the findings and reasoning for submitting or not submitting the report.
- Paragraph 6–28 requires that records of the suspicions raised internally to the MLRO be maintained for five years, including those records that were not disclosed to the authorities.
- If the four questions do not yield concerns, there is no requirement in the AMLGNs to investigate further and no paper trail is required; this aligns with a risk-based approach.

### R.11 — Key findings
- The AMLGNs emphasize a risk-based program rather than prescriptive transaction review lists.
- Institutions are required to pay “special attention to all complex, unusual transactions or patterns that have no apparent economic or lawful purpose.”
- All reported suspicions must be documented; MLRO must record review findings and rationale.
- Records of internal suspicion reports must be retained for five years.
- No requirement to investigate or record transactions that do not give rise to concerns under the four-question framework.

### R.21 — Description and analysis
- The AMLGNs contain requirements regarding dealings with relationships and transactions with persons from countries with insufficient AML measures and systems; Gibraltar’s financial business predominantly comes from clients residing outside Gibraltar.
- The current focus in this section is on AML; the FSC plans to extend the provisions to TF but has not yet done so.
- The FSC uses the concept of equivalency to assess money-laundering standards, procedures and regulations; equivalency is addressed in Part IV, Section 4–155 through 4–159, with the list of “equivalent jurisdictions” in Appendix E.
- Equivalency is defined by categories; examples include Guernsey, Jersey, and Isle of Man as one category; other equivalent jurisdictions include EU member states and FATF members.
- Appendix E is periodically updated by the FSC to reflect FATF changes to the NCCT list or other country risk issues.
- Paragraph 4–158 and Appendix E are caveated; Paragraph 4–159 was revised to state: “Although the notes provide a list of equivalent jurisdictions in Appendix E this does not exonerate the institution from arriving at its own view of individual jurisdictions, as to equivalency, from the information available from the public sources mentioned above. In arriving at this view, each institution must also give consideration and implement such additional measures as are necessary to mitigate risks that arise from dealings with countries not having equivalence status.”
- Practical ramifications of equivalency are narrow: if a credit or financial institution comes from an equivalent jurisdiction, identification evidence will not be required for that institution; for other clients from equivalent jurisdictions, full KYC is still required and equivalency is a factor in the risk assessment.
- For clients from non-equivalent jurisdictions, full KYC, including complete documentation, is required and non-equivalency affects the level of monitoring.
- NCCT countries are specifically identified and institutions dealing with those jurisdictions are instructed to develop internal processes ensuring additional monitoring procedures for transactions from those countries.
- Specific cases:
  - Trusts, special purpose vehicles or international business companies connected to trusts “created in jurisdictions without equivalent money-laundering procedures in place will warrant additional enquiry.” (Section 4–69)
  - Eligible introducers are assessed on jurisdiction and supervisory structure; Section 4–121 requires eligible introducers to be “based in Gibraltar or a country which has an equivalent anti-money-laundering regime.”
- Paragraphs 6–18 and 6–19 require the MLRO to review suspicious transaction reports and keep a written record of review findings including the reason for deciding to send or not send information to the GFIU.
- Gibraltar does not apply specific countermeasures to countries not applying FATF standards; it relies on the risk-based program to ensure institutions design adequate programs to address those risks.
- At the country level, the UK would first apply any sanctions against specific countries; those sanctions would then be extended to Gibraltar.
- Given lack of effective oversight of bureaux de change and complete lack of oversight of the stand-alone money transmitter, it is not clear these entities have implemented or have the capacity to implement a risk-based program to identify “equivalent” jurisdictions.

### R.21 — Key findings
- Equivalency framework exists (Part IV, Sections 4–155 to 4–159; Appendix E) and is periodically updated.
- Institutions remain responsible for their own equivalency assessments and must implement additional measures for non-equivalence risks.
- Equivalency affects identification requirements narrowly (identification evidence exemption applies to institutions from equivalent jurisdictions).
- Specific sectors (trusts, eligible introducers) have explicit equivalency-related requirements.
- Weak or absent supervision of bureaux de change and the stand-alone money transmitter raises implementation concerns.

### Recommendations and comments
- Comments:
  - The FSC has not covered criteria 11.2 and 11.3 for cases where there is a large or complex transaction but no concerns or suspicions arise; however, it does cover cases when there is a concern or suspicion, where the MLRO will be informed, reviews will be done, and records will be retained for five years.
  - Although FATF requirements do not distinguish between large and complex transactions that raise suspicion and all other large and complex transactions, the FSC’s focus on transactions that raise concern or suspicion addresses the key risks appropriately.
- Recommendations:
  - Ensure that bureaux de change and the stand-alone money transmitter are applying risk-based procedures for relationships and transactions coming from persons outside of Gibraltar, who may not be subject to equivalent AML/CFT requirements; and
  - Extend the discussion on equivalency to include considerations related to TF.

### Compliance with FATF Recommendations — ratings and underlying factors
- R.11 — Largely compliant
  - The current standards do not provide for review and retention of records on all cases involving large, unusual or complex transactions, but do cover those where there are concerns or suspicions.
- R.21 — Largely compliant
  - The efforts by the bureaux de change and the stand-alone money transmitter need to be reviewed. Extend to include TF.

*Source: FSC assessment (cr07157).*

### Section 57 obligations apply to “any person” who knows or suspects; reporting is to be made to a customs or

### cr07157 - Section 57 obligations apply to “any person” who knows or suspects; reporting is to be made to a customs or

### Reporting obligations and legal ambiguity
- Section 57 obligations apply to “any person” who knows or suspects; reporting is to be made to a customs or police officer.
- The AMLGNs provide further detail on reporting requirements for money laundering, primarily through Part VI.
- The duty for reporting rests with the money-laundering reporting officer (MLRO) (6–18), who receives internal reports regarding potentially suspicious transactions and determines whether to report to the Gibraltar authorities.
- Multiple provisions create uncertainty about where suspicious transaction reports (STRs) should be filed:
  - Paragraph 6–18 indicates reporting to the GFIU.
  - Paragraph 5–35 indicates reporting to the financial intelligence unit or “other competent authorities.”
  - Paragraph 2–7 (referring to the CJO) refers to reporting to police or customs officers.
  - Paragraph 2–26 requires disclosure to law enforcement authorities.
  - Footnote 1 to the Anti-Money Laundering Guidance for Business Which Accept Large Cash Payments for Goods: “The Royal Gibraltar Police and HM Customs jointly operate the Gibraltar Financial Intelligence Unit (GFIU). A disclosure made to an officer in the GFIU may be regarded as being compliant with any disclosure requirement imposed under the Criminal Justice Ordinance 1995.”

### Terrorist financing (TF) reporting framework and overlaps
- Three overlapping reporting requirements for STRs tied to terrorist financing:
  - Basic CJO requirements because terrorism is a crime.
  - Terrorism Order issued by the UK in 2001 (applicable to all overseas territories).
  - Terrorism Ordinance 2005.
- Article/Section specifics:
  - Article 8 of the Terrorism Order (with reference to Article 4 on funding) indicates reports on terrorism financing must be made to the governor “as soon as reasonably practicable,” but applies only to “relevant institutions” defined as banks and building societies.
  - The Terrorism Ordinance 2005 expands the reporting requirement to all persons (including all financial institutions). Under Section 9(2) of the Terrorism Ordinance, reports pursuant to that Ordinance are to be made to the police (not to the governor).
  - The Royal Gibraltar Police (RGP) report to the governor.
- AMLGNs were updated during the assessment to reflect the Terrorism Ordinance 2005; AMLGNs now indicate reports should be sent to the police (who report to the governor) through the GCID.
- TF reporting is not linked to a threshold; reports must be provided regardless of transaction size (criteria 13.3).

### Suspicious transaction reporting practice and statistics
- According to statistics provided by the Government:
  - No reports have been filed on suspicion of terrorist financing to date.
  - In 2004, there were 123 reports filed by all reporters on money-laundering suspicions.
    - Of the 123 reports, 74 were filed by financial institutions, with 72 of those filed by banks.
    - The stand-alone money transfer agent reported.
    - Insurance companies did not report according to the statistics provided.
  - In 2004, reports were also filed by bureaux de change, company managers, supervisory bodies, lawyers, accountants, financial advisors, and government departments.
- There is no specific legal requirement to file on attempted transactions; requirement is for any suspicious transaction regardless of stage. Private sector examples suggest institutions do file STRs on attempted transactions in practice.

### Fiscal offences and reporting threshold for tax-related suspicions
- AMLGNs Paragraphs 2–3 to 2–6 address fiscal offences.
- High bar for reporting tax-related suspicions: “mere suspicion that a customer or client is placing money in, or moving money through, Gibraltar with the intention of committing an offence against an overseas tax authority is not sufficient.”
- Reporting requires suspicion that an indictable offence had “actually been committed” and that the institution was involved through processing transactions.
- Paragraph 2–6: “if criminal conduct is suspected, then the normal reporting obligations apply. However, each suspected case would need to be examined in the light of its particular circumstances.”

### Protections for reporters, consent to continue dealing, and tipping off
- Statutory protections from criminal and civil liability for persons who make disclosures in good faith:
  - CJO (Section 2(3)(a)) and DTO (Section 57(3)); Recommendation: these protections extend to financial institutions and their directors, officers and employees.
  - The Terrorism Ordinance lacks an explicit provision, but Section 2(3)(a) of the CJO is written broadly enough to cover disclosures pursuant to the TO.
- To be protected from potential criminal liability for continuing to deal with funds/accounts/clients related to a disclosed transaction, disclosing parties must obtain the consent of a police or customs officer:
  - CJO (Section 2(3)(b)), DTO (Section 56(5)), TO (Section 9).
- Tipping off is prohibited for all persons (not just financial institutions or disclosers):
  - Defined as disclosing information likely to prejudice an investigation or proposed investigation.
  - See CJO (Section 5) and DTO (Section 58(1)). The Terrorism Ordinance has no comparable provision, but tipping off suspected terrorist financing would be covered by the CJO.
  - Exception for providing professional legal advice or defending/representing a client in judicial proceedings.

### Confidentiality of reporting staff and GFIU handling practices
- No specific statutory/regulatory provision ensures names and personal details of staff who make disclosures are kept confidential by the FIU.
- GFIU staff, as law enforcement officers working in an intelligence unit, have been trained to handle sensitive information and would be subject to discipline under internal police and customs guidelines and to criminal charge under the Disciplinary Code and Official Secrets Act for improper dissemination.

### GFIU, feedback, and guidance to reporting sectors
- GFIU provides:
  - Periodic newsletters on typologies of ML/TF and sectoral breakdowns on disclosures (typology information mainly from Egmont or FATF; sanitized local cases provided subject to confidentiality).
  - Acknowledgement of all disclosures received.
  - Updates to reporting institutions on the use made of disclosures, subject to investigative restrictions.
  - Feedback to financial institutions on whether more information is needed and on the usefulness of reports.
- GFIU has not established written reporting guidelines separate from those in the FSC’s AMLGNs; sample reporting forms are in the AMLGNs.
- Far less feedback currently provided to DNFBPs; GFIU plans outreach activities.

### Internal controls, training, audit, and group policies (R.15 & R.22)
- CJO Section 9 requires institutions to maintain procedures and internal control systems “for the purposes of forestalling and preventing money laundering.”
- AMLGNs Paragraph 2–21 extends purposes to include identifying suspicious activities and providing an audit trail.
- AMLGNs require identification of an MLRO (Paragraph 6–15): MLRO must be a senior staff member located in Gibraltar.
- AMLGNs Paragraph 3–5 (revised to make language mandatory) requires arrangements to verify, on a regular basis, compliance with policies/procedures/controls relating to money laundering (internal audit/testing).
- Training requirements:
  - CJO Section 9(1)(b) requires training of employees.
  - AMLGNs Part VII requires education and training (KYC, beneficial ownership, what constitutes suspicious activity); refresher training must be done annually (Paragraph 7–14).
  - AMLGNs focus on ML training; need to be extended to TF-specific controls and training.
- Screening/hiring procedures:
  - Financial Services Ordinance Financial Services (Conduct of Business Regulations) 1991 Section 12 requires adequate arrangements to ensure staff are suitable, trained, and supervised for entities licensed for investment business or “controlled activities.”
  - No similar requirements yet extended to insurance firms, bureaux de change, or money transmitters (insurance firms will be covered once the FSC’s Approved Persons Regime is enacted).
  - Gibraltar Savings Bank hiring covered by civil service requirements.
- Group-wide policies for branches/subsidiaries (AMLGNs Paragraphs 3–7 and 3–8) require:
  - Establishment of a group policy covering overseas branches and territories to meet Gibraltar law standards or higher where host country standards are more rigorous.
  - Overseas branches to adhere to local laws and procedures.
  - Institutions to inform the FSC where local laws prohibit application of Gibraltar practices or higher standards.
  - Suspicions must be reported within the jurisdiction where the suspicion arose and, depending on the situation, to the GFIU as well.

### Recommendations and compliance ratings
- Recommendations and comments from the assessment:
  - Clarify reporting obligations for STRs related to money laundering (GFIU vs. GCID vs. “customs and police”).
  - Clarify, through law or regulation, where reporting entities should file STRs related to TF in Gibraltar.
  - Ensure requirements are in place to report suspicions on attempted transactions.
  - Extend AMLGNs to include TF in controls and training.
  - Ensure financial institutions have an internal audit or other mechanism to check compliance with the AMLGNs, including bureaux de change and the stand-alone money transmitter.
  - Extend hiring standards to insurance firms, bureaux de change, and money transmitters.
- Compliance with FATF Recommendations (ratings and key factors):
  - R.13: Largely compliant — There is some confusion over to whom to report; STRs on attempted transactions are not explicitly required.
  - R.14: Compliant — This Recommendation is fully met.
  - R.19: Compliant — This Recommendation is fully met. Authorities considered and rejected threshold-based reporting based on valid reasons.
  - R.25: Partially compliant — Existing guidance does not address the techniques or methods associated with terrorist financing; no feedback or guidance has been provided to bureaux de change, the stand-alone money transmitter, nor to most DNFBP sectors.
  - SR IV: Largely compliant — Filing procedures under various overlapping laws should be clarified; guidance on TF has not been included in the AMLGNs.
  - R.15: Largely compliant — Need to extend consideration of TF issues to controls and training and need to ensure that all licensees have an internal audit program in place.
  - R.22: Compliant — This Recommendation is fully met.

*Source: IMF assessment (cr07157).*

### 2.9  Shell banks (R.18)

### 2.9  Shell banks (R.18)

### Description and analysis
- Physical presence is required under the Banking Ordinance (Section 23(1)(e)) for all licensees; “an institution incorporated in or formed under the laws of Gibraltar will have its head office in Gibraltar.”
- Records must be kept in Gibraltar and the AMLGNs require that the MLRO for licensees be located in Gibraltar.
- Shell banks are not approved for license by the FSC.
- Gibraltar banks have very limited correspondent banking activity and it is directed more to their corporate, rather than client needs.
- According to the FSC, no bank has a relationship with a shell correspondent bank and such relationships are prohibited by Paragraph 4–94 of the AMLGNs.
- Paragraph 4–94 also prohibits Gibraltar banks from using correspondents who allow their banks to be used by shell banks.
- Institutions are required to have measures in place to ensure they do not deal with shell banks in a correspondent capacity through their review and approval process of new correspondent banking relationships.

### Recommendations and comments — Compliance with FATF Recommendations
- R.18: Compliant
  - The criteria for this Recommendation are fully met.

### Regulation, Supervision, Guidance, Monitoring and Sanctions — supervisory remit and powers
- The FSC is the supervisory authority for banks, insurance firms, and investment companies and may impose conditions or directions on licensees to ensure remediation.
- Banking Ordinance Section 62(1) permits the Commissioner of the FSC to “by notice in writing served on the licensee direct it, at its own expense, to take or refrain from taking any course of action in relation to the conduct of its business that the commissioner specifies in the notice.”
- The Banking Ordinance authorizes the commissioner to appoint an auditor, appoint an individual to advise the licensee, cancel the license, and appoint Reporting Accountants to investigate and report on a licensee’s business.
- The Financial Services Ordinance 1989:
  - Section 10(1) permits the FSC to “by notice in writing served on the licensee, impose such conditions as appear to the Authority to be necessary or desirable for the protection of investors.”
  - Section 10(2) identifies conditions that may include prohibiting transactions, carrying out specific investment business, or requiring transfer of custody of assets.
  - Section 11(1) permits cancellation or suspension of a license.
  - Section 35(1) provides authority to issue directions to licensees.
- The Insurance Ordinance:
  - Section 100(1) permits written directions to protect “policy holders or potential policy holders of the insurer against the risk that the insurer may be unable to meet its liabilities, or in the case of long term business, to fulfill the reasonable expectations of policyholders or potential policyholders.”
  - The commissioner can appoint individuals to conduct investigations on insurance licensees.

### Sanctions framework and practical application
- The sanctioning powers of the FSC include a range of actions up to revocation of license; measures include exchanges of letters, action plans, imposition of specific directions and conditions, and cancellation of license.
- Two noted issues:
  - No specific language in the Ordinances permits a condition or direction to be issued directly against an individual rather than an institution. The FSC may require institutions to take action against individuals through conditions/directions and has proposed an Approved Persons Regime (proposal sent to the GOG for consideration).
  - To date, no conditions or directions have been issued on AML/CFT issues. The FSC currently relies primarily on exchanges of letters and the use of Reporting Accountants for corrective action.
- Reporting Accountants:
  - Reporting Accountants have been engaged by the FSC approximately thirteen times for AML/CFT purposes over the last three years.
  - Institutions must pay the fees of Reporting Accountants and submit to their investigation results and remediation plans.

### Other supervised and unsupervised sectors
- Gibraltar Savings Bank:
  - The Financial and Development Secretary (FDS) oversees the Gibraltar Savings Bank; it is subject to the Savings Bank Ordinance which contains no provisions for sanctions.
  - As a state-owned institution, it is subject to regular checks by the government’s “external” auditors; problems identified must be corrected.
  - No specific problems on AML/CFT have been identified to date for the Gibraltar Savings Bank.
- Bureaux de change:
  - The Bureaux de Change Ordinance allows license cancellation or suspension “pending inquiry” by the Bureaux de Change Committee; few other sanction options exist.
  - Bureaux de change are not currently adequately supervised for AML/CFT; one “investigating officer” visits each bureaux de change during the year but this is more informational than inspection.
  - There are no checks against the AMLGNs nor checks of records kept by the bureaux for AML/CFT purposes.
  - The Bureaux de Change Ordinance has general fit and proper criteria but does not prohibit criminals from holding managerial positions.
- Money transmitters (non-bank):
  - Money transmitters are not licensed, registered or supervised.
  - They are not subject to supervisory or administrative sanctions.
  - Money transmitters have been made subject to the AMLGNs but there is no supervisory or regulatory structure to check compliance.

### FIU role, powers and outreach
- The GFIU does not have a supervisory role.
- The GFIU provides advice on procedures for making disclosures of suspicion and indicators of suspicious transactions and has conducted educational visits to various car dealers; it is yet to make effective contact with all sectors not regulated by the FSC.
- The GFIU intends to conduct an outreach program to all DNFBP sectors during 2006.
- The GFIU is designated as the administrative unit to which disclosures of suspicion are to be provided.
- The GFIU has not been allocated powers of sanction for non, late or incomplete reporting by businesses required to make disclosures of STRs.
- The GFIU is administratively involved in advising non consent to proceed notifications but does not have authority to apply sanctions should notifications not be complied with.
- The GFIU, via periodic newsletters, provides typologies of ML/TF and sectoral breakdowns on the number of disclosures; typology information is usually sourced from international sources such as Egmont or FATF, with sanitized local cases provided subject to confidentiality.
- The GFIU acknowledges all disclosures and either GFIU or the investigating officer of the police or customs provide updates to the reporting institution or business, subject to restrictions for active investigations.
- The GFIU has not established written guidelines for reporting; sample reporting forms are found in the FSC’s AMLGNs.
- The GFIU provides significant feedback to reporting financial institutions, indicating where more information is needed and the usefulness of particular reports.

### R.23 — supervisory coverage and on-site activity
- Financial institutions subject to FSC licensing and supervision: banks, building societies, insurance firms, and investment activities.
- The FSC conducts on-site and off-site supervision with a risk-based framework and is responsible for ensuring licensees meet AML/CFT standards and remediation where needed.
- Onsite Inspections Carried out by the FSC for 2005 and 2006 (Completed / Completed / In Progress):
  - Insurance Managers (risk assessments): 2 / 1 / 1
  - Insurance Companies (risk assessments): 3 / 2 / 5
  - Insurance Intermediaries (risk assessments): 10 / 6 / 7
  - Insurance Intermediaries (prudentials): 0 / 0 / 0
  - Banks (risk assessments): 2 / 3 / 4
  - Banks (prudential visits): 13 / 5 /
  - Fiduciaries (risk assessments): 9 / 7 / 4
  - Fiduciaries (prudentials): 7 / 6 / 0
  - Fund administrators/managers (risk assessments): 3 / 1 / 1
- Average person-days:
  - Average person-days for risk assessment on-site = 12 man days
  - Average person-days for bank prudential visits = 2 man days
- Staffing and planned work:
  - There are five onsite examiners for fiduciary services, six onsite examiners for banks and investment firms, and four onsite examiners for insurance supervision. One more insurance examiner will be hired.
  - Work on bank risk assessments is cyclical with most full re-assessments coming up in 2006/07.
  - For the balance of 2006, planned FSC work includes:
    - three prudential visits to banks and one risk assessment
    - seven prudential visits to investment firms and four risk assessments
    - five prudential visits to fiduciaries and two risk assessments
    - one prudential visit to an insurance manager and one risk assessment
    - six prudential visits to insurance intermediaries and three risk assessments
- Sector counts:
  - There are 18 banks in Gibraltar and all but one are branches or subsidiaries of international banks.
  - 49 insurance companies
  - six insurance managers
  - 34 insurance intermediaries
  - 23 non-bank firms that provide investment services
- Fit and propriety:
  - The FSC reviews fitness and propriety of all license applicants; applicant must have “a high reputation and standing in a financial community or will be able to do so in the carrying on of the deposit-taking business...for which the license is being sought.” (Section 23(1) of the Banking Ordinance; similar language in Insurance Ordinance and Financial Services Ordinance 1989.)
  - Fit and proper checks cover every person who is to be a director, controller, shareholder controller or manager.
  - There is no specific language prohibiting criminals from holding managerial positions in financial institutions.
- Two categories not subject to adequate regulatory and supervisory framework:
  - Bureaux de change: subject to legal and prudential requirements for AML/CFT but not adequately supervised; no checks against AMLGNs or records; no prohibition against criminals in managerial roles.
  - Money transmitters: not licensed or registered; subject to AMLGNs but no supervisory or regulatory structure.

### Policy developments and proposals
- Government recognizes the need to address bureaux de change and money transmitters.
- Proposed Money Service Business Ordinance has been in draft form for some time; current proposal is to create a government committee headed by the FSC to provide oversight of these sectors.
- Important issues to address for these entities:
  - specific requirements to prohibit criminals from holding managerial positions;
  - appointment of a competent authority responsible for ensuring bureaux de change and money transmitters meet AML/CFT requirements through effective supervision;
  - for money transmitters, a framework for licensing or registration.

### R.25 — AMLGNs, feedback and outreach
- The FSC has established the AMLGNs which provide detailed AML/CFT requirements for all FSC licensees and have been extended to several non-FSC-regulated financial entities, including the Gibraltar Savings Bank, the bureaux de change, and money transmitters.
- The AMLGNs were written several years ago and have been periodically updated; the FSC plans to revise the AMLGNs to extend requirements to include consideration of FT in addition to ML (FT is only minimally covered in the current version).
- FSC feedback mechanisms:
  - Feedback letters provided to licensees following on-site visits detailing concerns and required corrective action.
  - FSC Newsletter issued periodically as “a guide to the Commission’s expectations concerning the operation of authorized firms”; early 2006 Newsletter reviewed findings and trends from risk assessment visits.
- Bureaux de change and money transmitters receive no direct feedback on their AML/CFT program.
- Gibraltar Savings Bank receives feedback from government external auditors following reviews of systems and controls.

### R.29 — supervisory mandate and inspection frequency
- The Financial Services Commission Ordinance requires the commissioner “shall supervise institutions licensed to provide any financial services.” The commissioner is responsible for all financial institutions excluding the Gibraltar Savings Bank, the bureaux de change, and money transmitters.
- Supervisory powers are backed by the Banking, Insurance, and Financial Services (1989) Ordinances which compel production of records and allow sanctions where necessary.
- Inspection cycle is risk-based: from nine months between visits for high risk licensees to three years for the lowest risk institutions.

*Source: IMF assessment chapter "2.9  Shell banks (R.18)"*

### Section 60 of the Banking Ordinance, Section 33 of the Financial Services Ordinance 1989, and Section 98(1) of

### cr07157 - Section 60 of the Banking Ordinance, Section 33 of the Financial Services Ordinance 1989, and Section 98(1) of

### Supervisory powers, information requests, and sanctions
- Section 60 of the Banking Ordinance, Section 33 of the Financial Services Ordinance 1989, and Section 98(1) of the Insurance Ordinance provide requirements for production of documents at the request of the FSC.
- There are no limitations on the information that can be compelled from licensees by the FSC.
- The FSC has a range of sanctions available, from informal letters to formal conditions or directions; these may be imposed only on the licensee itself and not on individuals.
- The FSC may issue a condition or direction to an institution requiring the institution to take action on an individual within that institution.

### Oversight of specific entities
- Gibraltar Savings Bank
  - Falls under the responsibility of the Financial and Development Secretary.
  - Run by the Treasury (accountant general).
  - Subject to oversight by the Government of Gibraltar.
- Bureaux de change
  - Subject to oversight by the Bureaux de Change Committee, headed by the Financial and Development Secretary.
  - The Bureaux de Change Ordinance does not provide powers to monitor bureaux de change for compliance with standards, including AML/CFT, but allows the Committee or the Bureaux de Change investigating officer to compel production of records.
  - Sanctions under the Ordinance are limited to suspension of a licensing pending an inquiry or cancellation of a license.
- Stand-alone money transmitter
  - One stand-alone money transmitter exists with no oversight, no powers to monitor compliance, no sanctioning ability, and no ability to compel production of records.

### FSC operational capacity and resourcing (R.30)
- The FSC appears to have adequate financial, technical, and human resources to conduct supervision and regulation of its licensees.
- The FSC is operationally independent; the commissioner may issue guidance and standards that licensees must follow under penalty of sanction.
- Supervision staff who conduct onsite examinations: fifteen total
  - five in fiduciary services supervision
  - six in banking and investments supervision
  - four in insurance supervision with a fifth position to be filled
- Organizational changes noted:
  - Banking and Investment divisions to be combined.
  - Head of banking supervision to become Chief Operating Officer.
  - Current head of investments division to become head of combined banking and investment divisions.
- Staff are described by the assessment team as competent and well skilled; staff training on AML/CFT is provided and required under the FSC Ordinance.
- The Bureaux de Change Committee does not currently have appropriate resources to ensure adequate supervision of bureaux de change.

### FSC information systems and statistics (R.32)
- The FSC maintains three databases tracking licensee-related information, including:
  - statistics on number of inspections conducted,
  - risk assessments for each licensee,
  - the supervisory cycle.
- The FSC could provide dates of supervision visits only for the last two years.
- The FSC keeps statistics about information requests from foreign jurisdictions, including number of days to resolve each request.
- The FSC does not keep information on STRs provided by its licensees to the GFIU because it does not receive copies of those reports.
- The FSC upgraded its risk-based system approximately eighteen months ago and the system remains under review.

### Recommendations and policy gaps
- Address the lack of an “effective, proportionate, and dissuasive” sanction regime for both bureaux de change and non-bank money transmitters in the area of AML/CFT.
- Address the lack of effective oversight for bureaux de change.
- Ensure that all financial institutions are subject to requirements that prohibit criminals or their associates from:
  - holding or being the beneficial owner of a significant or controlling interest in a financial institution, or
  - holding a management function in a financial institution.
- Extend the AMLGNs to focus not only on ML, but also on TF.
- Ensure the authority responsible for bureaux de change and non-bank money transmitters is given appropriate regulatory powers and resources to:
  - effectively conduct oversight,
  - compel records,
  - require remediation, and
  - issue sanctions where necessary.

### Compliance with FATF Recommendations (summary table items)
- R.17: Largely compliant — Bureaux de Change and money transmitters are not subject to adequate sanctions.
- R.23: Partially compliant — No supervision for bureaux de change or the non-bank money remitter; no specific standards prohibiting criminals or their associates from holding key ownership or management positions.
- R.25: Partially compliant (Largely compliant for FSC supervised institutions) — Existing guidance must be fully extended to cover TF issues; No feedback given to bureaux de change or money transmitters.
- R.29: Largely compliant — No oversight of bureaux de change or money transmitters.
- R.30: Largely compliant — Compliant for FSC; inadequate resources for oversight of bureaux de change and money transmitters.
- R.32: Partially compliant.

### Money or value transfer services (SR.VI) — description, analysis, and recommendations
- Current situation
  - Money transfer services outside banks are provided by a stand-alone money transfer agent who is neither licensed nor registered, nor supervised in Gibraltar.
  - The stand-alone operation is outside the FATF 40 +9 requirements, although the scope of application for the AMLGNs has been extended to include money transfer agents.
  - A proposed Money Services Business Ordinance is being drafted; it would move licensing and supervision of money transmission and bureaux de change services to a government Committee headed by the FSC. Drafting is not finalized and no timeframe for passage is set.
  - No requirement exists for money value transfer service operators to maintain a current list of their agents for authorities; banks performing these transactions are not affected because the bank is the agent.
  - No sanctions are available to the Government of Gibraltar for the stand-alone money transfer agent as it is not a licensed entity; authorities believe possible sanction using an existing bureau de change license might be feasible.
  - Gibraltar does not appear to have informal remittance providers, though problems were noted with retailers operating as bureaux de change between themselves; this practice is illegal and its extent or link to informal value transfer systems could not be confirmed.
  - Alternative remittance providers (excluding those housed in banks) are currently not subject to licensing or registration requirements.
- Recommendations
  - Close the gap by ensuring all entities that provide money or value transfer services are licensed and supervised.
  - Require that principals keep lists of all agents of money and value transfer service providers.
  - Develop a mechanism to ensure money and value transfer service providers can be sanctioned.
- Compliance with FATF SR.VI: Non Compliant — Lack of overall framework in place.

### Preventive measures for DNFBPs — customer due diligence and record-keeping (R.12 and R.5/R.6 application)
- DNFBPs covered by the Criminal Justice Ordinance (CJO) Section 8 categories subject to preventative measures and reporting obligations:
  - (h) auditors, external accountants and tax advisors;
  - (i) real estate agents;
  - (j) notaries and other independent legal professionals when participating in specified transactions;
  - (k) controlled activity under the Financial Services Ordinance 1989 (currently company management and professional trusteeship);
  - (l) dealers in all high value goods when payment is in cash and in an amount of €15,000 or more;
  - (m) casinos.
- AMLGNs issued by the FSC apply explicitly to trust and company service providers (TCSPs) and the internet gambling sector by reference in licensing requirements; land-based casino will be subject to AML provisions following license renewal due in April 2006.
- Guidance Notes for dealers in high value goods (HVD Guidance Notes) exist but are information-only and not enforceable.
- Gibraltar lawyers
  - Licensed and subject to discipline pursuant to Section 33 of the Supreme Court Ordinance, which incorporates English rules of court.
  - Required to comply with England’s Money-Laundering Regulations of 2003 (English Regulations).
  - English Regulation 4 requires “satisfactory evidence” of identity of each client; English Regulation 3.29 requires CDD when involved in a transaction of €15,000 or more.
  - English Regulations are silent on CDD below threshold when there is suspicion of ML and do not include requirements for ongoing due diligence on business relationships.
- Gaps identified for DNFBPs relative to Recommendation 5 (specific gaps listed)
  - Obtaining information on the purpose and intended nature of the business relationship.
  - Performing enhanced due diligence for higher risk categories of customer, business relationships, or transactions.
  - Permitting simplified or reduced measures for CDD on low risk customers.
  - Requiring that where a customer may utilize the business relationship prior to verification, the organization must adopt risk management procedures concerning the conditions under which this may occur.
  - Prohibiting the opening of an account or commencing business relations when appropriate CDD information cannot be obtained.
  - Requiring DNFBPs apply CDD requirements to existing customers on the basis of materiality.
- Causes of gaps
  - Gaps in the CJO framework where items that should be covered by law or regulation are either not addressed or left to the AMLGNs, which do not have law or regulation status.
  - Lack of coverage in the AMLGNs of certain criteria.
  - Lack of enforceable guidance for several DNFBP sectors (e.g., HVD Guidance Notes are information-only; no guidance for real estate or accounting/auditing sectors).
- R.6 for DNFBPs
  - Requirements to deal with politically exposed persons (PEPs) are not covered in the CJO or other law or regulation; PEPs requirements are covered in the AMLGNs in Paragraphs 4–87 through 4–.

*Findings and recommendations summarized by the IMF assessment team.*

### 92. TCSPs and the gambling sector are covered by these obligations, which meet the FATF requirements. .

### 92. TCSPs and the gambling sector are covered by these obligations, which meet the FATF requirements.

### Politically Exposed Persons (PEPs) and Customer Due Diligence (CDD)
- The HVD Guidance Notes do not mention PEPs.
- England’s ML Regulations 2003 contain no special provisions for “politically exposed persons.”
- None of the other DNFBPs are subject to any requirements on PEP clients.
- Recommendation: Ensure that DNFBPs are subject to adequate requirements for PEP clients or business relationships.

### R.8 — Non‑face‑to‑face transactions and new technologies
- The AMLGNs address non‑face‑to‑face transactions and new technologies, with some limitations; relevance to TCSPs and the licensed gambling sector is noted.
- The Law Society of England and Wales money‑laundering regulations contain no special provisions for either developing technology or for non‑face‑to‑face transactions.
- DNFBPs (other than those covered by AMLGNs) are not covered by law, regulation or guidance on non‑face‑to‑face and new technologies.
- Specific concerns for the online gambling sector due to non‑face‑to‑face nature:
  - Industry‑advised mitigation measures include requiring photocopies of identification;
  - Establishment of initial credit through use of credit/debit card details from reputable jurisdictions;
  - Verification of source of funds and country of origin through comparison of Internet protocol addresses and Bank Identification numbers.
- Recommendation: Address the risks associated with new technologies and non‑face‑to‑face business.

### R.9 — Third parties, intermediaries and introducers
- Third parties are covered by Paragraphs 4–85 to 4–86 for intermediaries and 4–119 to 4–126 for introducers; the AMLGNs include strong provisions for introducers.
- The scope of the AMLGNs covers only the TCSP and gambling sectors.
- The HVD Guidance Notes do not address intermediaries or introducers.
- England’s ML Regulations 2003 contain no special provisions for intermediaries.
- The regulations require individual lawyers engaged in a relationship with a client to maintain records even where the lawyer’s partner referred or introduced the client (3.39.).
- Result: No other category of DNFBP is subject to restrictions or requirements on the use of third parties to conduct KYC.
- Recommendation: Develop and apply strong requirements for CDD for all DNFBP categories not subject to FSC‑issued AMLGNs.

### R.10 — Record keeping
- Sections 16 and 17 of the CJO establish record keeping requirements; deficiencies exist in how requirements have been established.
- Two issues required by law or regulation are currently addressed only in the AMLGNs (example: Paragraph 5–4 requiring that records be available on a timely basis to provide to the authorities).
- All DNFBPs are captured by the CJO, but lack of fully detailed requirements in the Ordinance means DNFBPs are subject to only baseline record keeping requirements.
- Only TCSP and gaming sectors would be subject to stronger requirements via AMLGNs.
- England’s ML Regulations 2003 require CDD records to be maintained for at least five years.
- The HVD Guidance Notes address record keeping briefly: Section 10 indicates “You only need to keep records relating to HVPs (high value payments). You do not need to keep records of payments you accept less than €15,000 or by check or credit card.”
- HVD Guidance Notes are informational only and not enforceable.
- Recommendation: Address criteria 5.1, 5.2(c), 5.2(d), 5.2(e), 5.5.2(b), and 5.7 in law or regulation; require written findings of reviews of large/complex/unusual transactions and keep for five years.

### R.11 — Large, complex, or unusual transactions
- No statutory requirement in the CJO to pay “special attention to all complex, unusual large transactions, and all unusual patters of transactions, which have no apparent economic or visible purpose.”
- AMLGNs were updated during the assessment to include new language regarding this Recommendation, but AMLGNs do not fully address the Recommendation and were rated “partially compliant.”
- As a result, standards applied to TCSPs and the gambling sector (via licensing agreement) do not fully satisfy the international standard.
- England’s ML Regulations 2003 contain no special provisions for “complex, large, or unusual” transactions.
- HVD Guidance Notes recognize large and unusual transactions, but do not address documentation requirements of R.11 and are not enforceable.
- Recommendation: Develop requirements for DNFBPs to ensure large, complex or unusual transactions are reviewed, findings set in writing, and retained for five years.

### R.17 — Sanctions and enforcement for DNFBPs
- Sections 11 and 13 of the CJO set forth client identification requirements; the CJO applies to all DNFBP categories. Failure can lead to indictments, fines or imprisonment.
- TCSPs are subject to sanctions under the Financial Services Ordinance 1989; the FSC imposes license conditions “as necessary or desirable for the protection of investors” and can suspend or cancel licenses.
- The Gaming Ordinance 1958 does not provide additional sanctions against the gambling sector for non‑compliance with the CJO; licenses may be revoked for unauthorized or unlicensed activity but no other action is provided by the law.
- The Licensing Authority (FDS) requires compliance with AMLGNs as a condition of licenses it issues; the current land‑based casino license did not contain this provision but the FDS plans to include it in a new license in April 2006.
- No regulatory sanctions available to high value goods dealers, real estate agents, auditors, and accountants, although the Auditors Registration Board may remove an auditor from its registry.
- Lawyers in Gibraltar who violate England’s ML Regulations 2003 are exposed to disciplinary proceedings under the Supreme Court Barristers’ and Solicitors’ Rules unless the circumstances independently constitute an offense under the CJO or DTO.

### Recommendations and priority actions (bulleted from the assessment)
- Develop and apply strong requirements for customer due diligence for all categories of DNFBPs not subject to the requirements of the FSC‑issued AMLGNs, including:
  - ongoing monitoring;
  - obtaining information on the purpose and intended nature of the business relationship;
  - performing enhanced due diligence on higher risk customers or business relationships;
  - prohibiting opening of an account or commencing business relationships when an entity cannot provide appropriate CDD information;
- Address criteria 5.1, 5.2(c), 5.2(d), 5.2(e), 5.5.2(b), and 5.7 in law or regulation;
- Ensure DNFBPs are subject to adequate requirements for PEP clients or business relationships;
- Address risks associated with new technologies and non‑face‑to‑face business;
- Develop requirements for DNFBPs in the area of large, complex or unusual transactions so these are reviewed, with findings set in writing and kept for five years;
- Address the lack of sanctioning ability for DNFBPs, other than TCSPs, in the area of conducting appropriate customer due diligence;
- Finalize the development and release of the regulations for the Conduct of Business (Fiduciary Services);
- Finalize the new licensing agreement for the sole land based casino and include specific observance to the need to comply with the AMLGNs;
- Afford priority to the implementation of the new Gambling Ordinance and resourcing of the GRA; the GRA should give priority to releasing a Code of Conduct specifying expectations for license holders to meet legal AML/CFT obligations, and adherence to such a Code of Conduct should be mandatory in all licensing agreements for the gambling sector.

### Compliance with FATF Recommendations — summary
- R.12: Partially compliant
  - While numerous deficiencies exist in requirements for DNFBPs on CDD, PEPs, etc., two key areas of risk (TCSP and internet based gambling) are subject to more robust standards through the AMLGNs.

### Suspicious transactions reporting (R.13–R.15, applying R.16, 17 & 21)
- R.13 — Reporting obligations:
  - Legal obligations for suspicious transaction reports for money laundering are found under the CJO and the DTOO; for financing of terrorism key provisions are in the Terrorism Order 2001 and the Terrorism Ordinance 2005.
  - The Terrorism Order 2001 applies only to banks and building societies.
  - There are no thresholds for reporting; all entities including DNFBPs must report regardless of the size of the transaction or activity.
  - By operation of Sections 7–8 of the Criminal Offenses Ordinance (COO), reporting obligations extend to suspicions of attempted transactions; there is no specific requirement to file on attempted transactions—requirement is for any suspicious transaction regardless of stage.
  - The HVD Guidance Notes provide detail on reporting requirements but are not enforceable.
  - Specific exemptions in the CJO for reporting by notaries, independent legal professions, auditors, external accountants and tax advisors when it involves defined client privilege (Section (2A)(2) of the CJO).
  - Confusion exists over where disclosures should be sent: all STRs related to money laundering are to be sent to the GFIU, although CJO, DTOO and TOO indicate disclosures should be made to a police or customs officer; HVD Guidance Notes state compliance if “a disclosure is made to an officer in the GFIU.”
  - Reports related to terrorism must be provided to the governor (Terrorism Order 2001) or the police (Terrorism Ordinance 2005).
  - New Gambling Ordinance 2005 (when in effect) will require licensed gambling activities to make disclosures to the Gambling Commissioner; the Commission must send the disclosure to the GFIU and any other law enforcement authority as appropriate.
  - Subject to client privilege exemptions in the CJO, lawyers are under the same STR filing obligations as other relevant financial businesses under the CJO, DTOO and TO.
  - Disclosures made in good faith are afforded protection from actions for breach of release of information imposed by statute or otherwise.
  - The requirement to report extends to transactions “thought among other things to involve tax matters.” AMLGNs signal that without actual knowledge that a tax offense is being committed no report is required; the AMLGNs do not apply to lawyers.
  - Section 1.5 (referenced) provides statistics on volume of reports to the GFIU; staggered inclusion of DNFBP categories and strong FSC supervision likely explain dominance of TCSP and lawyer sectors in filings; casino sector appears to be under‑filing.
- R.14 — Protection and tipping off:
  - Statutory protections for good‑faith disclosures from criminal and civil liability: CJO (Section 2(3)(a)) and DTO (Section 57(3)); Terrorism Ordinance covered by Section 2(3)(a).
  - To be protected from liability for continuing to deal with funds/accounts/clients/arrangements related to a disclosure, disclosing parties must obtain consent of a police or customs officer (CJO Section 2(3)(b); DTOO Section 56(5); TO Section 9).
  - Gibraltar law prohibits “tipping off” (CJO Section 5; DTOO Section 58(1)); exception for providing professional advice in connection with legal position or defense.
  - AMLGNs and HVD Guidance Notes reference tipping off and provide guidance to avoid inadvertent tipping off.
  - No specific statutory/regulatory provision ensuring confidentiality of names and personal details of staff making disclosures by GFIU, but GFIU staff are subject to police disciplinary regulations and Official Secrets Act.
  - Lawyers view good‑faith STR disclosures as not conflicting with client confidentiality; lawyers have been filing STRs.
- R.15 — Internal controls, training and audit:
  - Section 9(1) of the CJO requires programs including identification procedures, record keeping, internal reporting, and “such other procedures of internal control and communication as may be appropriate for the purposes of forestalling and preventing money laundering.”
  - An MLRO must be appointed under Section 18 of the CJO with “reasonable access to other information” available to persons maintaining internal reporting procedures.
  - CJO covers employee training to recognize suspicious transactions.
  - CJO does not cover:
    - a requirement to maintain an adequately resourced and independent audit function to test compliance with policies, procedures and controls;
    - a requirement for DNFBPs to put in place screening procedures to ensure high standards when hiring employees.
  - AMLGNs were updated to include an audit/compliance check function requirement, but this is unlikely to have taken effect in DNFBP sectors covered (TCSPs and casinos).
  - Limited provisions on screening of employees; do not apply to TCSP or online gaming business. Existing Gaming Ordinance 1958 has no provisions to address screening.
  - For trust and company service providers, Section 12 of the Conduct of Business Regulations (Financial Services) requires licensees to ensure staff are suitably trained and an appropriate internal organization exists.
  - For lawyers, the Money Laundering Regulations 2003 (Law Society of England and Wales) aim to enable recognition and reporting of suspicious transactions and ensure an audit trail; lawyers in Gibraltar must file an annual report certifying compliance with solicitors’ accounts rules, which include an independent audit requirement focused on client accounts rather than AML/CFT compliance.

*International Monetary Fund assessment report (cr07157).*

### Section 3.56 of the Law Society regulations requires a nominated person to receive reports of suspected

### cr07157 - Section 3.56 of the Law Society regulations requires a nominated person to receive reports of suspected

### Legal and regulatory framework for DNFBPs
- Section 3.56 of the Law Society regulations requires a nominated person to receive reports of suspected money laundering.
- Section 3.59 requires that officer to be of sufficient seniority and in a position of sufficient responsibility to enable him or her to have access to all of the firm’s client files and business information.
- The Law Society regulations include extensive provisions on training.
- The HVD Guidance Notes provide examples of specific controls that should be considered by HVDs, but the audit function and screening procedures are not addressed.
- No further guidance has been issued for DNFBPs outside the sectors covered by the AMLGNs.

### Criminal and regulatory sanctions (R.17)
- Criminal sanctions for non compliance with the laws’ provisions for failure to report, tipping off and internal controls apply to all DNFBPs in the same way as for financial institutions.
- TCSPs can be sanctioned by the FSC through issuance of conditions on the license; informal mechanisms such as exchanges of letters between the FSC and the licensees are also used.
- Licensing sanctions (suspension and cancellation) exist for the gambling sector.
- There is little or no sanctioning power available against other DNFBPs except:
  - general disciplinary action arising out of professional misconduct by lawyers, and
  - revocation of auditors’ registration by the Auditors Registration Board (ARB).
- Those disciplinary powers are not specific to non compliance with the preventative provisions of the CJO or disclosure provisions of the DTOO or TO.

### Requirements related to foreign jurisdictions (R.21)
- Requirements to pay special attention to business relationships and transactions with persons and companies “from countries which do not or insufficiently apply the FATF Recommendations” are found only in the AMLGNs; there are no provisions in the CJO.
- Because the AMLGNs cover only two sectors within the umbrella of DNFBPs, only TCSP and the gambling sector are subject to requirements for Recommendation 21.
- The Law Society regulations are silent with respect to Recommendation 21.
- The AMLGNs address dealings with persons from countries with insufficient AML measures in Sections 4–155 to 4–159; a full discussion is in Section 2.6 of the report.
- The vast majority of Gibraltar’s business comes from clients residing outside of Gibraltar, making this a key issue.

### Supervision, monitoring and sectoral analysis (R.17, R.24–25)
- All categories of DNFBP must meet standards in Sections 9 to 18 of the CJO (preventative measures and disclosure obligations), but not all categories are subject to regular oversight.
- The Government of Gibraltar (GOG) has yet to designate responsibility for monitoring AML/CFT compliance for all DNFBP categories.
- No process appears to have been undertaken to assess relative ML/TF risk across all DNFBP sectors to determine appropriate monitoring levels; accordingly no specific monitoring authority has been allocated for DNFBP categories not regulated by the FSC or the new GRA.

Trust and Company Service Providers (TCSP)
- TCSPs are supervised by the FSC under Section 2(1) of the FSC Ordinance of 1989.
- The FSC’s Fiduciary Services (FS) Department increased staffing from 1.5 at the time of the previous IMF assessment to 5.
- The Department averages between 15 and 20 full group on-site risk assessments per year.
- Depending on the risk profile of a TCSP, follow-on site assessments would on average occur within a 4 year cycle.
- As part of license conditions, licensees must provide an annual, self assessment based assurance of compliance with license conditions, including compliance with FSC enforceable guidance such as the FSC’s AMLGNs.
- The FSC maintains a sanctions enforcement database but does not keep separate statistics specifically for AML/CFT remedial or sanction actions.

Gambling sector
- The Finance and Development Secretary (FDS) is the existing authority for licensing and regulation of the gambling sector (land and internet based licensees).
- The FDS’s main sanctioning power is to approve and remove licenses; the FDS does not have resources to undertake on-site AML/CFT monitoring.
- The Gambling Ordinance 2005 was enacted in December 2005, although it was not yet in effect at the time of assessment; implementation was expected by May 2006.
- The Ordinance establishes a Gambling Commissioner (the Gibraltar Regulatory Authority, GRA) and a Gambling Ombudsman; licensing power will be placed at the minister’s discretion.
- Schedule 1, Section 4 of the Ordinance allows the Licensing Authority discretion to take into account control measures to identify money laundering; the lack of mandatory requirements in that provision is a concern.
- The GRA is provided power to establish codes of practice, including AML prevention guidelines; the new Ordinance provides an offence for non-compliance with license terms which will include reference to Codes of Practice.
- The assessors noted that implementation and resourcing of the GRA will be critical for effective supervision.

Legal professionals, notaries, auditors, real estate agents, HVD dealers
- The fused legal professions (solicitors and barristers) operate under Supreme Court Ordinance and are required to comply with the Money-laundering Regulations of 2003 issued by the Law Society of England and Wales.
- Lawyers must establish internal control procedures, designate a “nominated officer” to receive internal reports of suspicious circumstances, and establish procedures for training, client identification, record keeping, and internal reporting (see Regulation 3, cited in Law Society of England and Wales, Guide Online, Section 3.16).
- Violations of the Law Society’s money laundering regulations expose attorneys to disciplinary proceedings pursuant to the Supreme Court Barristers’ and Solicitors Rules.
- Lawyers in Gibraltar must file an annual report with the Chief Justice certifying compliance with solicitors’ accounts rules, which include an independent audit requirement; auditors do not specifically address compliance with the U.K. Law Society’s AML rules.
- Notaries are licensed for life by the Archbishop of Canterbury and perform limited functions; FATF recommendations are not applicable to notaries in Gibraltar.
- Three categories of auditors registered with the Auditors Registration Board (ARB); category 3 auditors are not subject to the same professional qualification standards and cannot sign accounts.
- The ARB can remove people from its registry but lacks resources to conduct inspections; it is considering yearly self assessment of practice and compliance.
- Two audit/accountancy societies exist: GSCCAB and the Gibraltar Accountants and Auditors Association; neither association has been allocated responsibility for monitoring members’ compliance with AML/CFT obligations; GSCCAB provides specialist training courses but no sector guidance has been issued.
- Real estate agents are not subject to licensing or registration requirements; no monitoring authority exists and no sector-specific guidance has been provided.
- Dealers in any business that accept cash of €15,000 or more (HVD Dealers) are within CJO scope; the GOG issued specific guidance to this sector in April 2005 for information only and not enforceable; no monitoring authority has been determined for this sector.

Role and capacity of the GFIU
- The GFIU does not have a supervisory role; it provides guidance on disclosure procedures and indicators of suspicious transactions.
- GFIU staff have made educational visits to various car dealers, but effective contact with all sectors not regulated by the FSC has yet to be established.
- The GFIU intends to conduct an outreach program to all DNFBP sectors during 2006.
- The GFIU is designated as the administrative unit to which disclosures of suspicion are to be provided, but it has not been allocated powers of sanction for non, late or incomplete reporting.
- The GFIU produces a periodic newsletter; two have been developed in the last six months.
- For sectors covered by the FSC’s AMLGNs, a sample report is in the annex of those guidance notes.
- The GFIU acknowledges all disclosures it receives and provides feedback and updates on investigations where appropriate, but to date has had limited contact with DNFBP sectors outside FSC-regulated TCSPs and car dealers.

### Key findings and compliance ratings
- R.16 — Partially compliant
  - Reporting requirements and tipping off provisions exist, but significant attention is needed on audit requirements and dealing with clients from outside Gibraltar.
  - Lack of effective oversight for most DNFBPs other than FSC-supervised TCSPs limits ability to assess effectiveness; limited sanctioning powers constrain corrective action.
- R.17 — Partially compliant
  - A range of supervisory sanctions apply for the TCSP sector and internet based casinos, but few for the land based casino or other DNFBP entities.
- R.24 — Partially compliant
  - Effective monitoring arrangement exists for the high risk TCSP sector.
  - Bringing the Gambling Ordinance into effect and resourcing the GRA would improve oversight of the gambling sector; until implemented, monitoring is low.
  - It is unclear how non compliance with specific AML/CFT obligations by lawyers would be detected or escalated.
  - No process is apparent to determine appropriate monitoring levels for the remaining DNFBP sectors and no authority has been designated.
- R.25 — Partially compliant
  - Little guidance for non TCSP, internet based gambling and HVD categories to assist compliance; TF is not addressed outside the AMLGNs (which only apply to TCSP and internet based gambling).
  - Little general feedback to DNFBPs outside FSC-regulated TCSPs and car dealers given minimal GFIU contact.

### Recommendations and policy actions
- Consider specifying time limits on consent and non-consent letters to assist disclosing businesses to avoid inadvertent tipping off to customers.
- Remove the current s 33(1)(2) requirement in the new Gambling Ordinance that requires gambling licensees to first make disclosures of alleged money laundering to the Gambling Commissioner as opposed to the GFIU, to maintain confidentiality and integrity of the disclosure system.
- Extend, in law or regulation, provisions for internal control systems to cover the financing of terrorism in addition to AML.
- Address the need for an audit function to test compliance with policies, procedures, and controls in DNFBP entities not subject to FSC AMLGNs.
- Require screening procedures in DNFBP entities not subject to FSC AMLGNs to ensure high standards when hiring employees.
- Extend requirements related to dealing with clients in jurisdictions that do not or insufficiently apply the FATF Recommendations to all DNFBPs.
- Consider a more proportional level of regulatory sanction for non gambling and non TCSP DNFBP categories.
- Determine, implement and publicly declare the appropriate monitoring and sanctioning authority for DNFBP categories not subject to supervision by the FSC, FDS or future GRA.
- Make mandatory in license agreements that compliance with the AMLGNs and any subsequent Codes of Conduct issued by the Gambling Commissioner is a condition of license.
- Amend Schedule 1, Section 4 of the Gambling Ordinance 2005 to make mandatory the requirements in Subsections (a) through (k) and explicitly condition license compliance on AMLGNs and future Codes of Conduct issued by the GRA.
- Implement the Gambling Ordinance 2005 as a priority.
- Ensure the GRA is allocated appropriate budget, staffing and other resources to meet requirements under the new Gambling Ordinance.
- Develop sector-specific AML/CFT guidelines for DNFBP entities not covered by the AMLGNs and the HVD Guidance Notes (covering both AML and CFT).
- Ensure the FIU provides guidance to all sectors regarding reporting requirements and typologies.
- Identify and designate an appropriate authority to monitor DNFBPs (other than TCSP and gambling); given jurisdiction size, consideration of using FSC expertise may be appropriate.
- Ensure designated competent authorities for DNFBPs are represented on the domestic Enforcement Committee.

*Source: IMF country report cr07157*

### 3.4  Other non-financial businesses and professions––Modern secure transaction

### 3.4  Other non-financial businesses and professions––Modern secure transaction techniques (R.20)

### Description and analysis
- The government of Gibraltar has extended the provisions in the CJO beyond the FATF definition of DNFBP to include "all dealers in high value goods whenever a payment is made in cash and in an amount of €15,000 or more." This is addressed in Section 8 of the CJO and subjects those dealers to AML/CFT requirements.
- The government developed the HVD Guidance Notes for those dealers; the Guidance Notes are for informational purposes only but provide a useful tool.
- Gibraltar has a modern financial services sector:
  - Banks are subsidiaries or branches of major international banks that use modern and secure techniques for conducting financial transactions.
  - Rapidly growing internet gaming sector makes extensive use of recognized banking credit and debit card facilities.
  - Existence of a modern and well regulated financial sector.
  - Recent introduction of increased security checks to prevent identity fraud for credit cards.

### Recommendations and comments
- The assessment rates R.20 as: R.20 Compliant — This Recommendation is fully met.

*Source: IMF assessment of Gibraltar.*

---

### 4.1  Legal Persons–Access to beneficial ownership and control information (R.33)

### Description and analysis — Gibraltar companies and registries
- Gibraltar company law is based on the United Kingdom’s Companies Act 1929 as updated by local statute and European Union company law directives; legislation was consolidated into an updated Companies Ordinance 1930.
- Gibraltar generally provides for public companies limited by shares or guarantee and private companies limited by shares or guarantee; also possible: unlimited company with share capital, European Economic Interest Grouping, and protected cell company (limited to insurance companies with permission from the FSC).
- Approximately 25,000 active companies in Gibraltar; the vast majority are private companies (defined as having not more than 50 shareholders). The number of active companies has declined by approximately 5,000 since 2001.
- Section 14 of the Companies Ordinance requires all companies incorporated in Gibraltar to be registered.
- Companies House Gibraltar:
  - Staff of 20 people (including several experienced company formation lawyers).
  - Obligation by law to keep a public record of ownership of shares of all companies; information updated annually or whenever a change of ownership of the shares takes place.
  - Maintains an electronic data base, available on-line to subscribers; searchable only by company name or company number (not by names of directors, shareholders, registered agent, address, etc.).
  - If a company does not file an annual return it may be struck off the register and its property confiscated.
  - Responds to regular requests from financial institutions for certificates of good standing; in nearly half of such cases they are unable to provide a certificate in the first instance because the company records are not up-to-date.
- Gibraltar law allows nominee shareholders and corporate directors; directors need not be Gibraltar residents.
- Bearer shares are not permissible, but "share warrants" to bearer are. Officials stated few share warrants to bearer are issued and outstanding and almost invariably are immobilized. Government intends to repeal legislation relating to share warrants to bearer as part of OECD commitments.
- All Gibraltar companies must have a registered office in Gibraltar. Foreign companies doing business or with a place of business in Gibraltar must register and comply with the same disclosure requirements.
- All companies must maintain in their registered office a Register of Members including name, address, nationality and profession of all shareholders; Register of Members is open to public inspection.
- Companies accounts required by Companies (Accounts) Ordinance 1999, Section 1(2) and 3(1) require accounts to give a true and fair view of assets, liabilities, financial position and profit and loss; filings vary by type and size of company.

### Description and analysis — Partnerships and service providers
- Limited Partnership Ordinance 1927 requires registration of name, nature of business, place, name of partners, terms of partnership, statement of limitations, and sums contributed; registry required to be updated on changes. Limited partnerships are also registered at Companies House. Simple partnerships are not required to register.
- Regulation of trust and company service providers:
  - Pursuant to Schedule 3 of the Financial Services Ordinance 1989, only persons licensed under the Financial Services Ordinance can form and manage companies in Gibraltar.
  - Schedule 3 defines company management to include formation, management or administration of companies, provision of corporate or individual directors, company secretary services, nominee services (including acting as or providing nominee shareholders), registered offices, and acting as director or partner.
  - Persons who provide these services for strictly local Gibraltar businesses are exempt.
  - Professional trusteeship defined; 82 groups of companies currently licensed to provide company management and professional trusteeship services in Gibraltar.
  - Section 9 of the FSO provides criteria and standards for licensing; applicants must be “fit and proper” and involve at least two competent individuals in directing the business; all licensees must have a physical presence in Gibraltar. A multiple-layered internal FSC approval process is used.
  - After licensing, licensees must advise the commissioner of material changes (changes of control, appointment of new directors and managers require consent). Licensees must submit audited financial statements and auditors must report to the Commission on compliance with specified regulatory obligations.
  - Licensees required by the FSC to conduct customer due diligence and “know-your-customer” procedures, and to report suspicious transactions pursuant to the CJO and DTO, on the same terms as banks and other financial institutions.
  - Trust and company service providers are required as a condition of doing business to obtain true beneficial owner information for all clients (specific requirements referenced in Section 2.2).
  - Licensees are supervised for AML/CFT compliance by a specialized fiduciary group conducting regular on-site visits and training; FSC may review all relevant documents maintained by licensees and draft regulations for fiduciary services business are under consideration.
- Industry practice: approximately 80 percent of the companies under management in Gibraltar are incorporated elsewhere (BVI, Channel Islands, Cyprus, England, Ireland, Israel, and the United States). FSC’s AMLGNs apply equally to Gibraltar licensees acting for foreign companies.

### Access to beneficial ownership and control information
- First line information on company ownership and control is publicly available through the Registrar, Companies House; limited partnership information similarly available.
- Registrars have no access beyond filed information, which may or may not include actual beneficial ownership and control information.
- FSC has broad supervisory powers to review records of trust and company service providers, including customer files; FSC provided a comprehensive examiner checklist of minimum items expected in licensees’ files, including non-Gibraltar entities under management. FSC may file an STR with the GFIU and can share company files with foreign supervisors under the FSCO.
- Gibraltar police and customs generally rely upon production orders issued by the magistrates’ court (Section 28 of the Magistrates’ Court Ordinance) to obtain company records; such production orders may be crafted broadly to include information on ownership and control of companies incorporated elsewhere but managed in Gibraltar and are enforceable through criminal contempt proceedings (they may be challenged as to scope and grounds).
- The governor has authority under Section 12 of Schedule10 of the Companies Ordinance to appoint an inspector to investigate and report on ownership and control of companies formed in Gibraltar, with a principal place of business in Gibraltar, or that has at any time carried on business in Gibraltar; authority includes powers to compel document production, execute search warrants, and hold persons in contempt. Authorities have used this authority on occasion.
- Production orders often sought through civil applications in fraud cases (Norridge Pharma disclosure orders, Mareva injunctions). Foreign governments have sought and obtained civil injunctions in fraud cases where they can assert a claim against assets held in Gibraltar.

### Recommendations and comments
- Repeal legislation allowing share warrants to bearer.
- Ensure Companies House’s data base is searchable by all relevant fields.
- Provide the FSC complete access to information on file at Companies House.
- Allow police and customs to compel production of client information required to be maintained by licensees under customer identification requirements in domestic and international criminal investigations. Use Schedule10 of the Companies Ordinance as a model.

### Compliance with FATF Recommendations
- Rating: R.33 Largely compliant
  - Summary of factors underlying rating: Share to warrants should be abolished and Companies House registry should be searchable by multiple fields.

*Source: IMF assessment of Gibraltar.*

---

### 4.2  Legal Arrangements–Access to beneficial ownership and control information (R.34)

### Description and analysis — Trusts and registrations
- Over 2,000 trusts under administration in or from within Gibraltar by a variety of licensed service providers.
- Types of trusts in Gibraltar include accumulation and maintenance settlements, non-interest in possession settlements, interest in possession settlements, bare trusts, discretionary trusts, and charitable trusts.
- Trust legislation in Gibraltar does not differ significantly from other jurisdictions; English equitable principles applied by the English Law (Application) Ordinances.
- Resident trustees of domestic and foreign trusts obligated to have information on identity of settlors, protectors and enforcers, and beneficiaries under relevant trust law and anti-money-laundering legislation.
- Trustees required to maintain trust deeds/declarations of trust, letters of wishes, records of trust assets and general correspondence files for all trusts acted for.
- Except for asset protection trusts, trusts are not required to be registered in Gibraltar, though possible through Registrar at Companies House if chosen.

### Asset protection trusts and flee clauses
- Asset Protection Trusts:
  - Gibraltar law provides for asset protection trusts under Section 42A of the Bankruptcy (Registry of Dispositions) Ordinance; provision exempts certain trusts from the Fraudulent Conveyances Act of 1571 as a condition for exemption.
  - Such trusts must be registered with the FSC pursuant to regulations issued by the Financial and Development Secretary; approximately 70 such trusts are registered.
  - Registration application must disclose: name and address of the trustee, name of the disposition, date of making of the disposition and duration thereof, and country of ordinary residence of the settlor.
  - No legal requirement to disclose identity of the settlor or the beneficiaries, although AML/CFT requirements mandate such information be maintained by a licensed Trust or Company Service Provider.
- Flee clauses:
  - Gibraltar legislation does not proscribe inclusion of "flee clauses"; trusts in Gibraltar may include such clauses.
  - Authorities indicated certain events, if included, would render a flee clause unenforceable as contrary to public policy (e.g., triggered by occurrence of a criminal act or fraud).

### Regulation of professional trustees and supervisory oversight
- Professional trustees must be licensed; private family trusts may be administered by non-licensed trustees.
- Licensed trustees are subject to full regulatory controls and AML requirements (CDD, KYC, STR) as for traditional financial institutions.
- FSC requires three annual returns from professional trustees (and licensed company service providers): audited annual financial statements, statement of compliance and returns on trusts (and companies) under management.
- Statement of compliance requires review of arrangements regarding customers’ money and accounts to ensure monies administered appropriately; on-site supervisory work includes review of audit letters to management and client files to ensure appropriate CDD documentation and controls are evidenced.

### Access to trust records
- FSC has broad powers to review records of trust and company service providers, including trust files; FSC may file an STR with the GFIU and can share trust files with foreign supervisors under the FSCO.
- Gibraltar police and customs generally rely upon production orders issued by the magistrates’ court to obtain trust records; such production orders may be crafted broadly to include information on settlors, beneficiaries, controllers, and protectors to the extent such records are maintained in Gibraltar and reasonably necessary for a criminal investigation.
- The governor has no authority with respect to trusts comparable to Section 12 of Schedule 10 of the Companies Ordinance to appoint an inspector to investigate and report on ownership and control of companies.

### Recommendations and comments
- Abolish or limit asset protection trusts, or failing that require disclosure of the name and address of the settlor in addition to the other information required in the registration application.
- Amend trust legislation to restrict the use of "flee clauses."
- Consider requiring trusts that hold shares in corporations to disclose the trust settlor, beneficiaries, and/or trustees.

### Compliance with FATF Recommendations
- Rating: R.34 Largely compliant
  - Summary of factors underlying rating: Continued existence of asset protection trusts and flee clauses. Competent law enforcement authorities may not have access in a timely fashion to adequate, accurate and current information on beneficial ownership and control.

*Source: IMF assessment of Gibraltar.*

### 4.3  Non-profit organizations (SR.VIII)

### 4.3 Non-profit organizations (SR.VIII)

### Description and legal framework
- Charities in Gibraltar have been regulated since 1964 under the Charities Ordinance (1962) (“CO”).
- Current number of registered charities: 166.
- Ninety-five percent of the charities in Gibraltar are purely local in nature.
- No other forms of non profit organizations are allowed.
- A Board of Charity Commissioners (the “Board”) is established under Section 4 of the CO “to promote the effective use of charitable resources by encouraging the development of better methods of administration, by giving charity trustees information or advice on any matter affecting the charity and by investigating and checking abuses.”
- Section 6 of the CO requires a register of charities to be established and maintained by the Board; Section 6(4) creates an exemption for “exempt charities” and charities accepted by order or regulations.
- Schedule 2 to the CO lists exemptions and includes:
  - “(a) any cathedral or collegiate church or any building bona fide used exclusively as a place of meeting for religious purposes;”
  - “(b) any friendly or benefit society or savings bank.”

### Registration, vetting, and gatekeeping
- For non-exempt charities Section 6(5) requires an application for registration to be filed with the Board, including any trust documents or other documents or information that the Board may prescribe.
- Usual Board practice:
  - Require audited accounts prior to approval.
  - Conduct personal interviews with trustees and representatives of the applicant.
  - Require that a local trustee be appointed for all charities.
- Board composition and meeting frequency:
  - Chief Charity Commissioner (a very senior barrister-at-law and Queen’s Counsel) plus three other commissioners, one of whom is a chartered accountant.
  - The Board sits three or four times per year.
- The Supreme Court staff act in a secretariat role for the Board.
- There is an official complaints procedure; complaints are rigorously investigated by the Board.

### Supervisory, investigative and enforcement powers
- Section 8 grants the Board general powers to institute inquiries into charities or classes of charities and to:
  - Require charities to furnish accounts and written statements regarding the matter under review.
  - Require attendance to give evidence under oath.
  - Require production of documents in custody or control and keep copies.
- Section 9 empowers the Board to call for documents, search records and make copies of records or documents from a court, public registry or office of records.
- Section 31 requires each charity to keep proper books of account and prepare a statement of account no less than every fifteen months.
- Section 17 allows the Board to exercise the same wide jurisdiction and powers as the Supreme Court regarding:
  - Appointing, discharging or removing charity trustees.
  - Establishing schemes for administration of a charity.
  - Vesting or transferring property in a charity.
  - The Supreme Court may refer matters to the Board after ordering a scheme for administration.
- Section 19 enables the Board, after inquiry, to move trustees for misconduct or mismanagement or to protect trust property, including stopping transactions, removing trustees and appointing the Official Custodian.
- The Board can apply to the attorney general to take action to freeze the accounts of the charity under UN Order 2001 or the TO.

### Accounts, audits, and the Official Custodian
- Section 10 requires annual audits of charities with permanent endowments; for other charities annual statements may be requested by the Board.
- In practice:
  - All charities are required to file annual audited accounts with the Supreme Court registry.
  - Audited accounts are perused by a member of the Board and then passed on to the Board.
  - Audits may be required to be conducted by an auditor recognized by the Board; the Board may require audits depending on the resources of the charity.
  - The Board reviews all accounts to consider whether charities are complying with the approved objects.
  - The intimate scale of Gibraltar allows Board members ongoing appreciation of charities’ work.
- Section 5 creates an “official custodian for charities” (“Official Custodian”) appointed by the governor to act as trustee in circumstances set out in the CO, including by court order under Section 15.
  - Where the Official Custodian acts, it must keep books and accounts and records; these records must be audited by the Principal Auditor for Gibraltar and a report prepared for the governor on an annual basis.

### Alteration, removal and redistribution of charitable property
- Under Section 6(3) the Board must remove charities from the register where purposes or trusts change or the charity has ceased to operate.
- Section 13(1) provides for Cy pres where original purposes of a gift have been fulfilled or are useless or harmful to the community; trustees can alter the gift by equitable remedy.
- If trustees fail to act, Section 15 allows the Supreme Court to vest trust property in the Official Custodian.
- Section 18 gives the Board powers to make schemes or alter application of charitable property.

### Risk assessment, terrorist financing risk, and FATF guidance
- Overall assessment: The CO provides a solid framework for supervision, investigation and intervention regarding charities; registration requirements and application disclosure indicate the Board is fulfilling a gatekeeper role.
- Given the current risk of terrorist financing being sent through religious charities, a review of the exemption in Schedule 2(a) is strongly advised.
- Board members were unaware of the FATF’s guidance on possible abuse of non-profit organizations for terrorist financing purposes.
- A copy of the Interpretative Note on SR VIII and the Best Practices Paper was provided to the Board during the assessment.

### Recommendations
- Review the current legislation and approval and monitoring process in light of the FATF documents that the assessors provided to the Board.
- Review, in particular, the current policy of granting a blanket exemption from registration to religious charities.

### Compliance with FATF Special Recommendation VIII
- Rating: Largely compliant.
- Summary of factors underlying rating:
  - Conduct a review to ensure that terrorist financing risks are fully addressed, particularly regarding exempt religious charities.

*Source: IMF assessment — section 4.3 Non-profit organizations (SR.VIII).*

### Section 21, and Section 16 provides that evidence seized by a police officer pursuant to a search warrant will be

### cr07157 - Section 21, and Section 16 provides that evidence seized by a police officer pursuant to a search warrant will be

### Mutual legal assistance (general framework)
- Evidence seized pursuant to a search warrant is sent to the court or authority that made the request for assistance (Sections 18–19; Sections 21 and 16 context).
- Police or customs officers present affidavits, sworn statements, documents and other material to the Gibraltar court when the court “receives evidence” pursuant to a mutual legal assistance request.
- The court ensures that the investigator has followed appropriate procedures and documented findings; originals or copies of relevant documents and other relevant evidence can be provided to foreign authorities.
- Persons in custody may be transferred temporarily to other Schengen territories for hearings; persons may be transferred through Gibraltar to facilitate cooperation between other Schengen states (Sections 18–19).

### MLA (International) Ordinance
- The Gibraltar parliament passed the Mutual Legal Assistance (International) Ordinance last year; it provides for mutual legal assistance with reciprocating countries outside the EU without dual criminality restrictions and in both proceedings and investigations on substantially the same terms as the MLA (EU) Ordinance provides for EU countries.
- The MLA (International) Ordinance contains a broad exclusion of fiscal offenses from the definition of “offense”; authorities indicated they would not refuse cooperation on fiscal offenses provided they also involve other offenses, such as false accounting.
- The MLA (International) Ordinance is not effectively in force because no schedule of countries to which it applies has yet been elaborated.
- The Ordinance contemplates negotiation of bilateral agreements to give effect to its provisions; Gibraltar can negotiate these agreements directly without intervention or specific approval from the UK.
- The Chief Minister indicated Gibraltar would seek only very basic assurances of reciprocity from counterparties.
- Practical experience: Gibraltar sought negotiations with one non-EU government for a year without reply; another government began negotiations but put them aside when the underlying case moved into formal proceedings.
- A draft bill published in the Gibraltar Gazette on March 9, 2006, entitled “Transnational Organized Crime Ordinance 2006,” would, if enacted, deem parties to the convention automatically eligible to take advantage of the provisions of the MLA (International) Ordinance.
- Recommendation/priority: "Gibraltar should enact the UNTOC ordinance promptly."

### Drug Trafficking Offenses Ordinance (DTOO)
- In money-laundering cases arising out of drug trafficking, Gibraltar can provide mutual legal assistance under Part III of the DTOO.
- Pursuant to a letter rogatory to which the Vienna Convention has been extended, and if the Attorney General is satisfied that (a) there are reasonable grounds for suspecting a drug trafficking offense has been committed and (b) proceedings have been instituted or an investigation is underway, the Attorney General may nominate a court in Gibraltar to receive evidence pursuant to Section 40 of the DTOO. Evidence includes “documents and other articles.”
- A Gibraltar court may issue a subpoena duces tecum to collect documentary evidence to satisfy a Section 40 request pursuant to the court’s inherent authority.
- Under Section 43 of the DTOO, customs and police officers may obtain a search warrant to assist in an overseas drug trafficking or drug money‑laundering investigation where:
  - criminal proceedings have been instituted against a person in a convention state outside Gibraltar or a person has been arrested in the course of a criminal investigation there;
  - the conduct would have constituted an offense in Gibraltar had it occurred there; and
  - there are reasonable grounds for suspecting there are on premises in Gibraltar occupied or controlled by that person evidence relating to the offense.
- Authorities note Section 43 provides very limited ability to search for business or financial records in drug money‑laundering cases because overseas suspects typically do not “occupy or control” premises in Gibraltar containing relevant records; subpoenas are more commonly relied upon to obtain business and financial records.
- Under Section 44 of the DTOO, Gibraltar provides for enforcement of overseas forfeiture orders “of anything in respect of which an offence to whom this section applies has been committed or which was used, or intended for use, in connection with the commission of such an offence.” Section 44 requires dual criminality, allows Gibraltar courts to register an order as a condition of enforcement, and permits courts to modify such orders as deemed appropriate.
- Registration and enforcement of external confiscation orders is presently available under Section 26 of the DTOO (Designated Countries and Territories) Order 1999 for specified designated countries (Anguilla, Australia, the Bahamas, Bahrain, Barbados, Bermuda, Canada, Cayman Islands, Denmark, Guernsey, Hong Kong, India, Isle of Man, Italy, Jersey, Malaysia, Montserrat, Netherlands, Nigeria, Saudi Arabia, South Africa, Spain, Sweden, Switzerland, United Kingdom, United Mexican States, and the United States).
- A Gibraltar court may issue a restraint or charging order if proceedings against a defendant have been instituted and are still ongoing in any of these designated countries and an External Confiscation Order has been made, or where it appears proceedings are to be instituted and an External Confiscation Order reasonably may be made.
- Prisoners may be transferred to give evidence pursuant to Sections 41–42 of the DTOO.

### Evidence Ordinance 1948 (Part II)
- Where neither the Schengen Agreement nor the DTOO applies, Gibraltar relies on Part II of the Evidence Ordinance of 1948, key provisions in Sections 9–12:
  - The Attorney General of Gibraltar may apply for an order in furtherance of a request by or on behalf of a foreign court or tribunal where criminal proceedings have been instituted before the requesting court.
  - If the court is satisfied the application is appropriate, it may “by order . . . make such provision for obtaining evidence in Gibraltar as may appear to the court to be appropriate for the purpose of giving effect to the request,” and require persons to take steps the court deems appropriate.
  - The court may make provision for examination of witnesses, orally or in writing; and for production of documents. In criminal cases, the court may not direct inspection, photographing, preservation, custody or detention of property, taking of samples, experiments with property, medical examination, or taking of blood from any person.
  - Witnesses may assert privileges under Gibraltar law and shall not be compelled to give evidence prejudicial to the security of the United Kingdom, Gibraltar, or other UK-responsible territories.
  - Persons may not be required to state what documents relevant to the proceedings are or have been in their possession, custody or power, or to produce documents other than particular documents specified in the order.
- The Evidence Ordinance contains no dual criminality requirement nor an exclusion for fiscal offenses, but Section 12(3) excludes “criminal proceedings of a political character.”
- Section 13 grants the governor broad authority to implement measures to assist in obtaining evidence for “international proceedings” (International Court of Justice or other international bodies exercising judicial functions under international agreements or UN General Assembly resolutions).
- Authorities acknowledge the Evidence Ordinance is outdated but flexible; the political character exception is not used to refuse cooperation in fiscal offenses where other criminality is alleged.
- Administrative pathway for requests: AG’s chamber → legislative support unit of the Chief Minister’s office (reviews for political content) → court. This sequence creates potential for undue political influence in mutual legal assistance in non-drug money‑laundering cases from outside the Schengen area.

### Service, voluntary appearance, and dual criminality
- Foreign court judgments may be registered at the Supreme Court in Gibraltar.
- Foreign judicial documents may be served by post in Gibraltar under:
  - Mutual Legal Assistance (European Union) Ordinance, Section 5.1;
  - Mutual Legal Assistance (International) Ordinance, Section 5.1 (if and when the statute becomes effective);
  - DTOO Order 1999, Section 37;
  - Otherwise, service may be made by any form deemed allowed by the foreign court or authority ordering service.
- Voluntary appearance of sentenced persons for provision of evidence overseas is provided in the MLA (EU) Ordinance, the MLA (International) Ordinance and Section 41 of the DTO Order 1999; otherwise, voluntary provision of statements or evidence may be done through a commissioner for oaths or a notary public (one of whom is also the court registrar).
- Dual criminality considerations:
  - The MLA (EU) Ordinance and MLA (International) Ordinance generally do not require dual criminality but explicitly require dual criminality for the execution of search warrants in Gibraltar.
  - The 1948 Evidence Ordinance contains no dual criminality limitation and may be more effective in seeking search warrants under mutual legal assistance requests.
  - Authorities analyze the underlying conduct alleged and do not refuse assistance based on technical differences in applicable laws.

### Identification, freezing, seizure, and confiscation of assets (international context)
- Domestic authorities for identification, freezing, seizure, and confiscation of assets are described in Section 1.3 (not reproduced here) and may generally be invoked in international cases if appropriate showings are made in Gibraltar courts.
- Gibraltar law generally provides for value‑based confiscation and forfeiture of instrumentalities.
- Except for terrorism matters, international drug-related criminal cases pursued by authorities in designated countries, and cases where the Gibraltar FIU issues “non-consent” letters to financial institutions, Gibraltar has no streamlined procedures to impose restraint orders or enforce external confiscation orders.
- Section 26 of the DTOO (Designated Countries and Territories) Order 1999 provides streamlined registration and enforcement of external confiscation orders for specified designated countries in international drug-related cases.
- Section 42 of the Criminal Justice Ordinance 1995 (CJO) similarly provides for registration and enforcement of external confiscation orders entered in “designated countries,” but over ten years after enactment the governor has yet to designate any such countries; therefore Gibraltar is not empowered to register and enforce external confiscation orders in non-drug money‑laundering cases under Section 42 currently.
- Government plan: legislation to deem all countries that have ratified the U.N. Transnational Organized Crime Convention (“Palermo Convention”) to be included on the schedule of the MLA (International) Ordinance and Section 42 of the CJO; this legislation is on a fast track and will constitute a major improvement in Gibraltar’s mutual legal assistance regime.

### Terrorism, non‑consent letters, and Bank of Scotland orders
- Terrorism: Gibraltar authorities acted on two occasions to issue freezing orders directed at assets reasonably believed to be owned or controlled by terrorists pursuant to the Al Qaida and Taliban (United Nations Measures) (Overseas Territories) Order 2002.
- Requests to implement a freezing order under the authorities outlined would be referred to the Attorney General, who would analyze with assistance of the RGP special services; if the AG is satisfied there are reasonable grounds to issue a freeze or restraint order, he can prepare an application to the governor and/or the Chief Justice.
- Non‑consent letters:
  - The GFIU issues “consent” or “non-consent” letters to instruct filing institutions whether they may proceed with transactions related to matters or persons that are the subject of a reported STR.
  - Until a reporting institution receives a “consent” letter, it proceeds at its peril and will often cease activity on an account or matter while the GFIU and other authorities decide how to proceed.
  - The assessors view the legal authority for issuing a “non-consent” letter as somewhat tenuous; there are no regulations or guidelines used by the GFIU, police or customs indicating criteria for consent/no‑consent decisions or duration of a non‑consent letter; non‑consent letters may create a legal dilemma for filers.
- Bank of Scotland orders:
  - Filing institutions that fear equitable liability as constructive trustee when paying out moneys may seek a court order setting forth what information they may rely upon to defend subsequent client actions challenging a freeze.
  - Government appears as the other party; such orders justify continuing freezes and are called “Bank of Scotland” orders (after governor and Company of the Bank of Scotland v. A Ltd and others, 3 All ER 58 (18 January 2001)).

### Operational capacity, timeliness, and cooperation
- The Gibraltar Attorney General’s office, police and customs services, GCID and FIU maintain extensive contacts with counterparts abroad and have shown creativity and initiative in developing information to facilitate international cooperation, mutual legal assistance in money laundering and other financial crime prosecutions, and freezing, seizure and confiscation of assets, including in terrorism matters.
- Staffing and timeliness:
  - More than a third of the Attorney General’s staff of seven persons is devoted to mutual legal assistance matters.
  - Requests for mutual legal assistance are generally processed within four to six months.
- The GFIU is proactive; a substantial portion of STRs reported to the FIU are generated by press reports of foreign investigations and are forwarded to counterparts in Gibraltar and abroad, resulting in follow‑on mutual legal assistance requests and asset freezing/seizure in Gibraltar.
- Most mutual legal assistance requests to Gibraltar seek documentary and/or testimonial evidence from financial institutions or trust and company service providers; Gibraltar authorities have coordinated operations, developed creative legal approaches, and litigated to assert their powers in such cases.

*Assessment team.*

### 1. Local authorities assisted in a “sting” operation targeting a local lawyer for involvement in drug-related

### cr07157 - 1. Local authorities assisted in a “sting” operation targeting a local lawyer for involvement in drug-related

### Case summaries and law-enforcement actions
- Local authorities assisted in a “sting” operation targeting a local lawyer for involvement in drug-related money laundering. The lawyer was arrested overseas and local authorities searched his premises and his business. The Gibraltar authorities were sued for abuse of process; the Court of Appeals rejected that claim.  
- A foreign national active as a company service provider in Gibraltar was investigated by foreign authorities. A disclosure from a local financial institution revealed the presence of tens of millions of Pounds in Gibraltar; this information was passed to the foreign investigators. Local authorities could not restrain the assets because the matter did not involve drug trafficking and the investigation was ongoing. The attorney general and police nevertheless assisted foreign authorities in obtaining—through a local solicitor acting on their own behalf—a civil restraint order against the proceeds. Pursuant to a global settlement, the defendant agreed to disgorge the proceeds and to cease doing business in Gibraltar.  
- Authorities initiated a money laundering and fraud investigation into individuals and Gibraltar-registered companies selling Spanish time share properties to British tourists. Six individuals were arrested in Gibraltar on money-laundering charges but later released after the Supreme Court found that, prior to commencing a money-laundering investigation, the Crown had to prove to a prima facie level that a predicate offense had been committed. Gibraltar authorities won an appeal of the decision releasing the defendants from custody, but the defendants fled Gibraltar. The investigation intersected with larger organized crime and terrorism investigations in Spain and England. The case remains open; challenges include collecting sufficient evidence to prove money laundering in Gibraltar and securing the return of defendants for trial. The case is reportedly not a priority for Spanish authorities; Spain has on several occasions refused to allow Spanish police or investigators to present evidence in Gibraltar courts.  
- Customs officials participated in a multinational operation targeting a yacht that crossed the Atlantic from the Caribbean and moored in Gibraltar. Gibraltar authorities boarded the yacht and found 500 kilos of cocaine hidden on board. The drugs and yacht were forfeited, and the defendants were convicted to lengthy prison sentences in Gibraltar.  
- Authorities confiscated ₤40,000 in a UK-based drug trafficking case.  
- In the terrorism context, Gibraltar authorities twice invoked the governor’s authority under the Terrorism Order 2001 to issue freeze orders directed at specific Gibraltar institutions suspected of holding terrorist funds. Both cases were generated by intelligence received through liaison with foreign services by the RGP’s special services division. The orders were able to be issued almost immediately upon receipt of the intelligence by the RGP.

### Restrictions on mutual legal assistance (MLA) and practical impediments
- Principal limitations on providing mutual legal assistance:
  - Lack of authority for restraint and charging orders in non-drug-related money-laundering cases.  
  - Failure of the governor to elaborate a schedule of countries for streamlined cooperation pursuant to the CJO.  
  - Dual criminality requirement for search warrants under recently enacted legislation.  
  - Potential (but apparently not practiced) withholding of assistance in fiscal matters.  

### Confidentiality, secrecy, and production orders
- Financial institutions, lawyers, and trust and company service providers in Gibraltar showed strong client confidentiality sensitivity.  
- There are no overriding financial secrecy rules in Gibraltar.  
- Professional service providers generally distinguished privileged material from material reportable under suspicious transaction reporting obligations in the DTOO, CJO, and TO.  
- Production orders issued in connection with MLA requests are rarely challenged frontally, though targets sometimes seek to narrow their scope.

### Statistics on mutual legal assistance requests received by Gibraltar
- Mutual Legal Assistance Requests Received by Gibraltar
  - 2006 (to date): Number of Cases 11, Number of Letters 17
  - 2005: Number of Cases 22, Number of Letters 28
  - 2004: Number of Cases 12, Number of Letters 14
  - 2003: Number of Cases 20, Number of Letters 26
  - 2002: Number of Cases 23, Number of Letters

- Some letters of request are passed through to the Royal Gibraltar Police (RGP) for initial processing. Statistics for Attorney General’s Chambers and Royal Gibraltar Police:
  - 2001: Attorney General’s Chambers (blank), Royal Gibraltar Police 38
  - 2002: Attorney General’s Chambers 56, Royal Gibraltar Police 20
  - 2003: Attorney General’s Chambers 56, Royal Gibraltar Police 23
  - 2004: Attorney General’s Chambers 32, Royal Gibraltar Police 19
  - 2005: Attorney General’s Chambers 40, Royal Gibraltar Police 20

- Of the 40 cases handled by the AG’s office in 2005:
  - 27 involved fraud, corruption, perjury, theft, false accounting, or obtaining money by other dishonest means.  
  - 8 alleged money laundering of unspecified origin.  
  - 4 involved drug trafficking offenses.  
  - The remaining cases were a mix of terrorism, genocide, crimes against freedom of people, and tax offenses.  
- Most requests received in prior years relate to money laundering.

### Recommendations and policy comments (MLA, asset restraint, statistics, and guidance)
- Gibraltar and UK authorities should move swiftly to conclude agreements to implement the MLA (International) Ordinance to improve Gibraltar’s ability to provide mutual legal assistance to non-Schengen countries.  
- Gibraltar should amend the CJO to enable local authorities to secure restraint and charging orders in connection with non-drug related criminal investigations being conducted abroad.  
- Customs and police should have the authority to seize and detain suspicious cash and bearer negotiable instruments whose provenance is unknown, on the same terms as provided by the DTO for seizure of cash suspected to be related to drug trafficking.  
- The governor should issue an order, pursuant to the terms of the CJO, promulgating a list of countries whose authorities are entitled to register and enforce non-drug related confiscation orders in Gibraltar.  
- Gibraltar authorities should clarify the authority of the GFIU to issue “non-consent” letters, and issue guidelines for their use.  
- Gibraltar authorities should compile in one location more detailed statistics on mutual legal assistance requests and responses.

### Extradition: description, practice, and recommendations
- Extraditable framework and practice:
  - Terrorist financing and money laundering are extraditable offenses under the European Arrest Warrant Ordinance 2004 (EAWO), subject to dual criminality.  
  - The EAWO gives effect to the Council Framework Decision of June 13, 2002 on the European arrest warrant and the surrender procedures between member states.  
  - The EAWO provides for arrest and surrender by Gibraltar of persons alleged to have committed offenses in other EU states; the Governor of Gibraltar is designated the “central authority” for the EAWO.  
  - Within the UK and certain Commonwealth countries, the Fugitive Offenders Ordinance 2002 (FOO) applies; extradition under the FOO is subject to dual criminality and other conditions specified by that Ordinance.  
  - Beyond the FOO and EAWO, extradition of Gibraltarian nationals is governed by the laws of England, specifically the English Extradition Acts 1870 to 1835 and related treaty arrangements.  
  - Extradition requests can be transmitted directly to Gibraltar; EAWO allows extradition based on an arrest warrant issue; waiver and consent procedures exist under EAWO and FOO.  
  - Gibraltar authorities seek guidance from HM Foreign Office in London when handling extradition requests.  
- Operational experience:
  - Authorities received four formal requests for extradition in the past five years. In two cases, persons were successfully extradited. In one case, the requester dropped the request. The only unsuccessful extradition request involved allegations of money laundering; following R. v. Montilla, HL 2004, the requesting U.K. authorities withdrew the request due to insufficient evidence of underlying predicate crimes. Evidence of regular large cash transactions at a bureaux de change in London was deemed insufficient to support extradition.  
  - Gibraltar successfully requested extradition of an individual from Spain in a murder case.  
- Recommendation:
  - Consider elaborating procedures—including for example form response letters for requesters, checklists for dealing with HM Foreign Office, etc.—for responding to extradition requests in money laundering and terrorist financing cases.

### Compliance with FATF Recommendations — Mutual Legal Assistance and Extradition (ratings and factors)
- R.32: Largely compliant
  - Authorities maintain reliable records on mutual legal assistance and extradition requests (including requests related to freezing, seizing, and confiscation) relating to ML, predicate offenses, and other international money-laundering investigations and prosecutions. The assessment team had some difficulty obtaining consistent information promptly from authorities.  
- R.36: Largely compliant
  - Gibraltar authorities’ willingness to provide full cooperation on mutual legal assistance is limited because legal assistance during the investigative stage prior to formal commencement of “proceedings” is available only in drug-related cases with respect to countries outside the EU.  
- R.37: Compliant
  - Except in limited circumstances involving extradition and issuance of physical search warrants, dual criminality is generally not a bar to obtaining mutual legal assistance from Gibraltar. Authorities do not take an overly technical approach to dual criminality.  
- R.38: Partially compliant
  - Limitations: (1) except in drug-related cases, Gibraltar law provides no power to secure restraint or charging orders or to detain suspect cash detected at the border; and (2) although authority was provided in the CJO more than ten years ago, the governor has failed to promulgate an order listing countries whose non-drug related confiscation orders may be registered and enforced in Gibraltar.  
- R.32 (extradition): Gibraltar maintains records on its extradition requests and international arrest warrants, but did not have statistics readily available for assessors.  
- R.37 (extradition): Compliant — Gibraltar imposes dual criminality requirements on extradition but does not take an overly technical approach.  
- R.39: Partially compliant
  - Money laundering is an extraditable offense; Gibraltar can extradite its own nationals for money laundering; Gibraltar has a record of cooperating with foreign governments on money-laundering cases and may extradite within the EU based on the EU arrest warrant. However, the only money-laundering extradition request on record could not be answered positively due to evidentiary requirements imposed by English case law. Authorities also have not elaborated specific procedures for processing requests.  
- SR.V: Largely compliant
  - Terrorist financing is an extraditable offense; nothing in Gibraltar law or practice would prevent full and effective cooperation in extradition for terrorism or terrorist financing. Lack of specific experience prevents a fully compliant rating under the FATF methodology.

### Other forms of international cooperation and information-sharing
- Financial Services Commission (FSC):
  - Section 22(2) of the FSC Ordinance permits disclosure of information when necessary in connection with international obligations or to assist foreign authorities exercising functions corresponding to those of the Commission.  
  - The FSC cooperates internationally and recently began tracking requests on an internal database. In the last year approximately 11 requests were received and 7 have been satisfied.  
  - A proposed Financial Services (Information and Cooperation Powers and Confidentiality) Ordinance 2005 would give the commissioner specific powers to require information and production of documents, powers of investigation, a duty to cooperate with foreign regulatory authorities, and gateways for disclosure.  
- GFIU and FIU information sharing:
  - The GFIU is a member of the Egmont Group and receives/responds to requests through the Egmont secure link. The GFIU does not require an MOU for such information sharing and adheres to the Egmont Principles. In the last 18 months the GFIU responded to all 46 requests via the Egmont link and proactively disseminated information on 10 occasions to other FIUs.  
- DNFBP licensing authority:
  - As part of due diligence on gambling license applicants, the FDS exchanges information with international counterparts in the gambling sector.  
- Interpol:
  - The GCID actively participates in the Interpol network; the GFIU uses Interpol information to supplement STR analysis.  
- Terrorism:
  - Mutual legal assistance legislation extends to financing of terrorism, terrorist acts, or terrorist organizations because these are criminal offenses in Gibraltar. Authorities have demonstrated the ability—in two cases responding to foreign intelligence—to execute rapid freeze orders on accounts suspected to be connected to terrorists.

*Source: IMF assessment (cr07157).*

### 73.      The rating of compliance vis-à-vis the FATF Recommendations should be made according to the

### The rating of compliance vis-à-vis the FATF Recommendations should be made according to the four levels of compliance mentioned in the 2004 Methodology

### Forty Recommendations — Rating summary and underlying factors
- Forty Recommendations Rating Summary of factors underlying rating

- Legal systems
  - 1. ML offence — PC
    - Migrant smuggling is not an indictable offense and so is not a predicate offence for money laundering; very few cases of money laundering have been charged in the eleven years since the offense was enacted; only 17 arrests in the last four years, no prosecutions, no convictions and only one case currently under investigation.
  - 2. ML offence–mental element and corporate liability — C
    - This Recommendation is fully met.
  - 3. Confiscation and provisional measures — LC
    - Authorities’ power to seize suspect cash at the border is limited in non-drug related cases, and the post-conviction burden to show that proceeds were legitimate shifts only in drug-related cases, as well.
- Preventive measures
  - 4. Secrecy laws consistent with the Recommendations — C
    - This Recommendation is fully met.
  - 5. Customer due diligence — PC
    - Several criteria have not been appropriate addressed in law or regulation; they are instead part of the Guidance Notes.
  - 6. Politically exposed persons — LC
    - Bureaux de change, the Gibraltar Savings Bank, and money transmitters (outside of banks) are weak as to implementation of requirements.
  - 7. Correspondent banking — LC
    - Need to ensure that information has been gathered on respondents.
  - 8. New technologies & non-face-to-face business — PC
    - Implementation of new language on non-face-to-face and new technologies for all institutions and lack of oversight for bureaux de change, the Gibraltar Savings Bank, and money transmitters on these issues.
  - 9. Third parties and introducers — PC
    - Controls relative to reliance on intermediaries have not been established.
  - 10. Record keeping — PC
    - Two criteria need to be addressed in law or regulation and policies and procedures of the bureaux de change and stand-alone money transmitter must be reviewed to ensure that the requirements are being followed.
  - 11. Unusual transactions — LC
    - The current standards do not provide for review and retention of records on all cases involving large, unusual or complex transactions, but do cover those where there are concerns or suspicions.
  - 12. DNFBP–R.5, 6, 8–11 — PC
    - While there are numerous deficiencies in the requirements for DNFBPs on CDD, PEPs, etc, two key areas of risk (TCSP and internet based gambling) are subject to more robust standards through the AMLGNs.
  - 13. Suspicious transaction reporting — LC
    - There is some confusion over who to report to and STRs on attempted transactions are not explicitly required.
  - 14. Protection & no tipping-off — C
    - This Recommendation is fully met.
  - 15. Internal controls, compliance & audit — LC
    - Need to extend consideration of TF issues to controls and training and need to ensure that all licensees have an internal audit program in place.
  - 16. DNFBP–R.13–15 & 21 — PC
    - Reporting requirements and tipping off provisions are appropriately in place, but significant attention is needed on requirements for audit and dealing with clients from outside of Gibraltar.
    - In addition, the current lack of effective oversight of most DNFBPs other than the FSC supervised TCSP sector, creates an inability to assess the effectiveness of the provisions that are in place and lack of an appropriate range of sanctioning powers limits the ability to ensure corrective action.
  - 17. Sanctions — LC
    - Bureaux de Change and money transmitters are not subject to adequate sanctions.
    - A range of supervisory sanctions apply for the TCSP and internet based gambling sector, but few for the land based casino or other DNFBP entities.
  - 18. Shell banks — C
    - This Recommendation is fully met.
  - 19. Other forms of reporting — C
    - This Recommendation is fully met. Authorities considered and rejected threshold based reporting based on valid reasons.
  - 20. Other NFBP & secure transaction techniques — C
    - This Recommendation is fully met.
  - 21. Special attention for higher risk countries — LC
    - The efforts by the bureaux de change and the stand-alone money transmitter need to be reviewed. Extend to include TF.
  - 22. Foreign branches & subsidiaries — C
    - This Recommendation is fully met.
  - 23. Regulation, supervision and monitoring — PC
    - No supervision for the bureaux de change or the non-bank money remitter; no specific standards that prohibit criminals or their associates from holding key ownership or management positions in financial institutions.
  - 24. DNFBP—regulation, supervision and monitoring — PC
    - There is an effective monitoring arrangement for the high risk TCSP sector. Placing the new Gambling Ordinance into effect and resourcing of the GRA will afford the opportunity, mechanism and framework to effectively monitor the compliance of the gambling sector. However, until that occurs the level of effective monitoring for this sector is low.
    - Whilst disciplinary action in some form exists for lawyers, it is not clear to how non compliance with specific AML/CFT obligations would be brought to the attention of the relevant authorities and what credence would be afforded.
    - The assessment team is not aware of any process that has been undertaken to determine the appropriate level of monitoring for the remaining DNFBP sectors. No authority has been designated responsibility for such monitoring.
  - 25. Guidelines & Feedback — PC
    - Existing guidance does not address the techniques or methods associated with terrorist financing; no feedback or guidance has been provided to bureaux de change, the stand-alone money transmitter.
    - No feedback or guidance for bureaux de change and money transmitters; existing guidance must be fully extended to cover TF issues.
    - Little guidance for the non: TCSP, internet based gambling and high value dealer categories of the DNFBP sector, to assist businesses and professions on how to implement and comply with AML/CFT requirements, and no efforts to address TF outside of the AMLGNs, which only apply to the TCSP and internet based gambling categories of the DNFBP sector.
    - Little general feedback to the DNFBPs, outside the FSC regulated TCSPs and car dealers, as the GFIU has had minimal contact with them.
- Institutional and other measures
  - 26. The FIU — LC
    - A clear public record of GFIU’s functions and should be issued.
    - The recently enacted Gambling Ordinance if implemented requires disclosures to be made to the Gambling Commissioner in the first place provide a copy to the GFIU. The GO currently allows for the Gambling Commissioner, not the GFIU to decide to disseminate copies of the disclosures it receives to law enforcement authorities.
    - Legal requirements for STRs relating to financing of terrorism are confusing. The March 2006 amendment to the AMLGNs partly addresses this issue for the sector regulated by the FSC.
    - The circumstance and extent to which the GFIU can and will obtain additional information from reporting businesses are not clear.
  - 27. Law enforcement authorities — C
    - Dedicated, specialized law enforcement resources are responsible for ML and TF cases. Authorities work closely with foreign counterparts and have discretion to postpone or waive the arrest of suspects or seizures of funds. Law enforcement authorities have authority to use—and do use in ML and FT cases—special investigative techniques. Authorities keep abreast of trends and techniques, and discuss developments with colleagues at home and abroad.
  - 28. Powers of competent authorities — C
    - Through production orders and search warrants authorities may obtain relevant documents held by financial institutions and others. Witness statements may also be obtained.
  - 29. Supervisors — LC
    - No oversight of bureaux de change or money transmitters.
  - 30. Resources, integrity and training — LC
    - The RGP, customs, and GFIU are adequately staffed by qualified, specialized professionals. Independence of police is ensured by their reporting to the governor. Customs is a major revenue source for the Government. As a police style body, the FIU is integrated into the police and customs framework, but they could benefit from formal clarification of their role.
    - Compliant for FSC; inadequate resources for oversight of bureaux de change and money transmitters;
  - 31. National cooperation — LC
    - DNFBP oversight authorities (excluding FSC with respect to TCSPs) are not represented in the Enforcement Group.
  - 32. Statistics — PC
    - No statistics kept by the attorney general on prosecutions and convictions.
    - The police have statistics on the number of money-laundering charges laid.
    - Authorities can remember the big cases and construct tables from records, but they do not keep consolidated statistics readily available.
    - The FSC has no information on the level of compliance in the financial sector with UN Security Council Resolutions.
    - Statistics regarding disclosures are comprehensive, but they may understate the true level of suspect activity because to date limited education of the real estate, internet gaming and legal/accounting sectors or High Value Dealers has been undertaken.
    - GFIU produces statistics on STR disclosures and the usefulness of disseminations to the police and customs.
    - The authorities do maintain information about narcotics-related cash seizures and forfeitures, but this is only partially relevant to the recommendation overall.
    - Compliant for FSC.
    - Overall, agencies should keep more detailed statistics.
    - The authorities maintain reliable records on mutual legal assistance and extradition requests (including requests related to freezing, seizing, and confiscation) that are made or received, relating to ML, the predicate offenses, other international money-laundering investigations and prosecutions. The assessment team had some difficulty, however, in getting consistent information promptly from the authorities in these areas.
    - Gibraltar maintains records on its extradition requests, as well as on international arrest warrants, but did not have statistics readily available for the assessors.
  - 33. Legal persons–beneficial owners — LC
    - Share to warrants should be abolished and Companies House registry should be searchable by multiple fields.
  - 34. Legal arrangements – beneficial owners — LC
    - Continued existence of asset protection trusts and flee clauses. Competent law enforcement authorities may not have access in a timely fashion to adequate, accurate and current information on beneficial ownership and control.
- International Cooperation
  - 35. Conventions — PC
    - The Vienna Convention has not been extended to Gibraltar.
  - 36. Mutual legal assistance (MLA) — LC
    - Gibraltar authorities’ general willingness to provide full cooperation on mutual legal assistance is limited by the fact that legal assistance during the investigative stage prior to formal commencement of “proceedings” is available only in drug related cases with respect to countries outside the EU.
  - 37. Dual criminality — C
    - Except in limited circumstances involving extradition and the issuance of physical search warrants, dual criminality is generally not a bar to obtaining mutual legal assistance from Gibraltar. The authorities do not take an overly technical approach to the application of dual criminality requirements.
    - Gibraltar does impose dual criminality requirements on extradition, but its authorities do not take an overly technical approach to the application of such requirements.
  - 38. MLA on confiscation and freezing — PC
    - Gibraltar authorities general willingness to provide comprehensive mutual legal assistance is limited by significant impediments in its legal framework: (1) except in drug-related cases, the law of Gibraltar provides no power to the authorities to secure restraint or charging orders to secure proceeds of crime during the pendency of proceedings, or to detain suspect cash detected at the border; and (2) although the authority to do so was provided in the CJO more than ten years ago, the governor has failed to promulgate an order listing countries whose non-drug related confiscation orders may be registered and enforced in Gibraltar.
  - 39. Extradition — PC
    - Money-laundering is an extraditable offense, Gibraltar can extradite its own nationals for money laundering, Gibraltar has a proven record of cooperating with foreign governments on money-laundering cases, Gibraltar may extradite within the EU based on the EU arrest warrant. Nevertheless, in the only money-laundering extradition request on record, authorities were unable to respond positively due to evidentiary requirements imposed by English case law. Authorities also have not elaborated specific procedures for processing requests.
  - 40. Other forms of co-operation — C
    - This Recommendation is fully met.

### Nine Special Recommendations — ratings and key points
- SR.I Implementation of UN instruments — PC
  - The ICSFT has not been extended to Gibraltar but Gibraltar has implemented UNSCRs 1267, 1373 and successor resolutions by UN Order 2001 and the Al-Qaida and Taliban (UN Measures) (Overseas Territories) Order 2002.
- SR.II Criminalize terrorist financing — C
  - This Recommendation is fully met.
- SR.III Freeze and confiscate terrorist Assets — LC
  - Despite very broad legal authorities that have been successfully applied by the law enforcement community in two cases, there is a disconnection in the financial community concerning their affirmative obligations under the UNSCR 1267 and EU regulations.
- SR.IV Suspicious transaction Reporting — LC
  - Filing procedures under various overlapping laws should be clarified, and guidance on TF has not been included in the AMLGNs.
- SR.V International cooperation — LC
  - Terrorist financing is an extraditable offense, and nothing in the law of Gibraltar or the practices of its authorities would prevent full and effective cooperation in the extradition of a person alleged to be involved in terrorism or terrorist financing. Without specific experience, however, the FATF methodology does not allow for a fully compliant rating.
- SR.VI AML/CFT requirements for money/value transfer services — PC
  - Only one stand-alone money transmitter so risk is low, but lack of overall framework is a significant issue.
- SR.VII Wire transfer rules — LC
  - The application of these standards by the stand-alone money transmission agent is unknown given the lack of overall regulatory framework for these entities.
- SR.VIII Non-profit organizations — LC
  - Conduct a review to ensure that terrorist financing risks are fully addressed, particularly regarding exempt religious charities.
- SR.IX Cash border declaration and disclosure — NC
  - No declaration or disclosure system is in place. Partial measures for seizure and confiscation of currency suspected to be related to drug trafficking is ineffective with respect to proceeds of unknown origin.

### Table 2 — Recommended Action Plan to Improve the AML/CFT System (selected priorities)
- General (heading retained from source)

- Legal System and Related Institutional Measures
  - Criminalization of money-laundering (R.1, 2 & 32)
    - Consolidate the ML offences laid out in the DTOO and the CJO into one consolidated ordinance to avoid two-track approach to the ML offence, as indicated by the Chief Minister.
    - Criminalize migrant smuggling as an indictable offence so that it may be considered a predicate offence for money laundering.
    - Consider criminalizing the export of cigarettes as an indictable offence (rather than a summary conviction only offence) in order that it becomes a predicate crime for money laundering as part of the required category of offences for “illicit trafficking in stolen and other goods.”
    - Consider charging domestic persons in the financial industry with money laundering when a mutual legal assistance request reveals complicity in money laundering by Gibraltar residents.
    - Hold seminars for the bench and bar on money-laundering prosecutions.
    - Maintain statistics on the number of charges laid, the number of prosecutions brought and the number of convictions for money-laundering offences.
  - Criminalization of terrorist financing (SR.II & R.32) — (heading only; details in other items)
  - Confiscation, freezing and seizing of proceeds of crime (R.3 & 32)
    - Consolidate the asset forfeiture provisions of the CJO and DTOO, and in doing so take advantage of the best features of each. Thus, reversal of burden of proof provisions should be extended beyond drug-related confiscation to all crimes, and cash seized at the border should be allowed to be detained on a suspicion that it is proceeds of or intended to be used in any crime, not just drug trafficking.
    - Enact the proposed legislation extending to all states that are part of the UNTOC the ability to enforce external confiscation orders.
    - Clarify the authority of the GFIU to issue “non-consent” letters and provide guidelines for their use.
    - Maintain consolidated asset confiscation and forfeiture statistics.
  - Freezing of funds used for terrorist financing (SR.III & R.32)
    - Procedures for delisting requests and the unfreezing of funds should be developed and published.
    - The FSC should issue guidance to the financial services community concerning affirmative obligations to freeze assets of persons listed by the UNSCR 1267 Committee and the EU. These affirmative obligations should include incorporating the information into their AML/CFT compliance programs, and reporting to authorities on any transactions that may be connected to terrorist financing.
  - The Financial Intelligence Unit and its functions (R.26, 30 & 32)
    - Provide clearer public explanations of the roles and responsibilities of the GFIU vis-à-vis the GCID and the police particularly with respect to TF.
    - Clarify the implications, if any, on the GFIU of legal requirements that suspicious transactions related to terrorism be reported variously to the governor and the police.
    - Amend Sections 33(2) and (3) of the GO to require holders of gambling licenses to report disclosures of suspected money laundering to the GFIU instead of the Gambling Commissioner.
    - Analyze possible relationships between observed trends in disclosures and other criminal intelligence.
    - Consider providing the FSC, the GRA and any other authority having AML/CFT oversight responsibility with numerical only statistical data on the reporting performance of specific individual businesses. This would assist those authorities in their supervisory programs.
    - GFIU should give priority to establishing contact with the sectors not regulated by the FSC to: provide clear education and guidance as to reporting obligations and procedures for making disclosures to the GFIU and to foster sharing of information on potential ML/TF risks in these sectors.
    - Document internal procedures for all GFIU functions.
    - Consider ways to clarify the circumstances and extent to which the GFIU can and will obtain access to further information from reporting businesses.
  - Law enforcement, prosecution and other competent authorities (R.27, 28, 30 & 32)
    - Update production order and warrant statutes to make them more effective in non-drug related financial investigations. Specify types of documents that may be made available, include provisions protecting information retained on computers, and authority for police and customs to enter premises to execute production orders. Use Schedule 10 of the Companies Ordinance as a model.
    - Clarify and document the roles and responsibilities of the GFIU within the GCID vis-à-vis the private sector.

*International Monetary Fund — assessment material (ratings, findings, and recommended actions as listed above).*

### 3.  Preventive Measures–Financial

### 3. Preventive Measures–Financial

### Institutions — Customer due diligence, including enhanced or reduced measures (R.5–8)
- Prohibit anonymous and fictitious accounts in law or regulation.
- Address, in law or regulation, the need to undertake customer due diligence when: carrying out occasional transactions that are wire transfers; there is a suspicion of money laundering or terrorist financing; and the financial institution has doubts about the veracity or adequacy of previously obtained customer identification data.
- Require through law or regulation that the financial institution determine the natural person who ultimately owns or controls the customer, when the customer is a legal person or arrangement.
- Address, in law or regulation, the requirement for financial institutions to conduct ongoing due diligence on its business relationships.
- Determine if institutions, having refused business because full KYC information was not provided, have provided STR reports to the GFIU.
- Ensure that bureaux de change, the Gibraltar Savings Bank, and money transmitters are subject to and implementing PEP requirements.
- Review existing correspondent banking arrangements to ensure that the institution has gathered sufficient information on the reputation and supervisory arrangements for the respondent.
- Ensure that bureaux de change, the Gibraltar Savings Bank, and money transmitters are looking at the risks associated with new technologies.
- Ensure effective implementation of the new language in the AMLGNs requiring that institutions carefully consider the risks associated with new technologies.
- Generally review the AMLGNs for language and tone which may read as permissive or informational in places.

### Third parties and introduced business (R.9)
- Require financial institutions relying on intermediaries to immediately obtain from that intermediary information on the identity of the customer, and beneficial owner of the account and the legal status of legal persons or arrangements. Beneficial ownership requirements should be included in law or regulation.
- Require that financial institutions have access, without delay, to the identification or other relevant documentation housed with the intermediaries.
- Require that institutions have processes to assess whether or not an institution within the EU may be accepted as an intermediary.
- Determine to what extent the industry has been allowing intermediaries under the fourth scenario of the AMLGNs (Paragraph 4–85) and ensure that all institutions are now obtaining the appropriate due diligence information.
- Ensure that the ultimate responsibility for customer identification and verification remains with the financial institution relying on the third party.

### Financial institution secrecy or confidentiality (R.4)
- (No specific recommendations listed beyond heading in the source.)

### Record keeping and wire transfer rules (R.10 & SR.VII)
- Address the confusion related to Section 17(2) of the CJO, ideally through repeal of the passage.
- Address, in law or regulation, that business correspondence must also be retained (in addition to the requirements for identification and transaction records).
- Address, in law or regulation, the requirement that institutions maintain their records in a way that they are able to provide information to the appropriate authorities on a timely basis when appropriately authorized to do so.
- Verify that bureaux de change and the stand-alone money transmitter are effectively implementing the record keeping requirements.

### Monitoring of transactions and relationships (R.11 & 21)
- Ensure that bureaux de change and the stand-alone money transmitter are applying risk-based procedures for relationships and transactions coming from persons outside of Gibraltar, who may not be subject to equivalent AML/CFT requirements.
- Extend the discussion on equivalency to include considerations related to TF.

### Suspicious transaction reports and other reporting (R.13, 14, 19, 25 & SR.IV)
- Clarify the reporting obligations for the suspicious transaction reports related to money laundering (GFIU vs. GCID vs. “customs and police”).
- Clarify, through law or regulation, where reporting entities should file suspicious transaction reports related to TF in Gibraltar.
- Ensure that there are requirements in place to report suspicions on attempted transactions.

### Cross border declaration or disclosure (SR IX)
- Amend laws to require disclosure of cross-border movements of currency and bearer negotiable instruments. Such a system could apply only above a certain threshold.
- Amend laws to enable customs and police officers to detain currency and negotiable instruments that are falsely disclosed or that are suspected of being related to terrorist financing or money laundering.
- Amend laws to enable authorities to confiscate such seized currency and negotiable instruments under appropriate circumstances consistent with Special Recommendation IX.

### Internal controls, compliance, audit and foreign branches (R.15 & 22)
- Extend AMLGNs to include TF in the areas of controls and training.
- Ensure that financial institutions have an internal audit or other mechanism to check compliance with the AMLGNs in place, including bureaux de change and the stand-alone money transmitter.
- Extend the standards for hiring to insurance firms, bureaux de change, and money transmitters.

### Shell banks (R.18)
- (No specific recommendations listed beyond heading in the source.)

### The supervisory and oversight system–competent authorities and SROs — Role, functions, duties and powers (including sanctions) (R.23, 30, 29, 17, 25 & 32)
- Address the lack of “effective, proportionate, and dissuasive” sanction regime for both bureaux de change and non-bank money transmitters in the area of AML/CFT.
- Address the lack of effective oversight for bureaux de change.
- Ensure that all financial institutions are subject to requirements that prohibit criminals or their associates from holding or being the beneficial owner of a significant or controlling interest or holding a management function in a financial institution.
- Extend the AMLGNs to focus not only on ML, but also on TF.
- Ensure that authority responsible for bureaux de change and money transmitters (non-bank) is given appropriate regulatory powers and resources so that the authority can effectively conduct oversight, compel records, require remediation, and, where necessary, issue sanctions.

### Money value transfer services (SR.VI)
- Close the gap in the financial services area by ensuring that all entities that provide money or value transfer services are licensed and supervised.
- Require that principals keep lists of all agents of money and value transfer service providers.
- Develop a mechanism to ensure that money and value transfer service providers can be sanctioned.

---

### 4. Preventive Measures–Non-financial Businesses and Professions

### Customer due diligence and record-keeping (R.12)
- Develop and apply strong requirements for customer due diligence for all categories of DNFBPs not subject to the requirements of the FSC issued AMLGNs. This should include provisions requiring ongoing monitoring; obtaining information on the purpose and intended nature of the business relationship; performing enhanced due diligence on higher risk customers or business relationships; and prohibiting the opening of an account or commencing business relationships when an entity cannot provide appropriate CDD information.
- Address criteria 5.1, 5.2(c), 5.2(d), 5.2(e), 5.5.2(b), and 5.7 in law or regulation.
- Ensure that DNFBPs are subject to adequate requirements for PEP clients or business relationships.
- Address the risks associated with new technologies and non-face-to-face business.
- Develop requirements for DNFBPs in the area of large, complex or unusual transactions to ensure that these are reviewed, with findings set in writing and kept for five years.
- Address the lack of sanctioning ability for DNFBPs, other than TCSP, in the area of conducting appropriate customer due diligence.
- Finalize the development and release of the regulations for the Conduct of Business (Fiduciary Services).
- Finalize the new licensing agreement for the sole land based casino and include specific observance to the need to comply with the AMLGNs.
- Afford priority to the implementation of the new Gambling Ordinance and resourcing of the GRA. The GRA should also give priority to releasing a Code of Conduct under its powers specifying the GRA’s expectations for license holders to meet the legal AML/CFT obligations. Furthermore reference to, and adherence with, such a Code of Conduct should be mandatory in all licensing agreements for the gambling sector.

### Suspicious transaction reporting (R.16)
- Consider specifying time limits on consent and non consent letters to assist disclosing businesses to avoid inadvertent tipping off to customers.
- Remove the current s 33(1)(2) requirement in the new Gambling Ordinance that requires gambling licensees to in the first place make disclosures of the alleged money laundering to the Gambling Commissioner as opposed to the GFIU. This is necessary to maintain continued integrity and confidence in the confidentiality of the disclosure system.

### Regulation, supervision, monitoring, and sanctions (R.17, 24 & 25)
- Extend, in law or regulation, the provisions for internal control systems to cover the financing of terrorism in addition to AML.
- Address the need for an audit function to test compliance with policies, procedures, and controls in DNFBP entities not subject to the FSC issued AMLGNs.
- Require screening procedures in DNFBP entities not subject to the FSC issued AMLGNs, to ensure high standards when hiring employees.
- Extend the requirements related to dealing with clients in jurisdictions that do not or insufficiently apply the FATF Recommendations to all DNFBPs.
- Consider a more proportional level of regulatory sanction for the non gambling and non-TCSP categories of the DNFBP sector.
- Determine, implement and publicly declare the appropriate monitoring and sanctioning authority to be responsible for monitoring compliance with AML/CFT obligations by those categories of the DNFBP sector not subject to supervision by the FSC, FDS or future GRA.
- Make mandatory the requirement for the Gambling Licensing Authority to include in any license agreement that compliance with the AMLGNs and any subsequent Codes of Conduct that may be issued by the Gambling Commissioner is a condition of license.
- Amend the Schedule 1, Section 4, of the Gambling Ordinance 2005 to make mandatory requirements identified in Subsection (a) through (k) and also that compliance with the AMLGNs and future Codes of Conduct issued by the GRA is an explicit condition of license.
- Implement the Gambling Ordinance 2005 as a priority.
- Ensure that the GRA is allocated appropriate budget, staffing and other resources to properly meet the requirements established under the new Gambling Ordinance.
- Develop sector-specific guidelines on AML/CFT for DNFBP entities not covered by the AMLGNs and the HVD Guidance Notes, which cover both AML and CFT.
- Ensure that the FIU provides guidance to all sectors regarding reporting requirements and typologies.
- Identify and designate an appropriate authority to monitor DNFBPs (other than TCSP and the gambling sector) in the area of AML/CFT. Given the size of the jurisdiction consideration to using the FSC’s expertise may be appropriate.
- Ensure that designated competent authorities (once designated) for DNFBPs are represented on the domestic Enforcement Committee.

### Other designated non-financial businesses and professions (R.20)
- (No specific recommendations listed beyond heading in the source.)

---

### 5. Legal Persons and Arrangements & Non-profit Organizations

### Legal Persons–Access to beneficial ownership and control information (R.33)
- Repeal legislation allowing share warrants to bearer.
- Ensure that Companies House’s data base is searchable by all relevant fields.
- Provide the FSC complete access to information on file at Companies House.
- Allow police and customs to compel production of client information required to be maintained by licensees under customer identification requirements in domestic and international criminal investigations. Use Schedule10 of the Companies Ordinance as a model.

### Legal Arrangements–Access to beneficial ownership and control information (R.34)
- Abolish or limit asset protection trusts, or failing that require disclosure of the name and address of the settlor in addition to the other information required in the registration application.
- Amend trust legislation to restrict the use of “flee clauses;”.
- Consider requiring trusts that hold shares in corporations to disclose the trust settlor, beneficiaries, and/or trustees.

### Non-profit organizations (SR.VIII)
- Review the current legislation and approval and monitoring process in light of the FATF documents that the assessors provided to the Board.
- Review, in particular, the current policy of granting a blanket exemption from registration to religious charities.

---

### 6. National and International Cooperation

### National cooperation and coordination (R.31 & 32)
- (No specific recommendations listed beyond heading in the source.)

### The Conventions and UN Special Resolutions (R.35 & SR.I)
- Request that the Vienna and ICSFT Conventions be extended to it at the earliest possible occasion.

### Mutual Legal Assistance (R.36, 37, 38, SR.V & 32)
- Gibraltar and UK authorities should move swiftly to conclude agreements to implement the MLA (International) Ordinance, in order to improve the ability of Gibraltar to provide mutual legal assistance to non-Schengen countries.
- Gibraltar should amend the CJO to enable local authorities to secure restraint and charging orders in connection with non-drug related criminal investigations being conducted abroad.
- Customs and police should have the authority to seize and detain suspicious cash and bearer negotiable instruments whose provenance is unknown, on the same terms as that provided by the DTO for seizure of cash suspected to be related to drug trafficking.
- The governor should issue an order, pursuant to the terms of the CJO, promulgating a list of countries whose authorities are entitled to register and enforce non-drug related confiscation orders in Gibraltar.
- Gibraltar authorities should clarify the authority of the GFIU to issue “non-consent” letters, and issue guidelines for their use.
- Gibraltar authorities should compile in one location more detailed statistics on mutual legal assistance requests and responses.

### Extradition (R.39, 37, SR.V & R.32)
- Consider elaborating procedures—including for example form response letters for requesters, checklists for dealing with HM Foreign Service, etc.—for responding to extradition requests in money laundering and terrorist financing cases.

### Other Forms of Cooperation (R.40, SR.V & R.32)
- (No specific recommendations listed beyond heading in the source.)

---

### 7. Other Issues
- (No specific content beyond headings in the source.)

Additional material noted in the source:
- Anti-Money Laundering Guidance Notes   Identification procedures 02/05/2007

*IMF assessment: cr07157 - 3. Preventive Measures–Financial*

### Part I

### Part I

### A. What Is Money Laundering?
- Money Laundering is "the process by which criminals attempt to conceal or disguise the true origin and ownership of the proceeds of their criminal activities."
- Successful money laundering allows criminals to:
  - maintain control over proceeds;
  - provide a legitimate cover for their source of income;
  - avoid prosecution, conviction and confiscation of the criminal funds.
- Money laundering is a global phenomenon that affects all countries in varying degrees and is inherently hidden, making accurate measurement of the scale and amounts generated each year impossible.
- Failure to prevent laundering permits criminals to benefit from their actions, making crime a more attractive proposition.

### B. The Need To Combat Money Laundering
- Growing recognition exists that preventing criminals from legitimising proceeds (converting funds from "dirty" to "clean") is essential to fighting crime.
- The ability to launder proceeds through the financial system is vital to criminal operations; criminals must exploit financial sector businesses to benefit from proceeds.
- Unchecked use of financial systems for laundering can undermine individual financial institutions and the entire financial sector.
- Increased integration of financial markets and removal of barriers to free movement of capital have:
  - enhanced the ease with which criminal money can be laundered;
  - complicated the tracing process.
- Long term success of financial sectors depends on attracting and retaining legitimately earned funds; criminally earned money is transient, damages reputations, and deters honest investors.
- Gibraltar, as a financial centre, has an important role in combating money laundering; financial institutions and intermediaries involved in laundering risk likely prosecution, loss of market reputation, and damage to Gibraltar's reputation.
- Money laundering was traditionally associated with banks, credit institutions and bureaux de change; as defences hardened, launderers shifted to less conventional parts of the financial system, particularly in the initial conversion from cash.
- Non-bank financial institutions have become progressively more vulnerable to money laundering.

### C. Stages Of Money Laundering
- Methods vary from simple purchases/resales (e.g., car, jewellery) to complex international webs of legitimate businesses and "shell" companies.
- Some criminal proceeds are initially cash (e.g., street-level drug purchases), but many sophisticated crimes do not involve cash.
- The laundering process is accomplished in three stages which may comprise numerous transactions that could alert a financial institution:
  - Placement - "the physical disposal of the initial proceeds derived from illegal activity."
  - Layering - "separating illicit proceeds from their source by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity."
  - Integration - "the provision of apparent legitimacy to criminally derived wealth." If layering succeeds, integration places laundered proceeds back into the economy appearing as normal business funds.
- The three basic steps may occur as separate phases, simultaneously, or overlap; usage depends on laundering mechanisms and criminal organisation requirements.
- Money laundering risks and prevention have traditionally centred on cash entry, but most laundering now centres around the placement and layering stages.
- Institutions must guard against use of investment vehicles, corporate or other legal structures as part of laundering schemes.
- It is seldom that one transaction or relationship encompasses an entire laundering operation; adequate KYC procedures must exist to determine if activity through an institution may form part of a larger money laundering scheme.

### D. The Different Risks of the Financial System to Money Laundering
- Launderers seek to convert illegally earned cash or mix it with legitimate cash before entry into the financial system to make detection harder at placement.
- Where crimes involve corruption or dissipation of a country's assets, benefits often manifest within the existing financial system rather than from outside.
- Use of a wide range of products offered by institutions facilitates laundering; institutions should consider risks posed by products and services, particularly where there is no face-to-face contact with the customer, and devise procedures accordingly.
- Vigilance is necessary throughout the financial system to prevent exploitation of weaknesses.
- Lower-risk products: those where funds can only be received from and returned to a named investor from an account held in the investor's name; however, no product or service is immune.
- Highest-risk products/services: those where unlimited third party funds can be freely received or where funds can be paid to third parties.
- Institutions dealing directly with the public may be used at placement, particularly if they receive cash; liquidity of some products may attract launderers as it allows rapid movement and mixing of lawful and illicit proceeds.
- Financial services providers conducting relevant financial business in liquid products are clearly most vulnerable, particularly where they are of high value.
- Payment in cash requires further investigation, particularly where it cannot be supported by evidence of a cash-based business as the source of funds.
- Institutions and intermediaries must keep transaction records comprehensive enough to establish an audit trail and provide useful information on persons and organisations involved in laundering schemes.
- Efforts to combat laundering have largely concentrated on deposit-taking procedures of banks and building societies (the placement stage).
- Money transmission and lending services are vulnerable in layering and integration stages as well as placement; electronic funds transfer systems increase vulnerability by enabling rapid switching of cash deposits between accounts across names and jurisdictions.
- Mortgage and other loan accounts may be used to create complex layering transactions.
- Sophisticated criminal organisations and "professional money launderers" may use front companies and nominees to create large-scale but false international trading activities, false/inflated invoices, falsified/bogus letters of credit, and may approach banks for credit to fund such activities; banks and building societies offering international trade services should guard against these techniques.
- Investment businesses are more likely used at layering and integration stages; liquidity and cross-border transferability of investment products attract sophisticated laundering. Complex new investment products and lack of measures in emerging markets offer considerable potential to launderers.
- Insurance and retail investment products can be exploited: premiums paid in cash and subsequent policy cancellation to obtain return of premium, insured events leading to paid claims, lump sum investments in liquid products, and unit trusts allow quick movement between products and mixing of proceeds.
- Intermediaries and product providers dealing directly with the public may be used at placement, particularly if they receive cash.
- Insurance and investment product providers and intermediaries should keep transaction records comprehensive enough to establish an audit trail.
- Corporate vehicles, trust structures and nominees are commonly used for layering; providers of these services can be in high demand from criminals.
- Bureau de change facilities, including exchanges effected in favour of a cheque or gold bullion, are particularly attractive.

### E. Assistance (What the law requires)
- Combined effect of the statutes makes it an offence for any person to provide assistance to a criminal to obtain, conceal, retain or invest funds if that person knows or suspects those funds are proceeds of criminal conduct.
- Such assistance is punishable on conviction on indictment by a maximum of 14 years imprisonment or a fine, or both.
- Persons undertaking relevant financial business are required under the statutes to report their knowledge or suspicion to law enforcement agencies "as soon as it is reasonably practicable after it comes to his attention."
- "Criminal conduct" includes any indictable offence wherever committed which would constitute an indictable offence if committed in Gibraltar; examples include corruption, drug trafficking offences, terrorist activity, the financing of terrorism, major thefts and fraud, robbery, forgery and counterfeiting, illegal deposit taking, blackmail and extortion.

### F. Fiscal Offences
- Individuals and companies may legitimately avoid tax by arranging affairs to minimise liability; financial sector staff should be aware criminals may claim "tax avoidance" to obscure origins of criminal proceeds.
- A financial institution has no positive obligation to establish whether a customer has paid tax due.
- Evasion of taxation within Gibraltar will usually involve commission of an indictable offence under the general criminal code (e.g., false declaration, false accounting) with the object of escaping or reducing tax liability.
- Mere suspicion that a customer intends to commit a tax offence is not sufficient; there must be suspicion that:
  - a related indictable offence had actually been committed; and
  - the benefit from that offence formed part of a transaction or series of transactions in which the institution was involved.
- Similar offences committed abroad would be caught only if they are indictable offences in Gibraltar; it cannot be assumed all overseas tax offences are indictable in Gibraltar and therefore reportable.
- Mere suspicion that a customer is placing or moving money through Gibraltar with the intention of committing an offence against an overseas tax authority is not sufficient; institutions will not often be aware of the whole picture of clients' financial affairs.

*Anti-Money Laundering Guidance Notes — Identification procedures, International Monetary Fund.*

### Appendix A to these Guidance Notes contains a summary of the Gibraltar legislation.

### cr07157 - Appendix A to these Guidance Notes contains a summary of the Gibraltar legislation.

### Scope and covered activities
- The Sections refer to Part III, Sections 6 to 22, of the Criminal Justice Ordinance 1995.
- Section 8 defines relevant financial business as engaging in any one or more of the following:
  - deposit taking business of banks, bank branches and building societies;
  - business of the Savings Bank;
  - investment business as defined by the Financial Services Ordinances 1989 and 1998;
  - any of the activities listed in the annex to the Banking Coordination Directive with the exception of credit reference services;
  - insurance business as defined by Article 6 of the First Life Directive;
  - auditor, external accountant or tax advisor;
  - real estate agent;
  - notary or other independent legal professional, when participating in specified client transactions;
  - the business of acting as a company manager, professional trustee, insurance intermediary or insurance manager as defined by the Financial Services Ordinance 1989;
  - dealer in high value goods whenever payment is made in cash and in an amount of EUR 15 000 or more;
  - casinos;
  - currency exchange office / bureau de change;
  - money transmission / remittance office.
- The Guidance Notes explicitly cover the following financial services providers:
  - Banks and Building Societies whether or not operating in or from Gibraltar as a branch or locally incorporated institution;
  - The Gibraltar Savings Bank;
  - Investment Businesses and Controlled Activities conducted under an authorisation granted under the Financial Services Ordinances 1989 or 1998;
  - Life insurance companies;
  - Currency exchangers/bureau de change;
  - Money transmission/remittance offices.
- The Guidance Notes refer to these persons as ‘institutions’ throughout.

### Institutional duties, policies, and controls
- Section 9 requires institutions to establish and maintain specific policies, procedures and training programmes to prevent their businesses and the financial system being used for the purposes of money laundering. Requirements cover:
  - internal controls and communication of policies (Part III);
  - identification procedures (Part IV);
  - record keeping (Part V);
  - recognition of suspicious transactions and reporting procedures (Part VI);
  - education and training of relevant employees (Part VII).
- All institutions must:
  - introduce procedures for the prompt validation of suspicions and subsequent reporting to the Gibraltar Financial Intelligence Unit;
  - provide the Money Laundering Reporting Officer (“MLRO”) with the necessary access to systems and records to fulfil this requirement;
  - establish close co-operation and liaison with GFIU.
- Institutions must appoint an “appropriate person,” referred to as the MLRO, to act as the central point of contact with law enforcement to handle suspicious transaction reporting.
- The central reception point for disclosures by the MLRO shall be the Gibraltar Financial Intelligence Unit (“GFIU”).
- Institutions with overseas branches, subsidiaries or associates where control can be exercised must establish a group policy to ensure overseas operations adopt anti-money laundering strategies, controls, procedures and processes at least to the standards required under Gibraltar law or to higher host-country standards where applicable. Where local laws prohibit Gibraltar-equivalent practices or higher standards, the institution must inform the Financial Services Commission (FSC).
- Where suspicions arise in overseas operations, these must be reported within the jurisdiction where they arose and the transaction records are held; there may also be a requirement for a report to GFIU.

### Reporting obligations, protection, and internal reporting
- It is an offence for any person conducting relevant financial business who acquires knowledge or a suspicion of money laundering in the course of trade, profession, business, or employment not to report the knowledge or suspicion as soon as it is reasonably practicable after the information came to his attention.
- Penalties for failure to report:
  - on summary conviction: imprisonment for a term not exceeding six months or to a fine not exceeding level 5 on the standard scale, or both;
  - on conviction on indictment: imprisonment for a term not exceeding fourteen years or to a fine, or to both.
- Internal reporting in accordance with employer procedures satisfies the requirement for employees.
- The legislation protects those reporting suspicions of money laundering from claims in respect of any alleged breach of client confidentiality.
- The Sections require supervisory authorities to report any information they obtain which, in their opinion, indicates any person has or may have been engaged in money laundering to law enforcement authorities.

### Tipping-off and constructive trust
- Tipping-off:
  - It is an offence to prejudice an investigation by informing the person who is the subject of a suspicion, or any third party, that a disclosure has been made, or that the authorities are acting, or are proposing to act, in connection with an investigation into money laundering.
  - Preliminary enquiries to verify identity or ascertain source of funds will not trigger a tipping-off offence before a suspicions report has been submitted unless the enquirer knows that an investigation is underway or that the enquiries are likely to prejudice an investigation.
  - Where it is known or suspected a suspicions report has been disclosed to a Police or Customs Officer and further enquiries are necessary, great care must be taken to ensure customers do not become aware their names have been brought to law enforcement attention.
  - Punishment for tipping-off: a maximum of five years imprisonment or a fine, or both.
- Constructive trust:
  - Concerns exist about conflicts between civil and criminal law in constructive trusteeship arising from the duty to report suspicious transactions in respect of crimes other than drug trafficking and terrorist transactions.
  - Guidance on reporting procedures relating to constructive trust issues is provided in Part 6.

### Terrorist financing and related offences
- The Terrorism (United Nations Measures) (Overseas Territories) Order 2001 (the “Order”) makes financing of terrorism an offence.
- Terrorism is defined where:
  - the use or threat is designed to influence the government or to intimidate the public or a section of the public, and the use or threat is made for the purpose of advancing a political, religious or ideological cause;
  - where the action involves serious violence against a person, serious damage to property, endangers a person's life, other than that of the person committing the action, creates a serious risk to the health or safety of the public or a section of the public, or is designed seriously to interfere with or seriously to disrupt an electronic system;
  - the use or threat of action above involves the use of firearms or explosives is terrorism whether or not the first condition is satisfied.
- The financing of terrorism is dealt with under two sets of offences, including:
  - collection of funds; inviting another to provide funds; receiving funds; providing funds intending that they should be used, or knowing that they may be used, for the purposes of terrorism;
  - making funds available or financial (or related) services available directly or indirectly to or for the benefit of persons who commit, attempt to commit, facilitate or participate in acts of terrorism, persons controlled or owned by such persons, or persons acting on behalf of or at the direction of such persons.
- Terrorist financing characteristics and risks:
  - terrorists often control funds from a variety of sources around the world and increasingly employ sophisticated techniques to fund activities and move money between jurisdictions;
  - two major differences from other organized crime funding: often small amounts are required to commit terrorist activities; terrorists can be funded from legitimately obtained income, including charitable donations, making it unclear when legitimate earnings become terrorist funds.
- Institutions can reduce the risk of terrorist financing entering the financial system by applying anti-money laundering control systems, particularly Know Your Customer procedures and source of funds verification.
- The Order requires a “relevant institution” to report to the Governor where it knows or suspects a person is or has been a customer or a person with whom the institution has had dealings is a terrorist, or a person who receives funds in relation to terrorism or makes funds available for terrorism.
- “Relevant institution” for the purposes of the Order is defined as either a bank or an EEA bank branch in Gibraltar or a Building Society.

### Sanctions, enforcement, and supervisory role
- Failure to comply with any of the requirements of the Sections constitutes an offence punishable by a maximum of 2 years imprisonment or a fine, or both, irrespective of whether money laundering has actually taken place (Subsection 9(2)).
- The requirement to maintain anti-money laundering procedures is statutory and criminal penalties exist for non-compliance; failure to maintain the procedures may raise questions about an institution’s "fitness and properness".
- The Financial Services Commission will view institutions that do not adhere to these Guidance Notes as failing to meet the conditions under which their authorisation was granted.
- The Commissioner appointed under the Financial Services Commission Ordinance has informed authorised banks, insurance companies, investment businesses and businesses conducting controlled activities that failure to install or maintain adequate money laundering policies and procedures would be taken into account when considering whether minimum criteria for authorisation continued to be met, and that these Guidance Notes would be used as the criteria for assessing adequacy of systems to counter money laundering.

### Internal controls, monitoring and audit responsibilities
- Institutions must establish clear responsibilities and accountabilities to ensure policies, procedures and controls deter criminals from using facilities for money laundering and to comply with statutory obligations.
- As good practice, businesses are recommended to verify on a regular basis compliance with money laundering policies, procedures and controls; larger institutions may use internal audit or compliance departments, smaller institutions may use regular management review.
- Procedures and responsibilities for monitoring compliance and effectiveness of money laundering policies must be clearly laid down.
- Gibraltar does not apply its money laundering legislation extra-territorially, but requires controlled overseas operations to meet Gibraltar standards or higher host-country standards where applicable.
- No institution may maintain accounts or business relationships which are either anonymous or in fictitious names.

*Source: Anti-Money Laundering Guidance Notes, Annex II (Appendix A summary of Gibraltar legislation), 02/05/2007.*

### Part IV

### Part IV — WHY SHOULD AN INSTITUTION IDENTIFY ITS CUSTOMER?

### Purpose and legal requirement for identification
- The Guidance Notes state that having sufficient information about your customer ("knowing your customer" (KYC)) underpins all anti-money laundering efforts and is the most effective defence against being used to launder the proceeds of crime.
- Sections 11 and 13 of the Criminal Justice Ordinance require all institutions to seek satisfactory evidence of identity (verification of identity). Unless satisfactory evidence is obtained in good time, the business relationship must not proceed.
- Records of verification of identity must be retained for five years after an account is closed or the business relationship ended.

### When identification/verification is required
- Identification procedures must be followed:
  - whenever opening a business relationship; or
  - for a one-off transaction or series of linked transactions of €15,000 or more; or
  - in all cases where money laundering is known or suspected.
- Once verification has been satisfactorily completed, no further evidence is needed for subsequent transactions, subject to maintaining and updating records as appropriate.
- The distinction between "Applicant for Business", "Business Relationship" and "One-Off Transaction" is key to applying verification requirements.
- "Business relationship" (Section 7(2)) is any arrangement designed to facilitate transactions on a "frequent, habitual or regular" basis where the monetary value is not known at the outset.
- A "one-off transaction" is any transaction carried out other than in the course of an established business relationship. Identification is required if single or linked transactions amount to €15,000 or more.

### Core KYC principles and approach
- Institutions must establish that they are dealing with a real person (natural, corporate or legal) and verify identities of persons authorised to operate accounts or transact business for the customer; personal interview of the prospective customer is recommended whenever possible.
- Verification procedures should be essentially the same across account or service types, using the best identification documents available (those most difficult to obtain illicitly). Verification is generally cumulative—no single document is sufficient.
- KYC processes should not be "tick box" exercises; institutions must adopt a risk-based methodology tailored to:
  - the risk posed by the customer;
  - the level and nature of the business;
  - the institution’s risk tolerance; and
  - any existing relationships with that customer.
- The identification requirements provided are the minimum expected to be documented.

### Elements of identity and activity to record
- Two main constituents of a person’s identity:
  - the physical identity (e.g. name, date of birth, registration number); and
  - their address.
- Nature and scope of activity: institutions must record the purpose and reason for establishing the business relationship, and the anticipated level and nature of activity, including the expected source of funds.
- For low risk cases, minimum information to record to a level of "plausible verifiability":
  - the purpose and reason for establishing the business relationship;
  - the anticipated level and nature of the activity that will be conducted;
  - the expected source of the funds that will be used within the relationship.
- For higher risk cases, the institution must seek to independently verify the above.

### Verification requirements for personal applicants
- Information to obtain and (where required) independently verify:
  - true name and/or names used;
  - a current address.
- Details of occupation/employment and sources of wealth or income should be recorded to a level of "plausible verifiability" and for higher risk cases should be independently verified.
- Recommended steps to verify addresses (one or more):
  - checking the Register of Electors;
  - provision of a recent utility bill, tax assessment or bank or building society statement (original documents recommended);
  - checking the telephone directory;
  - record of home visit.
- Date of birth is important as an identifier; verification of date of birth is not obligatory but provides additional safeguard.
- Face-to-face applications: ideally obtain a dependable photographic document (current, valid, full passport or national identity card) and retain copies.
- Where document used to verify identity also contains address, further address verification may not be required for low risk customers; high risk customers should have address verified using at least two independent sources other than the document.
- Where there is no face-to-face contact: ensure sufficient documentary or electronic evidence to confirm address and personal identity and undertake at least one additional check to guard against impersonation; copies of passports/ID should be certified by institution‑approved certifiers; original documentation should not be forwarded through the post.
- The MLRO must approve persons who may certify documents and keep documentary evidence that the certifier:
  - adheres to ethical and/or professional standards;
  - is readily contactable;
  - exercises profession in a jurisdiction with equivalent anti-money laundering measures;
  - has senior management agreement permitting such certification.

### Special customer categories and practical accommodations
- Financially or socially disadvantaged persons: internal procedures must allow identity confirmation in exceptional circumstances (e.g. confirmation from a professional, a letter from Social Services); senior manager may authorise opening and must record reasons.
- Students and young people: follow normal procedures where possible; alternative verification might include home address of parent(s) or enquiries of the college/university; be cautious at the start of academic year due to registration frauds.
- Minors: ordinarily introduced by family member/guardian with existing relationship; verify identity of anyone who will control the account if not already known.

### Bodies corporate, partnerships and powers of attorney
- Corporate applicants:
  - look behind corporate entity to identify those with ultimate control and beneficial owners; confirm legitimate trading/economic purpose and guard against "brass plate companies".
  - perform company searches to ensure company is not dissolved, struck off, wound-up or terminated.
  - documents normally obtained:
    - copy of latest report and accounts;
    - copy of Memorandum & Articles of Association;
    - copy of the board resolution to open the relationship and empowering authority for account operators;
    - copy of the certificate of incorporation/certificate of trade or equivalent.
  - identify:
    - all directors who will operate the account;
    - all authorised signatories;
    - all holders of powers of attorney to operate the account;
    - beneficial owner(s);
    - majority shareholders (if different).
  - when authorised signatories change, ensure identities of at least two current signatories have been verified.
- Partnerships and unincorporated businesses: verify identity of at least two partners/equivalents and obtain partnership mandate where applicable.
- Powers of attorney: authority to deal with assets under power constitutes a business relationship; identify holder(s) and grantor where appropriate and keep transaction records.

### Trusts, nominee and fiduciary accounts
- Trusts, nominee companies and fiduciaries present enhanced money laundering risks; identification and KYC must be determined by perceived risk.
- Key prevention measures:
  - verify identity of the provider of funds (settlor), those who control funds (trustees) and any controllers who can remove trustees;
  - for discretionary trusts, ascertain nature and purpose of trust and original source of funding; for non-discretionary trusts source of funds need not be sought.
- Additional measures for higher-risk trusts:
  - identify trust company/service provider in line with individual/company procedures and identify underlying principals (protectors, settlors, trustees).
  - obtain written confirmation from trustees/managers that there are no anonymous principals.
- Conventional family and absolute Gibraltar trusts: obtain identification evidence for principal trustees (including settlor where relevant) and protectors; where settlor is deceased obtain written confirmation of source of funds (e.g. grant of probate or copy of will).
- Verify identity of any non-regulated co-trustees where corporate trustee acts jointly with a co-trustee.
- Verify identity of new trustees before they may exercise control.
- Receipt/payment of funds on behalf of a trust: seek details of source of funds and understand nature of transaction; ensure payments are properly authorised in writing by trustees.
- Life policies placed in trust: where trustees have no beneficial interest or payment authority, verify only identity of settlor/policyholder.

### Client accounts opened by intermediaries
- Intermediary as account holder: the intermediary is the institution's customer; four principal scenarios govern whether to look through to underlying clients:
  i. intermediary is regulated Gibraltar or EU financial institution subject to the Sections/Directive — institution need only verify the intermediary;
  ii. intermediary is EU solicitors/accountants subject to the Sections only for relevant financial business — protection of legal privilege/professional codes may prevent obtaining underlying client identities; institution should still make reasonable enquiries and report suspicions; law enforcement will seek information from the intermediary if needed;
  iii. intermediary is regulated financial institution from a non-EU country with equivalent money laundering legislation — reasonable measures can be satisfied by obtaining a written general undertaking that the intermediary has obtained and recorded identity evidence of any client whose funds it deposits;
  iv. intermediary is from a country without equivalent legislation — reasonable measures must be taken to verify the identity of the underlying client; an undertaking may be sufficient in many cases, but where the intermediary appears to be a "front", full verification will be necessary.

### Politically Exposed Persons (PEPs) and corruption risk
- PEPs (heads of state, ministers, high-level civil servants, judges, military commanders, directors/managers of public enterprises) can pose significant reputational and legal risk due to potential abuse of public office for enrichment through bribes or embezzlement.
- Risks include media exposure, higher law enforcement costs, and potential criminal liability for institution officers who know or should have known funds were derived from crime.
- Minimum risk-based measures for PEPs:
  - development of clear policy, internal guidelines, procedures and controls regarding PEP business relationships;
  - maintenance of risk management systems to determine whether a potential or existing customer is a PEP;
  - decisions to enter into business relationships with PEPs to be taken only by senior management;
  - proactive monitoring of account activity to detect changes that may suggest corruption or misuse of public assets;
  - close scrutiny of receipts of large sums from government bodies, state-owned activities, or government/central bank accounts;
  - assessment of countries more vulnerable to corruption;
  - additional monitoring for customers from high risk countries in corruption‑vulnerable lines of business (e.g. oil or arms sales).
- Timely reports should be made to GFIU where proposed or existing PEP relationships give grounds for suspicion.

### Correspondent relationships and correspondent banking
- Establish "Know Your Correspondent" procedures to ascertain whether correspondent bank or counter-party is regulated for money laundering prevention and whether it verifies customers to FATF standards; where not, additional due diligence is required.
- Do not maintain relationships with shell banks (no physical presence) or correspondents that permit accounts to be used by such banks.
- Assess respondent institution’s CFT/AML controls and document respective responsibilities.
- At least one person senior to or independent from the officer sponsoring the relationship must approve establishing the correspondent relationship; conduct an annual review of the relationship.
- Monitor volume and nature of transactions from high risk jurisdictions or those with material deficiencies against expected levels/destinations; investigate material variances.
- Guard against passing funds through correspondent accounts without reasonable steps to satisfy due diligence on remitting bank and origin of funds.
- Train staff dealing with correspondent banking to recognise high risk circumstances and to challenge correspondents and submit suspicion reports where appropriate.
- Consider terminating correspondent accounts if correspondents fail to provide satisfactory answers to reasonable enquiries.

### Timing, freezing and exceptional circumstances
- Generally do not establish a business relationship until relevant parties are identified and expected business nature is established; assess ongoing transactions regularly against expected patterns.
- When evidence of identity is required, obtain it as soon as reasonably practicable after the applicant seeks to enter a business relationship or effect a one‑off transaction. Section 14 requires timing to be determined in light of all circumstances (nature of business, geography, practicability).
- Institutions may start processing business while taking steps to verify identity, but verification should be completed before settlement where practicable. Verification must be completed even if settlement has occurred.
- Telephone business: acceptable to await settlement to ascertain if payment is from an account in the investor's name; proceeds should not be remitted to investor until identification is verified.
- Section 11(1): if satisfactory evidence of identity has not been obtained in a reasonable time, the "business relationship or one-off transaction in question shall not proceed any further" — institutions may need to freeze or cancel a transaction after dealing but before settlement.
- Freezing practice where identity evidence is required:
  - "freeze" rights attaching to the transaction pending receipt of evidence;
  - investor may continue to deal but proceeds should be retained;
  - documents of title should not be issued, nor income remitted (may be re-invested).
- Cancellation/cooling off repayments do not constitute "proceeding further with the business" but abnormal exercise of such rights may be suspicious and should be reported.
- Exceptional circumstances: senior manager may authorise business where documentary evidence cannot reasonably be provided; reasons must be recorded and retained as for other identification records. If senior manager is unsatisfied or money laundering is suspected, do not proceed and follow reporting procedures while avoiding "tipping-off".

### Remediation of legacy relationships and acquisitions
- All relevant financial business have been required since 2002 to review existing business relationships and identify missing KYC documentation. That exercise was to have been completed by 31st January 2003.
- Institutions must have sought and obtained missing documentation, be in the process of obtaining it, or have closed or blocked relationships until documentation is supplied, obtained or verified.
- The FSC will continue to monitor institutions' progress as part of risk-based assessment.
- The FSC expects institutions to have instigated a risk-based KYC remediation with project management disciplines, identified milestones and measurable targets across affected customer base.
- Institutions are encouraged to apply remediation across their entire customer base where KYC documentation is not up to existing standards.
- Acquisition of one financial sector business by another: it is not necessary to re-verify all existing customers provided customer account records are acquired and pre-acquisition due diligence shows money laundering procedures accorded with Gibraltar requirements. If prior procedures do not accord or records are unavailable, verification and KYC must be done as soon as practicable.

### Special transaction types: bearer securities
- Bearer securities, by their anonymous nature, lack an audit trail and are vulnerable to money laundering; bearer securities delivered other than through a recognised clearing system merit special attention.
- Where transaction value exceeds €15,000, verification evidence should be obtained for:
  - bearer shares converting to registered form;
  - surrender of coupons for payment of dividend, bonus or capital event.
- Middle market prices from Financial Times, Bloomberg or Reuters on the day of receipt should normally be used to establish share value.
- For transfers from bearer to registered shares, obtain identity evidence of the registered holder in line with procedures.
- Submission of coupons in exchange for a cheque does not require identity verification unless the value of the cheque is in excess of €15,000 and the requested payee is not a Gibraltar or EU regulated financial sector firm; in such case obtain identification evidence of the payee before issuing the cheque.

### Reliance on third parties and eligible introducers
- Institutions must retain adequate documentation to demonstrate KYC procedures have been properly implemented and that necessary verification has been carried out; however reliance on KYC carried out by third parties is permissible in certain circumstances provided institutions have copies and access to documentation.
- Introductions from group companies or intermediaries: institution must carry out KYC on any client introduced unless the introducer is an eligible introducer able to provide copies of all required documentation.
- To qualify as an eligible introducer a third party must meet ALL FOUR conditions:
  - regulated by the FSC, or an equivalent institution if carrying on business outside Gibraltar;
  - subject to equivalent or more stringent anti-money laundering legislation than in Gibraltar;
  - based in Gibraltar or a country with an equivalent anti-money laundering regime;
  - no secrecy or other obstacles prevent the Gibraltar institution from obtaining original documentation if necessary.
- Where an introducer satisfies the eligible introducer definition, an institution may rely on the introducer’s KYC procedures and obtain copies of relevant documentation rather than see originals. Exemptions for postal applications do not apply.
- Where reliance is placed on an eligible introducer, the introducer must complete and return the certificate in Appendix F1 and immediately supply copies of all necessary documentation. A business relationship may not commence until the completed Introducer’s Certificate and copies of required documentation have been received.

*Source: Anti-Money Laundering Guidance Notes — Identification procedures (Part IV).*

### Section  14(1)(a-c)  provides  that  the  institution  need  not  verify  identity  even  if  the

### Section  14(1)(a-c)  provides  that  the  institution  need  not  verify  identity  even  if  the  transaction  exceeds  €15,000,  as  long  as  the  introducer  has  provided  the  name  of  the  customer  and given the firm a written assurance that evidence of identity has been taken and recorded

### Exemption under Section 14(1)(a-c)
- The Guidance Notes state that verification of identity is not required for a transaction that exceeds €15,000 provided:
  - the introducer has provided the name of the customer; and
  - the introducer has given the firm a written assurance that evidence of identity has been taken and recorded.
- The written assurance may be:
  - given separately by the introducer for each new customer; or
  - given by way of a written general assurance.
- The Section 14(1)(c) exemption is only applicable if condition (ii) of 14(1)(c) is fulfilled.

### Conditions for applicability when the introducer is non-Gibraltar
- The Guidance Notes set out that there must be reasonable grounds for believing that the non-Gibraltar introducer:
  - acts in the course of a business in relation to which an overseas regulatory authority exercises regulatory functions; and
  - is based, or incorporated in, or formed under the law of, a country other than an EU member state in which there are in force provisions at least equivalent to those required by the Money Laundering Directive, particularly in respect of verification of identity and record keeping; or
  - operates under a rigorous group policy in accordance with Gibraltar standards and provides some form of group introduction certificate that evidence of identity has been taken and recorded.

### Scope and limits of the exemption (one-off transactions and linked transactions)
- The Guidance Notes specify:
  - This exemption applies only to one-off transactions.
  - If the person being introduced is forming a business relationship with the institution, the institution must obtain evidence of identity.
  - Transactions separated by an interval of three months or more need not, in the absence of specific evidence to the contrary, be treated as linked.
  - Section 11(5) requires identification procedures where linked transactions together exceed the exemption limit, i.e. where two or more one-off transactions:
    - appear at the outset to be linked and the aggregate amount will exceed €15,000; or
    - at any later stage it comes to attention that the transactions are linked and that the €15,000 limit has been reached.
- Specific recommendations and thresholds:
  - In respect of Bureaux de Change and Money Transmission services it is recommended that this level be reduced to €5,000.
  - The Sections do not require institutions to install additional computer systems specifically to identify linked transactions, but if existing systems recognise linked transactions totalling more than €15,000 the institution must act.

### Transitional requirements, reviews, and KYC documentation
- The Criminal Justice (Amendment) Ordinance 2004 (ORD 14 of 2004) provides transitional arrangements for new activities (company managers, professional trustees, insurance intermediaries and managers):
  - existing business relationships and one-off transactions did not need to be fully compliant on the day the amendments came into effect; supervisory or regulatory guidance should specify procedures to be followed.
- By the 1st June 2005:
  - all existing business relationships must be examined and reviewed to determine missing, incomplete or out of date documentation and compliance with this Part of the Notes.
  - the form in Error! Reference source not found.G should be used and the completed form should form part of the KYC documentation.
- Management of new activities must, when reviewing relationships, decide whether to obtain missing documentary evidence or decide it is unnecessary; each relationship must be treated individually.
- Where missing documentation is sought, the institution must do so at the earliest possible opportunity and persist; if not obtained within a reasonable period, consider termination of the business relationship.
- Where business is introduced to another relevant financial business, the receiving institution may accept or reject the introducer’s form as a substitute for copies of underlying KYC documentation.

### Postal, coupon, telephone and electronic business concessions
- Section 12 provides a concession where it is reasonable for payment to be made by post or electronically, or details given by telephone:
  - identification requirements may be waived where payment is made from an account held in the customer's name (or jointly) at an authorised financial or credit institution.
- Records should be maintained indicating how the transaction arose and detailing the Gibraltar or EU authorised credit institution's details and the account number.
- Accepting institutions must be able to confirm the account is held in the sole or joint name(s) of the investor. Confirmation may be obtained by:
  - sight of a statement for the account from the credit institution concerned;
  - sight of a blank cancelled cheque or paying-in slip for the account;
  - confirmation added to cheques or drafts and certified by the branch or credit institution;
  - narrative information provided by the paying bank in telegraphic transfers (e.g. CHAPS);
  - contacting the bank, building society, or debit card issuer as a last resort (subject to confidentiality restrictions).
- The postal concession cannot be used where:
  - initial or future payments can be received from third parties;
  - cash withdrawals can be made other than by the investor face-to-face where identity can be confirmed;
  - redemption or withdrawal proceeds can be paid to a third party or to a bank account that cannot be confirmed as belonging to the investor (other than specified personal representatives).
- Repayment restrictions under the concession:
  - (i) repayments made to another institution must be subject to confirmation from the receiving firm that the money is either to be repaid to the investor or reinvested elsewhere in the investor’s name;
  - (ii) repayments made by cheque must be sent either to the named investor’s last known address and crossed “account payee only”, or to the investor’s bank with an instruction to credit the named investor’s account;
  - (iii) repayments via BACS should ensure that the stipulated account is in the name of the investor.
- Where a firm relying on the concession has grounds to believe the identity of the customer has not previously been verified by the credit institution on which the payment has been drawn, additional risk-based verification measures should be sought.
- For non-written applications from intermediaries (telephone or electronic), intermediaries should confirm that identity has been verified or that the investor was an established customer prior to 1st April 1995 and that names and addresses correspond with intermediary records; records of answers must be retained if relied upon.

### Internet services and monitoring
- Institutions offering Internet services should implement procedures to establish and authenticate customer identity and ensure sufficient information to confirm address and personal identity is acquired in accordance with the requirements for postal/telephone banking customers.
- An initial deposit cheque drawn on another regulated EU institution will provide additional comfort.
- Institutions should consider regular monitoring of transactions over the Internet; unusual transactions should be investigated and reported if suspicious.

### Small insurance contracts and pension-related exemptions
- Sections 14(8)(g) provides that identification procedures can be waived for insurance business where:
  - a premium is payable in one instalment of an amount not exceeding €2,500; or
  - a regular premium is payable and the total payable in respect of any one calendar year does not exceed €1,000.
- Section 14(1)(e) provides that no steps are necessary to obtain evidence of identity for a policy of insurance in connection with a pension scheme taken out by virtue of a person's contract of employment or occupation where:
  - i contains no surrender clause; and
  - ii may not be used as collateral for a loan.
- A 'policy of insurance' includes any contract which secures any benefit in respect of occupational or personal pension schemes effected with an insurance company authorised to conduct long-term insurance business; the exemption extends to personal pension arrangements for self-employed and employees.

### Equivalence of legislation and jurisdictions
- The Guidance Notes observe:
  - All EU member countries (including Gibraltar and the ten accession states which joined the EU in May 2004) are required to enact legislation to implement the European Union Money Laundering Directive.
  - Guernsey, Jersey and the Isle of Man have introduced all-crimes anti-money laundering measures in line with those operating in Gibraltar.
  - Institutions entering business relationships with customers introduced by institutions regulated in the Crown Dependencies may assume, unless evidence to the contrary exists, that the introducing institution’s customer verification and record keeping procedures are equivalent to Gibraltar’s and that relevant records will be freely available or obtainable by Gibraltar Law Enforcement Agencies by Court Order.
  - With IMF and FATF evaluations being published, the prior narrow view of equivalence based on “club membership” need no longer apply.
- The list of equivalent jurisdictions is shown at Appendix E of the Guidance Notes.

*Anti-Money Laundering Guidance Notes (Identification procedures), Part IV.*

### Part V

### Part V — RECORD KEEPING

### Record keeping: purpose and retention
- The Anti-Money Laundering Guidance Notes require keeping records of customers’ identification and transactions as an essential constituent of the audit trail.
- Relevant records must be retained for at least five years from the date of completion of the business.
- Financial institutions often serve primarily as providers of relevant records when law enforcement cannot link funds passing through the financial system with the original criminal money.
- Records on customer relationships and transactions should enable the following:
  - requirements of legislation are fully met;
  - competent third parties will be able to assess the institution’s observance of money laundering policies and procedures;
  - any transactions effected via the institution can be reconstructed; and
  - the institution can satisfy within a reasonable time any enquiries or court orders from the appropriate authorities as to disclosure of information.

### Documents verifying evidence of identity
- Where evidence of a person’s identity is required, businesses must maintain a record that:
  - indicates the nature of the evidence obtained, and
  - comprises either a copy of the evidence or (where this is not reasonably practicable) contains such information as would enable a copy of it to be obtained.
- These records of identity must be kept for at least five years from the date when the relationship with the customer has ended. Under Sections 16(2)(a) and 2(4), that date is:
  - i the carrying out of the one-off transaction, or the last in a series of linked one-off transactions; or
  - ii the ending of the business relationship; or
  - iii the commencement of proceedings to recover debts payable on insolvency.
- If formalities to end a business relationship have not been undertaken but five years has elapsed since the last transaction, the five year retention period commences on the date of completion of that last transaction.
- Part VI sets out the nature of the evidence required.

### Transaction records
- Section 16(1)(b) requires institutions to retain, for at least five years, records of all transactions undertaken in respect of relevant financial business to provide the institution’s section of the audit trail.
- For each transaction consideration should be given to retaining a record of:
  - the name and address of its customer;
  - the name and address (or identification code) of its counterparty;
  - what the transaction was used for, including price and size;
  - whether the transaction was a purchase or a sale;
  - the form of instruction or authority;
  - the account details from which the funds were paid (including, in the case of cheques, sort code, account number and name);
  - the form and destination of payment made by the business to the customer;
  - whether the investments, etc were held in safe custody by the business or sent to the customer or to his/her order and, if so, to what name and address.

### Record keeping by eligible introducers
- Under Section 13(4) and (5), if an eligible introducer is authorised under the Financial Services, Banking, Building Societies or Insurance Companies Ordinances for relevant financial business, the principal can rely on an assurance that the eligible introducer will keep, on the principal's behalf, the necessary records for verification of identity and transactions.
- The principal must keep copies of the records itself.

### Format and retrieval of records
- Records must be capable of retrieval without undue delay; originals need not be retained provided reliable procedures exist for microfiche or electronic storage and reproduction without undue delay.
- Institutions may rely on third party records (e.g., banks, clearing houses) but the primary responsibility remains with the institution to ensure the third party will retain and produce records if required.
- Record requirements are the same regardless of format or whether the transaction was paper or electronic.
- Documents held centrally must distinguish between transactions relating to different customers and identify where and in what form the transaction took place.
- There is no statutory requirement in Gibraltar to retain original vouchers beyond the five year rule; however, retaining original vouchers for at least one year can assist forensic analysis and internal investigations.
- Copies of verification-of-identification records retained in Gibraltar are of assistance to law enforcement, particularly where third parties performed verification.
- Where identity documents are held in another part of a group, duplicate copies need not be held elsewhere, but such documents must be freely available on request within the group subject to local legislation, or available to investigating agencies under due legal procedures and mutual assistance treaties. Access must not be impeded by confidentiality or data protection restrictions.
- Financial sector businesses should ensure group records kept in other countries that are needed to comply with Gibraltar legislation are retained for the required period, and take care when an introducing branch/subsidiary ceases to trade or becomes detached from the group.

### Wire transfers: risks and record keeping
- Criminals make extensive use of electronic payment and message systems; rapid movement of funds across jurisdictions increases investigation complexity, particularly if originator or beneficiary identity is not clearly shown.
- Following the FATF special recommendation on terrorist financing, relevant financial businesses are required to include accurate and meaningful originator and beneficiary information on all outgoing funds transfers and related messages, and this information should remain with the transfer or related message throughout the payment chain.
- Institutions should have effective risk-based procedures to identify wire transfers lacking complete originator information.
- Records of electronic payments and messages must be treated the same as other records supporting account entries and kept for a minimum of five years.

### Interpretation of wire transfer requirements
- Definitions used for interpretation:
  - wire transfer and funds transfer: any transaction carried out on behalf of an originator person through a financial institution by electronic means to make money available to a beneficiary person at another financial institution; originator and beneficiary may be the same person.
  - Cross-border transfer: any wire transfer where the originator and beneficiary institutions are located in different jurisdictions, or any chain of wire transfers with at least one cross-border element.
  - Domestic transfer: any wire transfer where the originator and beneficiary institutions are located in Gibraltar; includes chains taking place entirely within Gibraltar even if the system used is located elsewhere.
  - Financial institution: as defined by the FATF Forty Recommendations; excludes persons/entities that provide only message or support systems for transmitting funds.
  - Originator: the account holder, or where there is no account, the person that places the order with the financial institution to perform the wire transfer.

### Scope: originator information requirements
- The wire transfer requirement applies to cross-border and domestic transfers between financial institutions under the conditions set out.
- Cross-border wire transfers:
  - Information must always contain the name of the originator and, where an account exists, the number of that account. In the absence of an account, a unique reference number must be included.
  - The information should also contain the address of the originator; alternatively a national identity number, customer identification number, or date and place of birth may be substituted.
  - Bundled transfers from a single originator in a batch file for transmission to beneficiaries in another jurisdiction may be exempted from including full originator information provided they include the originator’s account number and the batch file contains full originator information.
- Domestic wire transfers:
  - Information must include originator information as indicated for cross-border transfers, unless full originator information can be made available to the beneficiary financial institution and appropriate authorities by other means; in that case only the account number or a unique identifier is required, provided it permits tracing back to the originator.
- The ordering financial institution must make information available within five business days of receiving a request from the beneficiary financial institution or appropriate authorities. Law enforcement authorities should be able to compel immediate production of such information.

### Exemptions from the wire transfers requirements
- The wire transfers requirement does not cover:
  - (a) Any transfer flowing from a transaction carried out using a credit or debit card so long as the credit or debit card number accompanies all transfers flowing from the transaction. When credit or debit cards are used as a payment system to effect a money transfer, they are covered and necessary information should be included.
  - (b) Financial institution-to-financial institution transfers and settlements where both originator person and beneficiary person are financial institutions acting on their own behalf.

### Roles of ordering, intermediary and beneficiary financial institutions
- Ordering financial institution:
  - Must ensure qualifying wire transfers contain complete originator information, verify this information for accuracy and maintain it in accordance with the Guidance Notes.
- Intermediary financial institution:
  - For cross-border and domestic transfers, must ensure all originator information that accompanies a wire transfer is retained with the transfer.
  - Must keep a record for five years of all information received from the ordering financial institution.
- Beneficiary financial institution:
  - Lack of complete originator information may be a factor in assessing whether a wire transfer or related transactions are suspicious and whether they should be reported to the financial intelligence unit or other competent authorities.
  - In some cases the beneficiary financial institution should consider restricting or terminating its relationship with financial institutions that fail to meet these standards.

### Investigations and retention beyond five years
- Where an institution has submitted a report of suspicious activity to GFIU or knows that a client or transaction is under investigation, it should not destroy any relevant records without the agreement of the authorities even though the five year limit may have been reached.

### Part VI — Recognition and reporting of suspicious transactions (introductory points)
- Suspicion is personal and subjective and falls far short of proof; recognizing suspicious transactions requires knowing enough about the customer's business to identify unusual transactions.
- Indicators to consider when assessing established customers:
  - Is the size of the transaction consistent with the normal activities of the customer?
  - Is the transaction rational in the context of the customer’s business or personal activities?
  - Has the pattern of transactions conducted by the customer changed?
  - Where the transaction is international, does the customer have any obvious reason for conducting business with the other country involved?
- There is a statutory obligation on all staff to report suspicions of money laundering.

*Source: Anti-Money Laundering Guidance Notes (Part V and introductory text of Part VI).*

### Section  18  contains  the  requirement  to  report  to  the  "Appropriate  Person"  (for  the

### Section 18: Requirement to report to the "Appropriate Person" (Money Laundering Reporting Officer)

### Reporting chain and statutory obligations
- Section 18 requires reporting to the "Appropriate Person" (for the purpose of these Guidance Notes called the Money Laundering Reporting Officer) in accordance with internal procedures.
- The Guidance Notes acknowledge that, "in line with accepted practice," some businesses may require unusual or suspicious transactions to be drawn first to supervisory management to check for known facts that would negate the suspicion before onward reporting to the MLRO or an appointed deputy.
- Each institution has a clear obligation to ensure:
  - that each relevant employee knows to which person they should report suspicions, and
  - that there is a clear reporting chain under which those suspicions will be passed without delay to the Reporting Officer.
- Once employees have reported their suspicions to the appropriate person they have fully satisfied the statutory obligations.

### Constructive trust and tipping-off conflict
- The Guidance Notes identify a conflict between the duty to report suspicious transactions and the obligation, as a constructive trustee, to a victim of fraud and other crimes under civil law.
- A financial institution's liability as a constructive trustee arises when it becomes suspicious that funds in a customer's account rightfully belong to a third party; civil law may hold the institution liable if funds are paid away other than to the rightful owner.
- The tipping-off offence in the Criminal Justice Ordinance 1995 includes a prohibition on informing a suspected victim that funds are at risk where doing so is likely to prejudice a money laundering investigation.
- The Guidance Notes cite Article 8 of the EC Money Laundering Directive: “credit and financial institutions and their directors and employees shall not disclose to the customer concerned nor to other third persons that information has been transmitted to the authorities ...or that a money laundering investigation is being carried out”.
- Given the absolute nature of the tipping-off prohibition, if an institution discloses under the money laundering legislation and acts in accordance with GFIU or the investigating officer’s consent in paying out money, the risk of civil liability as constructive trustee is considered to be slight.
- To minimise liability the Guidance Notes recommend procedures:
  - i) The MLRO should consider whether a constructive trust issue is involved and, if so, report precise reasons to GFIU immediately; mark “Potential Constructive Trust Issue” clearly in the “reason for suspicion” section of the standard reporting form. Neither the customer nor any third party should be tipped off.
  - ii) On receipt, GFIU will evaluate and “fast track” the report to the appropriate investigator who will determine whether “consent” to undertake the transaction can be issued.
  - iii) If a potential constructive trust issue arises after an earlier report, an immediate further report should be provided to GFIU (or the designated investigator) indicating the reasons for the belief.

- Note: The Guidance Notes advise that in such circumstances independent legal advice should be sought.

### The role, responsibilities and status of the MLRO
- The overall responsibility for money laundering prevention lies with senior management and controllers of an institution.
- The MLRO is responsible for oversight of the institution’s anti-money laundering activities and is the key person in implementation of the institution's anti-money laundering strategy.
- The MLRO acts as the “appropriate person” required under Section 18 to receive and process internal and external suspicious transaction reports and as a central point of contact with law enforcement to handle staff-reported suspicions regarding money laundering.
- The MLRO needs to be sufficiently senior to act on their own authority and be informed of relevant knowledge or suspicion. The type of person varies by institution size and nature of business; examples include senior members of compliance, internal audit or fraud departments, or Operations Manager in small institutions.
- The MLRO shall be an employee of the institution and be primarily based in Gibraltar. It is not appropriate, for purposes of the Criminal Justice Ordinance, for the MLRO to be located outside Gibraltar.
- Where branches/offices exist in other jurisdictions, MLRO functions may be delegated, but the FSC will expect the MLRO to take ultimate responsibility for application of the AML Guidance Notes to those operations.
- Section 18 requires the Reporting Officer "to determine" whether information in a transaction report gives rise to knowledge or suspicion of money laundering.
  - The MLRO must validate the suspicion by considering all relevant information (other transaction patterns, length of relationship, identification records).
  - If no facts negate the suspicion, the MLRO must disclose the information to GFIU and liaise with GFIU on whether to proceed with a transaction.
- Section 18(c) requires the MLRO have reasonable access to information to undertake responsibilities; Section 18(b)'s reference to "determination" implies a process with formality.
  - The MLRO should keep a written record of every matter reported to him, whether the suspicion was negated or reported, and the reasons for decisions.
- The Reporting Officer is expected to act honestly, reasonably and in good faith. If the MLRO or an authorised deputy acts in good faith in deciding not to pass on a suspicion report, there will be no liability for non-reporting even if the judgement is later found wrong.
- Care must be taken to avoid routine submission of reports to GFIU without reasonable internal enquiries.

### Internal reporting procedures and records
- Reporting lines should be as short as possible with the minimum number of people between the person with the suspicion and the MLRO to ensure speed, confidentiality and accessibility.
- Some businesses may choose supervisory review before onward reporting to ensure no known facts negate suspicion; supervisors must be aware of their own legal obligations and must report to the MLRO if they remain suspicious.
- Larger groups may appoint assistant MLROs within divisions or subsidiaries; their roles must be clearly specified and documented. All procedures should be documented in manuals and job descriptions.
- All suspicions reported to the MLRO should be documented (urgent cases may follow an initial telephone discussion). Reports should include full customer details and as full a statement as possible of the information giving rise to suspicion.
- The MLRO should acknowledge receipt and remind reporting staff of the obligation not to do anything likely to prejudice enquiries (i.e., "tipping off").
- All internal enquiries made and reasons behind whether or not to submit the report to authorities should be documented; such documentation may be required to supplement the initial report or as evidence of good practice in future investigations.
- Ongoing communication between the MLRO and reporting person/department is important; consideration should be given to advising reporting staff of the MLRO’s decision and, at the end of an investigation, advising staff of the outcome.
- Records retention requirements:
  - Records of suspicions raised internally with the MLRO but not disclosed to the authorities should be retained for five years from the date of the transaction.
  - Records of suspicions which the reporting authority has advised are of no interest should be retained for a similar period.
  - Records that assist investigations should be retained until the financial institution is informed by the investigating officer that they are no longer needed.

### Reporting procedures to GFIU and operational handling
- The Guidance Notes identify the central reception point for disclosure of suspicions by Reporting Officers as:
  - The Gibraltar Financial Intelligence Unit (GFIU)
  - Suite 832
  - Europort
  - Gibraltar
  - Tel 70211
  - Fax 70233
  - E-Mail gibintel@gibnet.gi
- The Gibraltar Financial Intelligence Unit (GFIU) is integrated into the Government of Gibraltar Co-ordinating Centre for Criminal Intelligence and Drugs, staffed by officers seconded from HM Customs Gibraltar and The Royal Gibraltar Police, and is a member of the Egmont Group of Financial Intelligence Units.
- GFIU is manned from 0900hrs to 1700hrs Mondays to Fridays.
- Institutions are encouraged to use a standard reporting format (illustrated at Appendix C) and to type disclosures or generate them on word-processing software; commercial form-based features may assist.
- Disclosures should include sufficient information, including the reason for suspicion and, if a particular offence is suspected, this should be stated so the report may be passed to the appropriate investigation team without delay. Submission should not be delayed if particular details are not available.
- Where additional relevant evidence is held which could be made available to the investigating officer, this should be noted on the form.
- GFIU will acknowledge receipt of disclosures. In the majority of cases, written consent will be given to continue processing the transaction. In exceptional circumstances (e.g., imminent arrest and restraint of assets) consent may not be given; the reporting institution will be made aware and should follow directions of the Police or Customs officer in charge.
- Following receipt and initial research within GFIU, the information contained in the disclosure (not the disclosure itself) is allocated to a designated, trained financial investigator in either the Royal Gibraltar Police or HM Customs Gibraltar. An investigation will be mounted if appropriate, seeking admissible evidence of criminal activity potentially leading to prosecution.
- The customer is not approached in initial stages and will not be approached unless criminal activity is identified; the customer is not advised at any stage of the disclosure or its source. Investigators will protect the source of information.
- The money laundering legislation is drafted so reports submitted to GFIU may be allocated only to Police or Customs Officers for investigation; there is no mechanism for passing information to tax authorities in Gibraltar or overseas and no intention to create such a mechanism.
- Access to information contained in disclosures is restricted to designated officers within the Royal Gibraltar Police and HM Customs Gibraltar to maintain confidentiality and integrity of the relationship between law enforcement and disclosing institutions.
- Institutions should make disclosures to GFIU in accordance with procedures; where an urgent operational response is required that can only be effected by direct contact with RGP or Customs, GFIU must be advised as soon as practicable and a written disclosure submitted as usual.
- While the legislation permits disclosure to any Police or Customs Officer, only GFIU will issue letters of acknowledgement and consent.
- After submitting a disclosure report, an institution may still terminate its relationship with a customer for normal commercial reasons but must not alert the customer to the disclosure as that would be "tipping-off". Close liaison with GFIU and the investigating officer is encouraged in such circumstances.

### Feedback from investigating authorities
- The Guidance Notes recognise feedback by the investigating agency to the disclosing institution as important.
  - Case officers are encouraged to provide feedback, in general terms, on the progress of investigations.
  - GFIU may provide feedback and will provide institutions on a regular basis feedback as to the volume and quality of disclosures and on the levels of successful investigations arising from them.
  - Such feedback, whether verbal or written, should not be used as the basis of subsequent commercial decisions.
- Institutions should ensure all contact between sections of their organisation and law enforcement agencies is reported back to the MLRO so an informed overview may be obtained.
- The MLRO should ensure close co-operation and liaison with GFIU (see Part III of the Guidance Notes). Police or Customs will continue to provide information on request to a disclosing institution to establish the current status of a specific investigation.
- Disclosing institutions should not be disheartened by a perceived lack of immediate result; criminal investigations can take weeks, months or even years to result in arrest and conviction. A disclosure may be an early or the final piece in an investigation.

*Anti-Money Laundering Guidance Notes — Recognition and Reporting of Suspicious Transactions (Part VI–VII), 02/05/2007*

### Part VII

### Part VII

### BBB. Statutory Requirements
- Section 9(1)(b)and(c) requires institutions to take appropriate measures to make employees aware of:
  - i policies and procedures to prevent money laundering and for identification, record keeping and internal reporting;
  - ii the legal requirements;
- Institutions must provide relevant employees with training in the recognition and handling of suspicious transactions.
- The Sections do not specify the nature of the training to be given; these Guidance Notes set out steps that might be appropriate to enable institutions to fulfil this requirement.

### CCC. The Need for Staff Awareness
- Effectiveness of procedures and recommendations depends on the extent to which staff appreciates the serious background against which the Sections have been issued.
- Staff must be aware of their personal obligations under the legislation and that they can be personally liable for failure to report information in accordance with internal procedures.
- All staff must be trained to co-operate fully and to provide a prompt report of any suspicious transactions.
- Businesses covered by the Sections should introduce comprehensive measures to ensure staff is fully aware of their responsibilities.

### DDD. Education and Training Programmes
- Timing and content of training packages for various sectors of staff should be adapted by individual businesses.
- Recommended elements of training:
  - All relevant staff should be educated in the process of the “know your customer” requirements for money laundering prevention purposes.
    - Training should cover the need to know the true identity of the customer and, where a business relationship is being established, the need to know enough about the type of business activities expected in relation to that customer at the outset to know what might constitute suspicious activity at a future date.
    - Relevant staff should be alert to any change in the pattern of a customer’s transactions or circumstances that might constitute criminal activity.
  - Directors and Senior Managers should receive high-level general awareness raising training so they understand the statutory duties placed on them, their staff and the institution itself.
- New Employees:
  - A general appreciation of the background to money laundering and the need for reporting any suspicious transactions to the Money Laundering Reporting Officer should be provided to all new employees likely to deal with customers or their transactions, irrespective of seniority.
  - New employees should be made aware of the importance placed on reporting suspicions by the organisation, that there is a legal requirement to report, and that there is a personal statutory obligation to do so.
- Sales/Advisory/Cashier Staff/Foreign Exchange Dealers:
  - Front-line staff are the first point of contact with potential money launderers and must be made aware of their legal responsibilities and the organisation's reporting system.
  - Training should be provided on factors that may give rise to suspicions and on procedures to be adopted when a transaction is deemed suspicious.
  - Front-line staff must be made aware of the organisation's policy for dealing with non-regular customers particularly where large transactions are involved, and the need for extra vigilance.
- “Back Office” Staff:
  - Staff who receive completed proposals and cheques for payment of premiums, unit trusts or other investments must receive appropriate training in processing and verification procedures.
  - Staff who open accounts or accept new customers must receive the same training as cashiers and must understand account opening and customer/client verification procedures.
  - Such staff should be aware that the offer of suspicious funds or a request to undertake a suspicious transaction may need to be reported to the Money Laundering Reporting Officer (or alternatively a line supervisor) whether or not the funds are accepted or the transactions proceeded with, and must know what procedures to follow.
- Administration/Operations Supervisors and Managers:
  - A higher level of instruction covering all aspects of money laundering procedures should be provided.
  - Instruction should include the offences and penalties arising from the Drug Trafficking Offences Ordinance and the Criminal Justice Ordinance for non-reporting and for assisting money launderers; procedures relating to the service of production and restraint orders; internal reporting procedures; and requirements for verification of identity and retention of records.
- Money Laundering Reporting Officers:
  - In-depth training on all aspects of the Money Laundering Legislation, Sections and internal policies is required.
  - Reporting Officers require extensive instructions on validation and reporting of suspicious transactions, on feedback arrangements, and on new trends and patterns of criminal activity.

### EEE. Refresher Training
- In accordance with Section 5(b)and(c) it will be necessary to make arrangements for refresher training at regular intervals, i.e. at least annually to ensure that staff do not forget their responsibilities.
- Some financial sector businesses may provide such training on an annual basis; others may choose a shorter or longer period or a more flexible approach to reflect individual circumstances, possibly in conjunction with compliance monitoring.

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_Source: https://www.imf.org/-/media/files/publications/ofca/english/cr07157.pdf_