## Isle of Man AML/CFT Assessment (content unit _cr09278) ## Source details **Canonical URL:** [Isle of Man AML/CFT Assessment (content unit _cr09278)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09278.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09278.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09278.pdf.json) --- ### Assessment framework, mission and scope - Assessment based on: - Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2001 of the FATF. - AML/CFT assessment Methodology 2004, as updated in February 2008. - Mission: on site during September 3–18, 2008; report updates to late-2008; finalization noted August 2009. - Sources: materials supplied by authorities; on-site information; verifiable subsequent information. - Team leader: Terence Donovan (LEG). LEG consultants: Jean-Manuel Clemmer; Gabriele Dunker; Lisa Kelaart-Courtney; Boudewijn Verhelst. ### Country overview & financial sector significance - Resident population: over 80,000. - GDP: GBP1.6 billion. - Financial services sector: 36 percent of GDP. - Working population: around 43,000. - Unemployment rate: 1.3 percent. - Financial-sector structure (as at end-March 2008): - 43 deposit takers. - 40 licensed banks (as at 31 March 2008); only two locally-based. - Deposit base (net of local inter-bank placings): GBP52.36 billion as at March 31, 2008. - 30 life insurers; 157 nonlife insurers; 23 insurance managers; 33 general insurance intermediaries; 86 administrators of retirement benefits schemes. - Legal system: IOM has its own legal system based on English common law. - International cooperation: 17 TIEAs signed. ### Major AML/CFT legal and regulatory instruments (updates to late-2008) - Key laws/instruments: - Proceeds of Crime Act 2008 (POCA 2008). - Criminal Justice (Money Laundering) Code 2008 (AML Code 2008) — laid before Tynwald 16th December 2008; coming into operation 18th December 2008. - Financial Services Act 2008 (FSA 2008) — Part 9 Rule Book (FSC) effective August 1, 2008. - Insurance Act 2008 (IA 2008) — came into force December 1, 2008. - Insurance (Anti-Money Laundering) Regulations 2008 (IAMLR 2008) and IGN 2008 (effective September 1, 2008). - ATCA 2003 (terrorist financing provisions). - Timeline: significant legislative updating from 2007 to late-2008 to reflect FATF Recommendations and EU Third Money Laundering Directive. H3: Assessment of criminalization of money laundering (R.1 & R.2) - Findings (legal gaps and limitations): - Articles 17C CJA 1990 and 45 DTA 1996 require purpose of avoiding prosecution for acts of “concealing or disguising” and “converting or transferring” — assessed as not sufficiently wide to meet international standard. - Sections 17B(3) CJA 1990 and 47(3) DTA 1996 provide a defense of “adequate consideration” for acquisition, possession or use — may be abused. - Acquisition/possession/use offenses do not extend to self-laundering (self-laundering not covered for those acts). - Section 10 ATCA 2003 (terrorism-related) does not cover all material elements required by Palermo and Vienna Conventions. - Mental element and burden: - Conceal/convert/transfer: criminal liability if person knew or objectively should have known property stems from crime. - Acquisition/possession/use: requires actual knowledge. - Where statutory defense raised, defendant bears balance of probabilities; prosecution must negate beyond reasonable doubt. - Effectiveness and statistics: - Low number of investigations/prosecutions for autonomous ML. - Since 2006: FCU estimated about six STRs resulted in an investigation in two years. - AG’s Office: 16 charges for ML under DTA 1996 since 2003 (two in 2005; six in 2006; six in 2007; two in 2008): six convictions, five pending, five acquittals; longest sanction for ML charge: two years. - No convictions for autonomous money laundering at time of assessment. - Ratings: - R.1 — PC. - R.2 — LC. - Key recommendations (legal changes): - Amend Articles 17C and 45 to provide alternative purposes (avoid prosecution or conceal illicit origin) and remove purpose requirement for converting/transferring. - Eliminate the “adequate consideration” defense in Sections 17B(3) and 47(3). - Extend ML provisions to cover self-laundering for acquisition/possession/use. - Amend Section 10 ATCA 2003 to align with Vienna/Palermo Conventions. - Authorities to develop jurisprudence on autonomous ML and address evidentiary barriers (level of proof). H3: Terrorist financing (SR.II) and freezing (SR.III) - Legal scope and limitations: - FT criminalized under ATCA 2003 (Sections 6–9); Section 7 main offense (providing/receiving/inviting provision of funds where person either intends or has reasonable grounds to suspect funds may be used for terrorism). - ATCA 2003 Section 1 definition of “terrorism” requires intent to advance a political, religious or ideological cause and does not expressly reference international organizations or all nine Conventions/Protocols — assessed incomplete. - Unclear whether funding for living/private expenses covered; no prosecutions/convictions for FT at time of assessment. - Freezing instruments and practice: - UN/EC Orders in force via Al-Qa’ida and Taliban (Isle of Man) Order 2002; Terrorism (United Nations Measures) (Isle of Man) Order 2001; EC Regulations applied by Order. - ATCA 2003 Section 50 empowers Treasury to make freezing orders; IOM incorporates UK lists automatically; IOM has own ATCA Part VII listing/freezing but assessed as insufficient for comprehensive preventive pre-investigative approach. - Practical case: assets frozen in one case: GBP72,924 (2007). - Deficiencies and recommendations: - ATCA Section 1 should reference international organisations; definition of “terrorism” should be extended to cover all terrorism offenses in the nine Conventions and Protocols. - Put in place formal procedure for receipt/assessment of requests based on foreign freezing lists (UNSCR 1373 requirement). - Extend definition of “funds” to cover assets “jointly” or “indirectly” owned/controlled. - Provide clear procedure enabling access to UNSCR 1267 frozen funds for humanitarian/basic expenses. - Compliance ratings: - SR.II — LC. - SR.III — PC. H3: Confiscation, freezing, asset recovery (R.3) - Legal framework: - Confiscation regimes under CJA 1990 (general), DTA 1996 (drug trafficking), ATCA 2003 (terrorism), and POCA 2008 (Part 1 civil recovery in force October 22, 2008; Part 2 effective August 1, 2009). - CJA 1990 and DTA 1996 operate value-based confiscation; ATCA 2003 focuses on property related to terrorism but contains no explicit equivalent value confiscation. - Identified issues: - Corpus delicti confiscation of laundered assets untested and application doubtful in stand-alone ML prosecutions. - Equivalent value seizure not available in all circumstances prior to POCA 2008; POCA 2008 Sections 96–97 (restraint) remedy some restrictions (effective August 1, 2009 for remaining parts). - Low effectiveness in asset recovery: partial statistics 1997–2003 show 113 drug-related confiscation orders; partial 2008 (up to June): seven confiscation orders; recoveries often low (highest around 30 percent commonly; one exception ~50 percent; lowest ~0.01 percent). - Ratings: - R.3 — PC. - Recommendations: - Amend law to permit equivalent value seizure at any stage; address equivalent value in ATCA 2003; develop case law on stand‑alone ML confiscations; focus on timely tracing/immobilisation. H3: Financial Intelligence Unit / Financial Crime Unit (FCU / FIU) — functions and effectiveness (R.26, R.32) - Structure and role: - FCU acts as FIU; joint police/customs unit supported by civilian personnel; Egmont Group member since 2000. - Designated reception point in AML Code 2008; separation between intelligence and investigative functions. - Reporting and operational metrics: - STR volumes reported: - 2,315 disclosures in 2004–05. - 2,265 in 2005–06. - 1,652 in 2006–07. - 1,561 in 2007–08. - Sources: life assurance/insurance companies and retail/offshore banks major reporters in various years (e.g., Life Assurance/Insurance Company: 963 in 2004–05; Retail/Offshore Bank: 818 in 2004–05). - Grounds for suspicion example: Fiscal reports rose (0 in 2004–05, 0 in 2005–06, 255 in 2006–07, 412 in 2007–08). - Effectiveness concerns: - Low conversion: estimated six STRs resulted in an investigation over two years; two prosecutions originated from STRs. - FCU lacks formal powers for direct access to financial and other additional information for analytical purposes; data access often informal/voluntary; court orders required for coercive evidence. - Recommendations: - Provide formal FIU access to additional information for analytical purposes. - Improve timeliness and effectiveness of STR reporting and follow-up; increase investigations and prosecutions domestically. - Rating: - R.26 — LC. H3: Risk-based approach, CDD, PEPs, wire transfers, introducers (R.5, R.6, R.8, SR.VII, R.9) - Risk-based approach: - Adopted following FSA 2008; licenceholders required to conduct risk assessments and tailor CDD; AML Code 2008 paragraph 3 requires risk assessment as soon as reasonably practicable and regular review. - Customer Due Diligence (CDD) key rules & thresholds (preserve exact figures): - Exempted one-off transaction thresholds: EUR3,000 for casino/bookmaking; EUR15,000 in other cases (Code paragraph 2(1)). - AML Code 2008 paragraph 6: identification before or during formation “but in any event as soon as reasonably practicable”. - IAMLR 2008 Section 7 permits CDD waiver where premium in one installment does not exceed GBP7,500; regular premium in calendar year does not exceed GBP2,500; or contract has no maturity/surrender value. - AML Code 2008 paragraph 5: beneficial owner threshold “more than 25 percent” of shares or voting rights. - Politically Exposed Persons (PEPs): - AML Code 2008 Paragraph 10 (effective December 18, 2008): PEP-related requirements; senior management approval required before establishing/continuing relationships. - IOM definitions include extensive range of nonresident officials, relatives and associates; domestic PEPs not covered for FSC licenseholders (practices vary). - Introducers / Eligible Introducer facility: - AML Code 2008 paragraph 11 defines “eligible introducer” categories (regulated persons; advocates/legal practitioners/accountants subject to equivalent professional rules; external regulated business from Schedule 2 jurisdictions). - Written terms and ability to obtain CDD from introducer required; licenceholder retains ultimate responsibility; random testing required. - Assessors found scope of acceptable concessions broad and potentially premature for some DNFBPs; Eligible Introducer regime judged vulnerable and implementation inconsistent. - Wire transfers (EU Regulation 1781/2006 implementation): - Implemented by orders: “European Community (Wire Transfers Regulation) (Application) Order 2007” and amendment; EC Wire Transfers Regulation (Enforcement) Regulations 2007 effective December 15, 2007. - Originator information requirement threshold: EUR1,000 for transfers requiring full originator information. - Derogation: UK obtained derogation on December 8, 2008 to allow reduced information requirement for payments between UK and Jersey/Guernsey/IOM as domestic transfers; formal agreement IOM-UK not in place within assessment timeframe. - SR.VII concerns: inconsistent implementation of risk-based handling of incoming transfers lacking full originator information; FSC monitoring limited. - Ratings: - R.5 — PC. - R.6 — C. - R.7 — C. - R.8 — LC. - R.9 — LC. - SR.VII — LC. - Recommendations (selected): - Eliminate residual inconsistencies in AML/CFT legal requirements and terminology. - Expand list of higher-risk categories (e.g., private banking, trust business). - Review Acceptable Applicant facility and Eligible Introducer scope; require determination where customer acts on behalf of another person in all cases. - Issue detailed guidance on technology risks (e-money, e-commerce, internet banking). - FSC to intensify on-site supervision of wire transfer compliance. H3: Supervision, licensing, fit-and-proper, sanctions (R.23, R.29, R.17, R.30) - Designated supervisors: - FSC: regulation and supervision for financial institutions other than insurance/pensions; Rule Book Part 9 AML/CFT; Supervisory Approach calls for on-site cycle of 1–3 years. - IPA: statutory board under IA 2008 for insurance/pensions; IAMLR 2008 and IGN 2008 binding for insurers. - GSC: supervisory body for terrestrial and online casinos. - DHA: default authority for DNFBPs not supervised elsewhere. - Licensing and fit-and-proper: - FSA 2008 Section 6: licensing requires FSC satisfaction on fit and proper, management and control in IOM. - Companies Act 2006 Section 74: Companies under 2006 Act must have licensed registered agent in IOM. - Supervisory capacity and use of powers: - FSC powers: inspect books/accounts; request information; enter property; require reporting accountants; make Directions and penalties under FSA 2008 (some penalty powers require FSC regulations). - IPA powers: inspection, guidance, civil penalties; IAMLR 2008 gives enforcement tools. - Observations: AML/CFT on-site inspection activity limited; FSC planned additional on-site AML/CFT inspections in 2009/10; IPA on-site inspections constrained by resource but planned increase. - Sanctions and effectiveness: - Criminal sanctions under AML Code 2008; administrative sanctions available but scope narrow pending FSC regulations; few disciplinary actions historically. - R.17 — LC (limitations on administrative sanctions and effectiveness). - R.23 — LC (coverage broad but not fully comprehensive; money-services supervision to commence). - R.29 — LC (need more on-site inspections). - R.30 — LC (additional resources recommended for FSC, IPA, GSC, DHA). - Money or Value Transfer Services (SR.VI): - Regulatory responsibility transferred to FSC effective August 1, 2008; full AML/CFT measures for MSBs effective January 1, 2009; concern: one-off transaction threshold EUR15,000 may be excessive for MVT. H3: Designated Non-Financial Businesses and Professions (DNFBPs) and other NFBPs (R.12, R.16, R.24, R.25, R.20) - Coverage & statistics: - CSPs: No.: 185 | Domestic Branches: 185 | Overseas branch: Nil | Size: 42,000 companies | Authorized/oversight: FSC. - TSPs: No.: 120 | Domestic Branches: 120 | Overseas branch: Nil | Size: 22,000 trusts | Authorized/oversight: FSC. - Accountants: No.: 89 | Domestic Branches: 91 | Overseas branch: Nil | Authorized/oversight: DHA. - Real estate agents: No.: 20 | Domestic Branches: 28 | Overseas branch: 2 | Authorized/oversight: DOLGE / DHA / DHA. - Casinos: No.: 1 terrestrial | Online licensed companies as at June 30, 2008: ten licensed, with a further three companies awaiting licenses. - Key findings: - CSPs and TSPs actively supervised by FSC; large scale cross-border and non face-to-face business; high vulnerability. - Trusts: as of December 2007, 22,785 trusts administered by licensed TSPs; as of June 30, 2008, close to 23,000 trusts under IOM law cited elsewhere. - Companies: as of end–June 2008 total companies incorporated: 31,711 (28,323 were 1931 Companies; 2,850 were 2006 Companies; 538 were LLCs). TOTAL REGISTERED figures included for earlier years. - About 70 percent of all companies registered utilize licensed CSPs. - Trusts are not registered; limited access to beneficial ownership for trusts not administered by licensed TSPs. - DNFBP compliance issues: - Accountancy profession AML/CFT arrangements still being finalized; DHA negotiating with accountancy bodies. - Registered legal practitioners not under IOM-law supervision regarding AML/CFT at assessment time; Advocates are under IOM Law Society. - Some advocates and accountants reported completing matters before CDD completion — assessors flagged as weakness. - STR reporting by DNFBPs: relative low levels for accountants and lawyers (example counts preserved in STR statistics section). - Ratings and recommendations: - R.12 — PC (accountancy supervision gaps; FSC Handbook exceptions lacking firm legal basis). - R.16 — PC (no legal requirement to report attempted transactions; independent audit function not mandated; low STR reporting in some DNFBP categories). - R.24 — PC; R.25 — LC. - R.20 — LC (consideration not concluded on extending AML/CFT to other NFBPs). - Authorities to finalize supervision for accountants; provide DHA powers; extend STR obligations (including attempted transactions) and protections; formalize oversight for registered legal practitioners. H3: Legal persons & arrangements — beneficial ownership and registration (R.33, R.34) - Companies statistics and filings (exact figures preserved): - As of end–June 2008: - total companies incorporated under IOM law: 31,711. - 28,323 were 1931 Companies. - 2,850 were 2006 Companies. - 538 were LLCs. - Of the 31,711 companies, 23,259 are under administration by corporate service providers licensed by the FSC. - As of December 2007: 22,785 trusts administered by licensed TSPs. - Key issues: - Companies Registry does not maintain beneficial ownership information; registry links entities to a specific IOM CSP to allow competent authorities to locate beneficial ownership information. - Trusts not generally registered; for trustees/exempted trustees, information completeness is uncertain. - Approx. 30 percent of 1931 Companies and LLCs administered without licensed CSPs (about 9,300 companies) — beneficial ownership availability uncertain. - Bearer shares: - Companies Act 2006 prohibits issuance; Companies Act 1931–2004 voided post-2004 issuance rights; as of assessment about 1.3 million bearer shares outstanding through 109 companies (nominal value GBP 940,904). - Ratings: - R.33 — LC (for about 30 percent of 1931 Companies and LLCs, cannot determine accurate/complete/current beneficial ownership information). - R.34 — LC (for legal arrangements administered by trustees not covered by FSA 2008 licensing, beneficial ownership information cannot be determined). - Recommendations: - Ensure accurate, complete, current beneficial ownership information available for all companies and trusts, including measures for trusts administered by unlicensed trustees; consider requiring filing or other measures. H3: Reporting regime, tipping-off, protections, and STRs (R.13, R.14, SR.IV) - Legal basis and operation: - Reporting duties derive from CJA 1990 Sections 17A(3)/17B(5); DTA 1996 Sections 46(3), 47(5) and 48; ATCA 2003 Sections 11(2), 12, 13(2), 14 and 26. - AML Code 2008 Section 20(2)(f) specifies FCU constable as disclosure recipient; POCA 2008 (Sections 142–155; in force August 1, 2009) formalizes FCU as reception point for “authorized disclosures”. - STR statistics (exact preserved figures for reporting years): - Annual totals: - 2004–05: Total 2,315. - 2005–06: Total 2,265. - 2006–07: Total 1,652. - 2007–08: Total 1,561. - Example breakdowns (selected as in source): - By offence type (2004–05 / 2005–06 / 2006–07 / 2007–08): - Drugs: 211 9.11% | 86 3.80% | 314 19.01% | 85 5.45% - Crime: 2,059 88.94% | 2,168 95.72% | 1,329 80.45% | 1,468 94.04% - Terrorism: 45 1.94% | 11 0.49% | 9 0.54% | 8 0.51% - By type of business (2004–05 / 2005–06 / 2006–07 / 2007–08): - Life Assurance/Insurance Company: 963 41.60% | 803 35.45% | 576 34.87% | 322 20.63% - Retail/Offshore Bank: 818 35.33% | 967 42.69% | 677 40.98% | 926 59.32% - STR source and effectiveness observations preserved in earlier FCU section. - Protections and limitations: - Statutory protections exist (CJA 1990 Sections 17A(3)(a), 17B(5)(a), 17K(4)(b), and 21; DTA 1996 Sections 46(3)(a), 47(5)(a), (48)(4) and (6); ATCA 2003 Sections 12 and 15) but shortcomings: - Do not explicitly clarify protection applies to financial institutions and their directors/officers/employees. - Do not explicitly provide civil liability protection or limit protection to good faith reporting. - No explicit statutory confidentiality measures to guarantee names of reporting staff remain confidential; FCU internal protections and Official Secrets Act apply. - Tipping-off: - Tipping-off offenses in CJA 1990 Section 17D and DTA 1996 Section 49; Section 21A CJA 1990 (inserted by POCA 2008) added further measures. - Reporting of attempted transactions: - Law does not comprehensively require reporting of attempted suspicious transactions; assessors recommended amendment. - Ratings and recommendations: - R.13 — LC (timeliness and need to require attempted suspicious transactions to be reported). - R.14 — PC (scope of protection insufficient; not limited to good faith). - SR.IV — PC (FT reporting scope limited by ATCA 2003 deficiencies). - Recommendations: broaden legal protections, ensure confidentiality of reporters, require reporting of attempted suspicious transactions, enhance timeliness of STRs (FCU and supervisory focus). H3: Cross-border cash controls (SR.IX) - Declaration regime: - Declaration obligation for carriage of cash and bearer-negotiable instruments of more than EUR10,000 into or out of the IOM (aligned with EC Regulation 1889/2005). - New cash declaration regime effective November 1, 2008 (Customs and Excise (Cash Declaration and Disclosure) Order 2008). - Operational points: - At on-site visit two declarations had been made (importation of GBP30,300 and GBP15,000 respectively). Three more declarations subsequently received (two outgoing and one incoming — none gave rise to suspicions). - Mail between UK and IOM: movements by mail between UK and IOM not regarded as imports/exports under customs legislation in both jurisdictions and treated as “domestic” — cross-border control regime did not extend to cash transportation by mail between the UK and the IOM. - Seizure powers: - From October 22, 2008: CJA 1990 Section 76G (inserted by POCA 2008 Schedule 5) authorises Customs to seize cash if more than EUR10,000 equivalent is being carried and specified conditions apply (refusal to disclose; suspicion declaration false; required evidence not produced; officer reasonably suspects cash is proceeds of unlawful conduct or intended for ML/terrorism). - Rating and recommendation: - SR.IX — LC due to exclusion of mail between UK and IOM; recommendation to extend cross-border controls to mail. H3: International cooperation, MLA, extradition (R.36–38, R.39, R.40, SR.V) - Convention extensions and status: - Vienna Convention extended to IOM: December 2, 1993. - UN Convention for the Suppression of the Financing of Terrorism extended to IOM: September 25, 2008. - Palermo Convention: not yet extended (IOM law not yet compliant at time of assessment). - Ten out of other 15 counter-terrorism instruments extended. - Mutual Legal Assistance (MLA): - No single overarching MLA act; MLA provided under CJA 1990, CJA 1991, DTA 1996, ATCA 2003. - Range of MLA measures broad (collection, production, searches, seizure). - MLA workload substantial; AG’s Chambers and FCU handle frequent requests; no recorded refusals since 2004. - Some limitations: coercive conservatory/recovery measures available only for “designated countries” under certain instruments at time of assessment; POCA 2008 expected to address this. - Dual criminality: - For many assistance functions dual criminality not required; for certain restraint/confiscation and extradition matters dual criminality or correspondence required. - Deficiencies in ML and FT criminalization may hinder MLA or extradition where dual criminality applies. - Extradition: - Extradition Act 1989 extended; dual criminality assessed on substance; FT and ML offenses extraditable where penalties exceed thresholds. - No extraditions recorded historically in IOM. - Ratings: - R.36: C; R.37: C; R.38: PC (deficiencies on confiscation/“designated countries”); R.39: LC (dual criminality problems); R.40: C. - SR.V: PC (FT criminalization deficiencies affect MLA/extradition; equivalent value confiscation not provided in FT matters). - Recommendations: - Amend law to correct ML/FT criminalization deficiencies; remove “designated country” restriction for coercive MLA measures; enable equivalent value confiscation in FT context; improve statistics on seizures and confiscations. H3: Organizational, supervisory resources, statistics and ratings summary - Supervisory resources & practice: - FSC staff: official headcount 66.5 plus two contract staff = 68.5; Supervision Division: 29.5 FTE. - IPA staff: full-time staff of 12. - FSC surplus in 2007/08: GBP8.7 million. - FSC and IPA planned increased AML/CFT on-site inspections (banks and insurers) for 2009/10. - Statistics gaps: - Comprehensive statistics not maintained on seizures and confiscations. - FCU maintains detailed STR statistics; supervisory statistics maintained but could better distinguish police vs FIU origin for international referrals. - Overall ratings (selected): - R.1 — PC; R.2 — LC; R.3 — PC; R.4 — LC; R.5 — PC; R.8 — LC; R.9 — LC; R.10 — C; R.11 — C; R.12 — PC; R.13 — LC; R.14 — PC; R.15 — LC; R.16 — PC; R.17 — LC; R.18 — C; R.19 — C; R.20 — LC; R.21 — LC; R.22 — C; R.23 — LC; R.24 — PC; R.25 — LC; R.26 — LC; R.27 — LC; R.28 — C; R.29 — LC; R.30 — LC; R.31 — C; R.32 — LC; R.33 — LC; R.34 — LC; R.35 — PC; R.36 — C; R.37 — C; R.38 — PC; R.39 — LC; R.40 — C. - Nine Special Recommendations summary: - SR.I — PC; SR.II — LC; SR.III — PC; SR.IV — PC; SR.V — PC; SR.VI — LC; SR.VII — LC; SR.VIII — LC; SR.IX — LC. H3: Prioritized action items (selected, preserved formulations/numeric values) - Amend Articles 17C CJA 1990 and 45 DTA 1996 to broaden the purposes for converting and transferring and eliminate the purpose requirement. - Eliminate the defense of “adequate consideration” in Sections 17B(3) CJA 1990 and 47(3) DTA 1996. - Amend Section 10 ATCA 2003 to cover all material elements of Palermo and Vienna Conventions. - Introduce self-laundering offenses in acquisition/possession/use provisions. - Provide formal FIU access to additional information for analytical work. - Put in place a formal procedure governing receipt/assessment of requests based on foreign freezing lists (UNSCR 1373). - Amend legal framework to extend definition of ‘funds’ to include assets ‘jointly’ or ‘indirectly’ owned/controlled. - Provide publicized procedure enabling access to UNSCR 1267 frozen funds for humanitarian/basic expenses. - Remove residual inconsistencies in AML/CFT secondary legislation (AML Code 2008, FSC Rule Book, IAMLR 2008, Handbooks). - Review Acceptable Applicant and Eligible Introducer concessions; require determination in all cases whether a customer is acting on behalf of another person. - Increase AML/CFT on-site inspections for banks and insurance businesses; allocate additional supervisory resources to FSC, IPA, GSC, DHA. - Extend cross-border cash control rules to cover mail between UK and IOM. - Ensure mechanisms to obtain accurate, complete, and current beneficial ownership information for all legal persons and legal arrangements (companies and trusts), including those administered by trustees not licensed under FSA 2008. - Consider reduction of EUR15,000 one-off transaction threshold for MVT providers. - Amend law to require reporting of attempted suspicious transactions and strengthen protections for reporters (limit to good faith; extend to institutions and staff; confidentiality measures). *Italic: IMF assessment excerpt from content unit _cr09278 (Isle of Man AML/CFT Assessment; mission September 3–18, 2008; report updated to late-2008; finalization noted August 2009).* ### Preface ................................................................................................................ ### Preface ### Assessment framework and scope - The assessment is based on the Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2001 of the Financial Action Task Force (FATF). - The AML/CFT assessment Methodology 2004, as updated in February 2008, was used. - The assessment considered: - Materials supplied by the authorities. - Information obtained on site during the mission from September 3–18, 2008. - Other verifiable information subsequently provided by the authorities. - The assessment describes and analyzes measures in place in the Isle of Man (IOM) at the time of the mission or shortly thereafter, and updates findings and data to late-2008. - The report notes, mainly by footnote, further significant developments that occurred prior to finalization in August 2009. ### Mission conduct and contacts - During the mission, the assessment team met with officials and representatives of all relevant government agencies and the private sector. - A list of the bodies met is set out in Annex 2 of the detailed assessment report. ### Assessment team composition - The evaluation team was composed of IMF staff and experts acting under the supervision of the IMF. - Team leader: Terence Donovan (LEG). - LEG consultants: Mr. Jean-Manuel Clemmer (Banque de France); Ms. Gabriele Dunker; Ms. Lisa Kelaart-Courtney; and Mr. Boudewijn Verhelst (Deputy Head of Belgian FIU). ### Scope of review - The assessors reviewed: - The institutional framework. - Relevant AML/CFT laws, regulations, guidelines and other requirements. - Regulatory and other systems in place to deter and punish money laundering (ML) and the financing of terrorism (FT) through financial institutions and Designated Non-Financial Businesses and Professions (DNFBP). - The assessors examined the capacity, implementation, and effectiveness of all these systems. ### Output of the assessment - The report: - Provides a summary of AML/CFT measures in place in the IOM at the time of the mission or shortly thereafter. - Describes and analyzes those measures. - Sets out the IOM’s levels of compliance with the FATF 40+9 Recommendations (see Table 1). - Provides recommendations on how certain aspects of the system could be strengthened (see Table 2). ### Acknowledgements - The assessors expressed gratitude to the IOM authorities for their cooperation, hospitality, and the high standard of organization and support throughout the assessment mission. *Preface from the Isle of Man AML/CFT Assessment (mission: September 3–18, 2008; report updated to late-2008; finalization noted August 2009).* ### 1. The Isle of Man (IOM) is an international financial center of some significance based in ### _cr09278 - 1. The Isle of Man (IOM) is an international financial center of some significance based in ### Overview and economic significance - Resident population: over 80,000. - GDP: GBP1.6 billion. - Financial services sector: 36 percent of GDP; main activities include banking and insurance-related products for nonresidents, growing funds business, and some licensed online gambling businesses. - Many IOM financial institutions are subsidiaries of UK banks and are substantial providers of liquidity to the UK money markets. - Legal system: IOM has its own legal system and jurisprudence based on English common law. Standards of governance and transparency appear to be high. - International cooperation: 17 tax information exchange agreements (TIEAs) signed with other jurisdictions. ### AML/CFT legal and regulatory framework (updates and coverage) - Major recent legislation and instruments: - Proceeds of Crime Act 2008 (POCA 2008). - Revised AML Code of December 2008 (secondary legislation; qualifies as a ‘regulation’ for purposes of this assessment). - Insurance Act 2008 (IA 2008). - Insurance (Anti-Money Laundering) Regulations 2008 and insurance binding guidance notes (qualify as “other enforceable means”). - Financial Services Act 2008 (FSA 2008). - FSC Rule Book Part 9 and FSC’s Handbook 2008. - Timeline: substantial updating of AML/CFT legal provisions from 2007 to late-2008 to reflect the FATF Recommendations and to parallel the EU Third Money Laundering Directive. - Applicability: AML Code 2008 applies to all financial and nonfinancial entities to which the FATF Recommendations relate. FSC Rule Book Part 9 provides detailed CDD requirements for all FSC licenseholders, including CSPs and TSPs. - Primary legislation bases: CJA 1990 (Section 17 defines ML offences, tipping-off offences, and the offence of not reporting suspicious transactions); Section 17F provides the DHA the power to issue Codes as secondary legislation. ### Assessment of compliance with international standards - Overall compliance: IOM is broadly compliant with most aspects of the FATF Recommendations, having upgraded AML/CFT requirements significantly, particularly in the second half of 2008. - Criminalization: - Money laundering criminalized broadly in line with the international standard via a three-strand approach (drug trafficking, terrorism, other predicate offenses). - All categories of predicate offences listed in the international standard are covered. - Self-laundering criminalized for all acts constituting ML except “acquisition, possession and use”. - Shortcomings: defense of “giving adequate consideration” for “acquisition, possession or use” may be abused; purpose requirements slightly narrower than Vienna and Palermo Conventions in some respects. - Financing of terrorism (FT): - FT criminalized under IOM law but definition needs amendment to fully cover all elements under the International Convention for the Suppression of the Financing of Terrorism. - Recommendation to extend the definition of “terrorism” to cover all terrorism offenses as defined in the nine Conventions and Protocols listed in the Annex to the FT Convention. - Unclear whether funding related to living or private expenses is covered. - No prosecutions or convictions for FT-related offences at time of assessment. - Vienna and Palermo Conventions: - Vienna Convention extended to the IOM in 1993. - Palermo Convention not yet extended because IOM law did not comply with all provisions at time of assessment. - UK extended the UN Convention for the Suppression of the Financing of Terrorism to the IOM in 2008. ### Effectiveness and implementation issues - Enforcement statistics and effectiveness: - At time of on-site visit, no convictions for autonomous money laundering; few domestic investigations or prosecutions. - Statutory sanctions are formally comprehensive, dissuasive, and proportionate, but sentences imposed by courts appear rather low. - Low effectiveness in asset recovery; need to develop case law on stand-alone money laundering confiscation. - Corpus delicti confiscation of laundered assets is untested and its application doubtful. - Equivalent value seizure not fully covered in all circumstances; unresolved issue from IMF’s 2002/03 assessment regarding confiscation of assets of equivalent value in connection with FT. - International cooperation and mutual legal assistance (MLA): - Range of MLA is broad; MLA requests frequent and constitute substantial workload for Attorney General’s Chambers and FCU. - No recorded refusals since 2004 despite an unduly restrictive “designated” countries rule in place at time of assessment. - IOM follows UK implementation of UNSCRs 1267 and 1373 and the 2001 and 2002 EC Regulations; all UK lists automatically incorporated in IOM freezing regime. - IOM has its own ATCA 2003 Part VII listing and freezing provisions, but ATCA 2003 provisions insufficient for a comprehensive, preventive, pre-investigative approach as required by international standards. - Cross-border cash controls: - Declaration system in place: obligation to report to Customs and Excise cash and bearer-negotiable instruments of more than EUR10,000 imported into or exported from the IOM. - Controls do not extend to cash transportation by mail between the UK and the IOM. ### Financial Intelligence Unit / Financial Crime Unit (FCU) - FCU role and structure: - FCU acts as the FIU; active Egmont Group member since 2000. - Joint police/customs unit supported by civilian personnel; operationally independent. - Specific remit as receiving and processing agency for ML and FT-related disclosures formalized in AML Code 2008. - Clear separation within the FCU between intelligence and investigative functions. - Reporting and follow-up: - Reasonable flow of suspicious transaction reports (STRs) reported over 2004–2008. - Weakness: FCU does not have powers of direct or indirect access to financial and other additional information in following up on STRs. - Low conversion of STRs into investigations and prosecutions: six STRs resulting in an investigation in two years; two prosecutions instituted in cases that originated with an STR. - Cross-border nature of many reports partially explains low domestic prosecutions; assessors recommend IOM develop its own case law in this area. - Additional resources being provided to the FCU. ### Risk-based approach, supervision, and preventive measures - Risk-based approach: - Formally adopted following enactment of FSA 2008. - Licenseholders required to conduct risk assessments of their businesses and customers and to tailor CDD procedures accordingly, with enhanced CDD for higher risks (including PEPs and reliance on non-resident introduced business). - Supervision: - IOM financial institutions generally well supervised for AML/CFT purposes by FSC and IPA. - FSC’s regulatory objectives under FSA 2008 include ‘the reduction of financial crime’; FSC issued Rule Book Part 9 for CDD. - Authorities plan additional AML/CFT on-site inspections, particularly for banking and insurance sectors. - Range of available administrative sanctions is broad but could be enhanced. - Quality of implementation in financial institutions appeared generally good but somewhat variable. - Coverage of preventive measures: - Preventive measures cover all main financial businesses in FATF definition of “financial institution”. - CDD obligations for DNFBPs largely mirror those for financial institutions. - TSPs and CSPs conduct substantial cross-border and non face-to-face business and are closely supervised by the FSC. - On-line gaming sector: small but faces CDD challenges. - Department of Home Affairs (DHA) had overall AML/CFT responsibility for remaining DNFBPs and was seeking to supplement control structures for accountants and dealers in precious metals and stones; a firm legal basis for DHA’s role was awaited and implementation for DNFBPs (other than TSPs, CSPs, and most lawyers) still being developed. - Beneficial ownership and company/trust regimes: - Company registration system well developed and operates within structures of the FSC. - Trusts long recognized under IOM law but not subject to a registration system. - Reliance on FSC-licensed TSPs and CSPs to obtain, verify, and retain records of beneficial ownership and control of legal persons and arrangements; FSC devoted considerable resources to improving CSP and TSP AML/CFT compliance standards. ### Identified deficiencies and recommended priorities - Strengthen FT offence definitions to fully implement the International Convention for the Suppression of the Financing of Terrorism and extend the definition of “terrorism” per the Annex to the FT Convention. - Address defense of “giving adequate consideration” in relation to “acquisition, possession or use” to prevent abuse by money launderers. - Improve effectiveness of prosecutions and convictions for autonomous money laundering; develop domestic case law and increase investigations originating from STRs. - Improve asset recovery and confiscation effectiveness, including clarifying and ensuring coverage for equivalent value seizure and testing corpus delicti confiscation in practice. - Provide FCU with appropriate powers of access to financial and other information to enhance STR follow-up. - Complete implementation of full AML/CFT measures for DNFBPs, including establishment of a firm legal basis for DHA responsibilities and measures for accountants and dealers in precious metals and stones. - Enhance administrative sanctions framework and continue planned on-site inspections for banking and insurance sectors to test implementation. *IMF assessment excerpt on the Isle of Man AML/CFT framework.* ### 27. Insurance business is subject to IPA authorization and supervision. While covered by the ### _cr09278 - 27. Insurance business is subject to IPA authorization and supervision. While covered by the ### Insurance regulation, supervision, and AML/CFT framework - Insurance businesses are subject to IPA authorization and supervision and are covered by the AML Code 2008 in the same manner as FSC licenseholders, plus a set of insurance-related AML/CFT requirements updated shortly before this assessment. - Much of the insurance legislation was superseded by the Insurance Act 2008 (IA 2008) which came into effect on December 1, 2008, consolidating previous provisions. - The IA 2008 specifies as a regulatory objective of the IPA “the reduction in...financial crime”. - The IPA issued AML/CFT regulations (secondary legislation) and guidance notes specified by the Act as binding; these were accepted for the assessment as other enforceable means. ### Upgrades to AML/CFT preventive measures and CDD (customer due diligence) - Significant upgrading of requirements occurred particularly between August and mid-December 2008, bringing the IOM largely into compliance with the FATF Recommendations. - Anonymous accounts and accounts in fictitious names are not prohibited in primary legislation but are effectively prohibited in secondary legislation, directly or indirectly. - AML Code 2008 paragraph 6: identification procedures apply to new business relationships and include an obligation to identify (and to take reasonable steps to verify) the customer and beneficial owners, in line with the international standard. - Appropriate requirements introduced for legal persons, parties to legal arrangements, and persons acting on behalf of others. - Latest amendments limited the previous scope regarding the timing of completion of initial CDD. - Requirements for application of CDD to occasional transactions are in line with the FATF Recommendations. ### Exceptions, third-party reliance, and implementation quality - Authorities provided for certain exceptions and concessions in CDD application; some represent an over-generous interpretation of the FATF standard (e.g., exemptions for ‘fiduciary deposits’ in limited circumstances that the assessors could not reconcile with the FATF Recommendations). - Extensive reliance on third parties to conduct all or part of CDD on behalf of financial institutions; requirements strengthened in the AML Code 2008, bringing them largely into compliance with the international standard. - Assessors found the quality of implementation by financial institutions mainly of a high standard and a very high level of AML/CFT awareness among institutions, auditors, and legal advisors. - Many institutions applied CDD using the permitted risk-based approach; however, assessors observed instances where the risk-based approach appeared to be used to justify less than full compliance and recommended that regulatory authorities include testing of such use in on-site visit programs. - Assessors noted uneven controls in practice in some institutions when relying on third parties and concern that increased risk from nonresident non face-to-face business may not be fully accounted for in all cases. ### Politically Exposed Persons (PEPs) and technological risks - With effect from December 18, 2008, AML Code 2008 introduced PEP-related requirements in line with Recommendation 6. - AML Code 2008 Paragraph 2 defines PEP to include an extensive range of nonresident officials, those holding other relevant positions, and their close relatives and associates. - High level of awareness and compliance by financial institutions with PEP requirements. - AML Code 2008 Paragraph 23 requires relevant persons to maintain procedures and controls to prevent misuse of technological developments (aligned with Recommendation 8), but neither the requirements nor guidance refer to specific technological risks (e.g., internet banking, credit/debit card use in non face-to-face relationships, security of customer-accessible computer systems, fraud, phishing). - Assessors recommended development of additional guidance and welcomed the Code’s requirement for adequate measures compensating risk from dealing otherwise than face-to-face. ### Business introducers, Eligible Introducers, and non face-to-face business risks - Much financial business in the IOM is conducted non face-to-face for nonresidents; products are marketed globally, including through business introducers, creating potential increased exposure to ML and FT (e.g., layering and structuring) and challenges in identifying ultimate beneficial owners/controllers. - IOM authorities developed a protocol to accommodate use of business introducers and defined an “Eligible Introducer” class via FATF Recommendation 9 provisions to eliminate duplication where conditions are met in secondary legislation and guidance. - Financial institutions employ a range of approaches to reliance on Eligible Introducers—some place full reliance, others are selective; regulators should continue to focus on this area during on-site inspections. ### Ongoing due diligence, STR reporting, record keeping, and internal controls - Secondary legislation contains clear requirements for ongoing due diligence and reporting of suspicious transactions to the FCU, supported by detailed guidance in the FSC’s Handbook and the Insurance Guidance Notes (IGN) issued by the IPA. - Scope of protection for STR reporting is not sufficient to include all categories of person or circumstances in the international standard and is not limited to good faith reporting. - Record keeping requirements have been brought fully into line with the FATF Recommendations. - No secrecy provisions inhibit AML/CFT implementation, but assessors recommended introducing an explicit exclusion from the common law duty of confidentiality to permit information exchange for AML/CFT purposes (planned). - Requirements for ongoing due diligence are well developed and comprehensive. - A more formal approach is needed for enhanced measures and countermeasures concerning jurisdictions that do not or inadequately comply with the FATF Recommendations (footnote notes this matter was addressed subsequent to the assessment with the coming into force in July 2009 of the Terrorism (Finance) Act 2009). - Comprehensive requirements and guidance for adequate AML/CFT internal policies, procedures, and controls exist, except there is no requirement to maintain an adequately resourced independent audit function dealing with AML/CFT, having due regard to the size and nature of the business. ### Wire transfers, shell banks, and sectoral application timing - IOM implemented European Regulation 1781/2006 on Wire Transfers, with modifications, by Orders of the Council of Ministers (secondary legislation). - The UK obtained a derogation from EU member states to allow reduced information requirements to apply to payments between the UK and Jersey, Guernsey, and the IOM (treating them as domestic transfers). - Informal funds transfer systems do not appear relevant in the IOM context. - No explicit prohibition on establishment of a shell bank in the IOM; however, FSC license under FSA 2008 Section 7 is required to conduct regulated activity and a license may not be issued unless the FSC is satisfied the applicant is managed and controlled in the IOM (further developed in the FSC’s General Licensing Policy). - For the most part, IOM financial institutions are subject to adequate AML/CFT regulation and supervision, though additional on-site supervision is needed in some significant areas (banking, insurance). - Regulation and supervision of money-services business transferred to the FSC effective August 1, 2008; full application of AML/CFT measures for money-services businesses did not come into effect until January 1, 2009 and is beyond the scope of this assessment. ### Licensing, fit and proper tests, supervision cycles, and enforcement - All IOM financial institutions have a designated regulatory authority for AML/CFT purposes. - Statutory fit and proper tests are applied to license applicants, owners, controllers, directors, and key managers to ensure integrity and propriety, complying with the international standard. - FSC supervision follows the FSC’s published Supervisory Approach (most recently updated in July 2009) calling for an on-site visit cycle of between one and three years, according to the impact and risk rating of the license holder or group. - For banks, FSC conducted risk-assessment focus visits including AML/CFT-related analysis and file sampling; a round of AML/CFT-themed focus visits was planned for 2009/10. - IPA on-site AML/CFT inspections have been limited by resource constraints; additional inspections envisaged from 2009 onwards. - Sanctions range at FSC and IPA disposal is broad and complemented by criminalization of AML/CFT breaches under AML Code 2008; serious breaches are usually accompanied by ‘fit and proper’ directions. - FSC must issue regulations to extend the application of its power of financial penalty to new areas and had not yet done so in the AML/CFT area at the time of assessment. ### Designated Non-Financial Businesses and Professions (DNFBPs) - CDD obligations for DNFBPs are largely the same as for financial institutions and share the same strengths and weaknesses. - The CSP and TSP sector comprises legal professionals and accountants providing both services; all company formation agents; trust service providers who are not legal professionals; and business address and business service providers. - Authorities advised there are approximately 22,000 trusts and 42,000 companies managed or administered in or from the IOM by TSPs and CSPs, respectively. - TSPs and CSPs conduct substantial cross-border and non face-to-face business and are particularly vulnerable to AML/CFT risk; they are authorized and actively supervised by the FSC, with focus on AML/CFT compliance. - On-line gaming sector conducts all business non face-to-face; IOM has authorized one terrestrial casino and 11 on-line casinos; casinos are licensed and supervised by the Gambling Supervision Commission (GSC). - Legal profession: advocates (licensed) and registered legal practitioners (registered in prescribed jurisdictions) are subject to AML Code 2008; only advocates fall under the IOM Law Society. Registered legal practitioners are not subject to IOM-law supervision regarding compliance—authorities indicated this was being addressed. - Accounting profession subject to AML Code 2008; accountants registered by the DHA. At assessment time DHA was negotiating with accountancy bodies to agree a basis for ongoing AML/CFT compliance program; assessors recommended this be put in place quickly. - Real Estate Agents and Dealers in precious stones and precious metals are subject to AML Code 2008 provisions. - DHA working to develop measures for other nonfinancial businesses; assessors recommended continuation of awareness-raising. - Implementation of AML/CFT measures for DNFBPs (other than TSPs, CSPs, and most lawyers) was still being developed at on-site visit time. - DNFBPs interviewed were generally well informed about CDD and record-keeping obligations. - FSC devotes substantial resources to improving AML/CFT compliance of TSPs and CSPs. - Some advocates noted they may not complete all initial CDD at outset and may complete contracted matters before CDD is complete, leaving clients never fully identified—assessors noted this weakness needs addressing. ### Legal persons, legal arrangements, trusts, and corporate statistics - IOM has three sets of laws governing legal persons: Companies Act 1931-2004, Companies Act 2006, and Limited Liabilities Companies Act 1996. - Companies Act 1931-2004 and Companies Act 2006 allow incorporation of various corporate entity types (Companies Limited by Shares, Companies Limited by Guarantee, Companies Limited by Guarantee and having a Share Capital, Unlimited Companies, Protected Cell Companies); Limited Liabilities Companies Act 1996 governs Limited Liability Companies. - Trusts governed by the Trustee Act 1961 and subsequent amendments; common law trust and equity principles applied unless contrary to statute or local precedent. - As of June 30, 2008, about 31,000 companies and close to 23,000 trusts were set up under IOM law. - IOM relies primarily on licensed CSPs and TSPs to obtain, verify, and retain beneficial ownership and control records for legal persons. - Companies incorporated under Companies Act 2006 must utilize services of and provide the Companies Registry with the name and address of the corporate service provider. - Companies incorporated under Companies Act 1931-2004 and Limited Liabilities Companies Act 1996, and legal arrangements, are not required to use licensed CSPs/TSPs but may choose to do so. - It is estimated that 70 percent of all companies registered in the IOM utilize services of licensed CSPs. The number of trusts administered by licensed TSPs is unknown. - Companies Registry maintains some management and administration information and primarily links an entity with a specific IOM CSP to allow competent authorities to locate beneficial ownership information. - Trusts are not registered in the IOM. - CSPs and TSPs are obliged in all cases to identify the natural person who ultimately owns or controls a customer or person on whose behalf a transaction is conducted, and to take reasonable steps to verify identity based on reliable information. - For companies or legal arrangements not using licensed CSPs/TSPs, no formal measures exist to ensure beneficial ownership information is obtained, verified, and maintained. - Persons providing director services, nominee shareholders, protectors/enforcers, and letters of wishes are permitted and frequently used for trusts under IOM law. ### Non-profit/charitable sector - IOM charitable bodies are registered with the General Registry, which undertook a desk-top review of registered charities’ objectives and mandates. - Although no vulnerabilities to FT exploitation were identified, assessors recommended the authorities proceed with their planned review of the sector. *Source: _cr09278 excerpt.* ### 49. Cooperation and coordination between the domestic authorities is well organized and ### _cr09278 - 49. Cooperation and coordination between the domestic authorities is well organized and ### Cooperation and coordination among domestic authorities - Cooperation and coordination are "well organized and effective", particularly through the initiatives of the Joint AML Advisory Group, which represents all relevant authorities. - Extensive consultation occurs with financial institutions and other businesses subject to supervision for AML/CFT purposes. ### International conventions, ratifications, and legislative compliance - The IOM is a British Crown Dependency and is not empowered to sign or ratify international conventions on its own behalf; the UK may extend ratification to the IOM following a request by the IOM Government. - General principle: the IOM seeks extension of all conventions ratified by the UK, but extension is requested only after IOM legislation has been determined to comply with a given convention. - UK extensions and status: - Vienna Convention extension to the IOM: December 2, 1993. - Palermo Convention: extension has not yet been requested because IOM law does not yet comply with all its provisions. - UN Convention for the Suppression of the Financing of Terrorism extension to the IOM: September 25, 2008. - Ten out of the other 15 international conventions and protocols relating to the fight against terrorism have been extended to the IOM; however, not all of the conventions' provisions have been implemented. ### Mutual legal assistance (MLA) and extradition - No overarching legislation regulates MLA practice in the IOM. - Judicial authorities provide MLA using domestic provisions in: - CJA 1990 - CJA 1991 - DTA 1996 - ATCA 2003 - Range of MLA measures provided under relevant Acts includes collection, production, search, and seizure of information and documents. - A MLA request containing fiscal aspects does not constitute grounds for refusal. - Legal framework for extradition is described as "comprehensive and compliant with the international standards." In the absence of precedents, only formal provisions were assessed. ### FIU / FCU international cooperation and information exchange - Providing international cooperation is a very important FIU assignment in the offshore IOM jurisdiction. - The FCU/FIU is active in the Egmont network of FIUs; FIU-to-FIU cooperation is governed by Egmont principles of information exchange. - Some cooperation is underpinned by bilateral MOUs (not required but used in some instances). - Information requests from counterpart FIUs are complied with "to the greatest extent within the boundary of use for intelligence purposes." - Police use Interpol's international communication network for direct bilateral contacts; assistance to other police authorities is routinely granted provided it does not involve coercive measures. - Customs and Excise cooperates with many foreign countries under mutual assistance agreements between those countries and the EU; cooperation with countries outside those agreements is conducted case-by-case. ### Supervisory authorities, MOUs, and information sharing - Both the FSC and IPA are empowered under the FSA 2008 and Insurance Act 2008, respectively, to enter into MOUs. - The FSC: - Has entered into a range of MOUs. - Is a full signatory to the IOSCO Multilateral Memorandum of Understanding (MMOU). - The IPA is a signatory to a number of MOUs. - FSC and IPA are empowered to provide information to supervisory counterparts both spontaneously and on request; scope includes all relevant information held by supervisory authorities. - No secrecy provisions exist in the IOM that would restrict supervisory authorities from sharing confidential information with foreign counterparts where warranted and appropriate. ### Statistics and record-keeping on international requests - Detailed statistics on international requests for intelligence/assistance are kept by the FCU, including the number of spontaneous referrals. - Current statistics do not distinguish between police- and FIU-originated requests; assessors note it "would give a clearer picture if the statistics would reflect that distinction." - Supervisory authorities also maintain statistics for various forms of international cooperation. - Many information exchanges arise under the IOSCO MMOU, including those related to insider dealing. - Information requests for 'Fit and proper' tests are another common application of international cooperation. ### Resourcing, enforcement, and other issues - Relevant authorities are generally well resourced, but regulatory authorities would benefit from additional resources to sustain appropriate levels of AML/CFT onsite inspection work, particularly for banks and insurance businesses. - Additional resources are also needed by the GSC and DHA to carry out their respective AML/CFT responsibilities. - The authorities have approved additional resources for the FCU. - Relevant statistics are well maintained in most areas, including by regulatory authorities. - Comprehensive statistics are not maintained on seizures and confiscations. ### Contextual and financial-sector data and ML/TF risk indicators - Geographic and demographic: - Isle of Man dimensions: 33 miles long and 13 miles wide at broadest point. - Total land area: 227 square miles. - Resident population: "just over 80,000 (2006 interim census)." - Currency and controls: - Local currency: Manx pound, on par with the British pound (GBP). - No exchange controls. - Political and constitutional: - Tynwald is the legislature; IOM is a self-governing British Crown Dependency; UK responsible for IOM international relations. - IOM is not part of the UK nor the EU; limited EU relationship under Protocol 3 to the UK’s Act of Accession. - Macro and labor: - 2005/6 GDP: GBP1.6 billion. - Average real annual rate of economic growth over the past ten years: 7.8 percent. - Financial services account for 36 percent of GDP. - Working population: around 43,000. - Unemployment rate: 1.3 percent. - Crime and ML/TF: - IOM is generally a low-crime environment; authorities concerned about increasing drug-related crimes. - "There have been no convictions or prosecutions for terrorist financing in the IOM; neither have there been any terrorist incidents." - Material vulnerability to use in layering and integration stages of money laundering because of financial sector structure and cross-border business. - Higher-risk characteristics noted: - "More than 90 percent of the customer relationships and of financial service business conducted are on a non face-to-face basis for nonresidents of the IOM." - Use of introducers to establish business relationships; introducers are subject to varying levels of regulation. - Financial services include private banking facilities for non-residents. - Prevalent use of legal persons and arrangements such as trusts, increasing challenges to identify customers and ultimate beneficial owners or controllers. - Deposit statistics note: "approximately 30 percent of bank deposits in the IOM are from resident sources, much of this business relates to deposits placed with banks by IOM fiduciaries which are acting on behalf of nonresident beneficial owners." - Financial-sector structure as at end-March 2008: - 43 deposit takers (one of these banks went into provisional liquidation in October 2008 and its license was suspended). - 40 licensed banks (as at 31 March 2008); only two are locally-based. - Deposit base (net of local inter-bank placings) totaled GBP52.36 billion as at March 31, 2008. - Three branches of UK building societies. - Three licensed stockbrokers. - 23 firms provided asset management services to collective investment schemes and portfolio management. - 26 firms provided management and administration services to collective investment schemes. - 38 financial advisers. - Insurance sector counts: - 30 life insurers. - 157 nonlife insurers. - 23 insurance managers. - 33 general insurance intermediaries. - 86 administrators of retirement benefits schemes. _Italic: IMF staff assessment content unit _cr09278 - 49. Cooperation and coordination between the domestic authorities is well organized and effective._ ### section 36 of the Retirement Benefits ### section 36 of the Retirement Benefits ### Authorized / Registered Financial Institutions and Activities - Retirement Benefits Schemes Administrators - Registered in accordance with Section 36 of the Retirement Benefits Schemes Act 2000 acting by way of business as a pension scheme administrator. - Licensed under section 7 of the Financial Services Act 2008 - To carry on regulated activities falling within Class 2 (investment business) or Class 3 (services to Collective Investment Schemes) of the Regulated Activities Order 2008. - Underwriting and placement of life insurance and other investment related insurance - Applies both to insurance undertakings and to insurance intermediaries (agents and brokers). - Life Insurers - Authorized under Section 8 of the Insurance Act 2008 to carry on the business of insurance (linked and non-linked long term business of Class 1 and Class 2 or Class 10 (reinsurance of such business only) respectively as set out in Regulation 2(2) of the Insurance Regulations 1986). - Note: The Insurance Act 2008 came into force on December 1, 2008 and superseded the Insurance Act 1986 (as amended). - Non-Life Insurers (including captive insurers and re-insurers) - Authorized under Section 8 of the Insurance Act 2008 to carry on general insurance business of Classes 3 to 9 and 11 and 12 as set out in Regulation 2(2) of the Insurance Regulations 1986; namely: - Marine, aviation & transport - Property - Motor - Pecuniary loss - Liability - Credit & suretyship - Personal miscellaneous - Reinsurance of such business - Restricted (captive) business - Insurance Managers - Registered in accordance with Section 23 of the Insurance Act 2008 providing management services for one or more insurers. - General Insurance Intermediaries - Registered in accordance with Section 24 of the Insurance Act 2008 acting as a general business intermediary as defined in Section 54 of that Act. - Money Service Business / Money and currency changing - Bank/deposit taker: Licensed under section 7 of the Financial Services Act 2008 to carry on regulated activities falling within Class 1 (deposit taking) or Class 6 (money transmission services) of the Regulated Activities Order 2008. - Otherwise investing, administering or managing funds or money on behalf of other persons - Retirement Benefits Schemes Administrators: Registered in accordance with Section 36 of the Retirement Benefits Schemes Act 2000 acting by way of business as a pension scheme administrator. - Dealers in precious metals and precious stones - Covered as relevant businesses at Paragraph 24 of Schedule 1 of the Criminal Justice (Money Laundering) Code 2008 when a transaction involves accepting a total cash payment of EUR15,000 or more. Oversight responsibility: Department of Home Affairs (DHA). ### Overview of the DNFBP Sector (key counts and oversight) - Casinos (including internet casinos) - No.: 1 | Domestic Branches: 1 | Overseas branch: 0 | Size: GSC | Authorized by / Supervisor / AML/CFT oversight: GSC - Real estate agents - No.: 20 | Domestic Branches: 28 | Overseas branch: 2 | Authorized by / Supervisor / AML/CFT oversight: DOLGE / DHA / DHA - Lawyers, notaries - Authorized/oversight: Isle of Man Law Society. - Accountants - No.: 89 | Domestic Branches: 91 | Overseas branch: Nil | Authorized/oversight: DHA / DHA / DHA - Trust Service Providers - No.: 120 | Domestic Branches: 120 | Overseas branch: Nil | Size: 22,000 trusts | Authorized/oversight: FSC / FSC / FSC - Corporate Service Providers - No.: 185 | Domestic Branches: 185 | Overseas branch: Nil | Size: 42,000 companies | Authorized/oversight: FSC / FSC / FSC - Gambling licensing (paragraph 69) - The Gambling Supervision Commission (GSC) licenses one terrestrial casino in the IOM. - Under the Online Gambling Regulation Act 2001 (OGRA), the GSC licenses other gambling websites (sports book betting, peer-to-peer betting, poker and other card games). - As at June 30, 2008, the GSC licensed ten such companies, with a further three companies awaiting licenses. - Corporate and trust service provider licensing (paragraph 71) - The FSC has authorized and supervised Corporate Service Providers (CSPs) since 2001 and Trust Service Providers (TSPs) since 2005. - As at 31 March 31, 2008 there were 185 licensed CSPs and 120 licensed TSPs. - Almost all TSP licenseholders are either CSP licenseholders or part of a group containing a CSP licenseholder. ### Companies, trusts, and registration regimes (legal framework and statistics) - Laws governing legal persons - Companies Act 1931-2004, Companies Act 2006, Limited Liabilities Companies Act 1996. - Companies Act 1931-2004 and Companies Act 2006 provide for the same corporate forms; registration and management requirements differ. - Companies Act 2006 requires all legal persons incorporated under it to have a registered agent licensed pursuant to the FSA 2008; no such registered agent requirement exists for Companies Act 1931–2004 companies. - Companies Registry maintained by the FSC; all information and documentation in the Companies Registry is accessible by the public and, since 2004, available in electronic form, including online. - Companies Act 1931-2004 (registration and filing) - Registration typically requires filing information on the registered office, company directors, secretaries and shareholders, and a copy of the memorandum and articles of association. - 1931 Companies require at least one shareholder and two directors. - Section 9 Companies Act 1974 expressly prohibits the use of legal persons as company directors. - Annual return requirements: address of registered office, names and addresses of all shareholders, directors and the secretary, and the number of shares held by each shareholder. - Companies Act 2006 (registration and filing) - Registration requires the Companies Registry be provided with the memorandum of association, name of the first registered agent and the address of the first registered office, and full name and address of each first subscriber. - Section 73: registered office must be a physical address in the IOM. - Section 74: registered agent must be licensed by the FSC. - 2006 Companies require at least one shareholder and one director. - Section 91 (4) allows legal persons as company directors provided the corporate director holds a license issued by the FSC. - 2006 Companies must maintain shareholder and director registers at the office of the registered agent; filing those registers in the Companies Registry is optional. - Annual return requirement: updated name and address of the licensed registered agent. - Limited Liability Companies Act (LLCs) - Incorporation requires filing articles of organization, a consent form signed by the registered agent, and a statement of the registered office in the IOM. - Section 7 requires articles to contain the company name, names and addresses of all company members, and the name and address of the registered agent in the IOM. - LLCs must file annual returns with updated address of registered office, and name and address of registered agent and of managers and members. - Trusts - Governed primarily by the Trustee Act 1961 and common law principles of trust law and equity. - IOM law recognizes express trusts, implied trusts, resulting trusts and constructive trusts. - Since 1996 IOM law allows enforcement of purpose trusts (subject to conditions). - Private trust companies (PTC) are allowed and typically act as trustee for one or more family trusts; PTCs are exempt from FSA licensing requirements. - Trusts with a PTC as trustee must be administered by a natural or legal person holding a Trust Service Provider (TSP) license issued by the FSC. - It is allowed for the settlor to be the beneficiary, including the sole beneficiary, of a trust. - IOM courts have struck down sham trusts in some cases. - IOM law permits redomiciliation of trusts to other jurisdictions; attempts to delay or frustrate a criminal investigation would represent an offense under the CJA 1990 and the DTA 1996 on the part of the trustee. - The Convention on the Law Applicable to Trusts and on their Recognition has been extended to the IOM; IOM law recognizes foreign trusts through the Recognition of Trusts Act 1988. - No general registration requirement for trusts (other than charitable trusts); no general filing requirement for trust accounts or other trust information. - Registration statistics (exact counts) - As of end–June 2008, total companies incorporated under IOM law: 31,711, of which: - 28,323 were 1931 Companies - 2,850 were 2006 Companies - 538 were LLCs - Of the 31,711 companies, 23,259 are under administration by corporate service providers licensed by the FSC. - As of December 2007, 22,785 trusts, including private trusts, were administered by trust service providers licensed by the FSC. - Companies and Trusts registered in the IOM (End-December / June 30 figures shown in source) - 1931 Act Companies: 33,351 (2003), 32,726 (2004), 30,847 (2005), 30,870 (2006), 30,380 (2007), 28,323 (June 30, 2008) - 2006 Act Companies: 254 (2003), 2,098 (2004), 2,850 (2005) - LLCs: 72 (2003), 51 (2004), 51 (2005), 39 (2006), 58 (2007), 47 (June 30, 2008) - TOTAL REGISTERED: 33,423 (2003), 32,777 (2004), 30,898 (2005), 31,163 (2006), 32,536 (2007), 31,220 (June 30, 2008) - Administered Trusts: 22,785 ### AML/CFT strategy, priorities, and institutional framework - AML/CFT commitment and legislative activity - The IOM government has not published an AML/CFT strategy as such, but a political commitment has been given by the IOM authorities, in correspondence with the FATF and in public statements, to adhere to the principles of the FATF Recommendations. - The IOM attaches the highest importance to having a robust and enforceable regime for the prevention of money laundering and for countering the financing of terrorism. - The Financial Crime Unit (FCU) — the IOM financial intelligence unit (FIU) — has stated objectives; both main supervisory authorities have been assigned legislative objectives related to the reduction in financial crime. - Authorities committed notable resources to updating the AML/CFT legislative framework and providing detailed guidance in the 18–24 months prior to this assessment. - The financial sector participated actively via the Joint Anti-Money Laundering Advisory Group (JAMLAG) to ensure measures reflect commercial reality and align with requirements of financial sector parent companies, particularly in the UK. - IOM authorities participate in Crown Dependency meetings with Jersey and Guernsey counterparts on AML/CFT issues. - Institutional roles - Department of Home Affairs (DHA) - Core function: ensure community safety; overall responsibilities include the police service (within which is located the FIU) and the prison service. - Statutory role in issuing AML Codes under the Criminal Justice Act 1990 (CJA 1990). - Default authority developing AML/CFT measures for DNFBPs and other nonfinancial businesses not supervised by other authorities. - The Department is in an advanced stage of putting in place codes and rules to regulate accountants, estate agents, lawyers, motor dealers, auctioneers, jewelers and dealers in other high value goods. - The Treasury - Functions impacting AML/CFT include Customs and Excise (a division of the Treasury). - The Treasury Minister introduces to Tynwald secondary legislation on AML/CFT proposed by regulatory authorities. - Treasury is represented on JAMLAG by officials from Customs and Excise Division and Corporate Strategy Division. - The Treasury and the FSC have a Memorandum of Understanding (MOU); MOUs are being progressed with the IPA and the GSC. - Customs and Excise - Role includes border controls and implementing measures for cross-border movement of cash or negotiable instruments. - Criminal Justice Act 1990 and Drug Trafficking Act 1996 (and their replacement in the Proceeds of Crime Act 2008) provide powers for customs officers in combating money laundering. - Customs officers form part of the staffing of the Financial Crime Unit. - A relevant provision of POCA 2008 was brought into force from October 22, 2008 thereby inserting a new Section 77A into the PPPA 1998 providing that customs officers at the FCU, when authorized in writing by the AG, shall have the powers of a constable in relation to their work at the FCU. - The AG signed the necessary authority on November 11, 2008 for officers working at, or available to work at, the FCU to have the powers of a police constable. *Source: section 36 of the Retirement Benefits (extracted from provided IMF PDF content).* ### 98. The Chief Secretary's Office has various functions including providing leadership of the Civil ### _cr09278 - 98. The Chief Secretary's Office has various functions including providing leadership of the Civil ### Chief Secretary’s Office: roles and functions - Provides leadership of the Civil Service and facilitates greater cross Departmental working. - Leads the public service response to the Council of Ministers' initiative on delivering Corporate Governance and Business Planning across Government. - Provides impartial advice to the Chief Minister and to the Council of Ministers on implications of proposed changes in policy or legislation, or in external developments. - Promotes and continues the evolution of the constitutional relationship between the Isle of Man and the United Kingdom and ensures recognition of the Island's interests internationally whilst honoring its international obligations. - Advises and assists the Lieutenant Governor in the exercise of his Crown responsibilities, including the process of obtaining Royal Assent for all new legislation to be adopted in the IOM. - Liaises directly with the UK administration regarding international matters, including the extension to the IOM of international conventions. ### Attorney General’s Chambers - HM Attorney General: - Appointed by Her Majesty the Queen and holds office during Her Majesty’s pleasure. - Is ex officio a member of the Legislative Council and attends meetings of the Council of Ministers. - Is the legal adviser to the Crown in the Isle of Man and the Government of the Isle of Man. - Responsible for prosecution of offenses in the Court of General Gaol Delivery and for drafting Government legislation. - Attorney General’s Chambers functions: - Acts as the competent authority for receipt of requests for mutual legal assistance in criminal matters from other jurisdictions, including requests for restraint, confiscation, and forfeiture of property in the IOM. - Deals with civil and criminal matters for the Government of the Isle of Man and provides legal advice to Government Departments and Statutory Boards. - Is represented at JAMLAG and “chairs” on a rotation basis with other respective AGs the inter-Islands’ Crown Dependency Meetings which considers AML/CFT issues. - Legal support to FCU: The AG’s Chambers provide legal advice and expert assistance in all financial investigations including money laundering and terrorism financing; there are currently two full time dedicated legal officers. ### Joint Anti-Money Laundering Advisory Group (JAMLAG) - JAMLAG is the principal forum for discussing AML/CFT issues in the IOM. - It is advisory rather than policy-making and meets regularly. - Composition: regulators, law enforcement authorities and industry and professional representatives; Treasury and the Attorney General’s Chambers are also invited to attend. - Chairmanship rotates by meeting between the Chief Executives of the Department of Home Affairs, the Financial Supervision Commission and the Insurance and Pensions Authority. - Industry’s views on proposed changes to AML/CFT legislation and Regulatory Codes are sought through the JAMLAG forum. ### Criminal justice and operational agencies — Financial Crime Unit (FCU) / Financial Intelligence Unit (FIU) - FCU: - Specialized department within the Constabulary, headed by a Detective Chief Inspector who is part of the Constabulary’s Senior Command Team. - Major investigative ability: specialist investigators, accountants and analysts; houses the Islands Financial Intelligence Unit. - Works closely with the Drug Trafficking Unit (DTU) in pro-active money laundering investigations involving drugs. - Liaises with the Force Intelligence Bureau, Covert Operations and other investigative wings including the Criminal Investigation Department. - Governance: - The FCU has a Strategic Board consisting of the Chief Constable, The Collector of Customs and Excise and the AG to whom the Head of the FCU reports. - Police: - The Constabulary has operational independence and is free from undue political influence or interference. - Strategic Plan includes a key project ‘Strengthening the Financial Crime Unit’. - Command Team priorities include development of a Joint Intelligence Unit. ### Financial sector bodies — Financial Supervision Commission (FSC) - Regulatory scope: - Regulatory authority for all financial institutions other than insurance and pensions businesses. - Authorizes and supervises TSPs and CSPs. - Regulatory objectives: - (a) securing an appropriate degree of protection for the customers of persons carrying on a regulated activity; - (b) the reduction of financial crime; and - (c) supporting the Island’s economy and its development as an international financial center. - Legal and supervisory powers: - FSC required by law to maintain arrangements to determine whether persons on whom requirements are imposed under the Financial Services Act are complying with them. - Required to maintain arrangements for enforcing provisions of or under the Financial Services Act or other legislation specified in that Act (Schedule 1 paragraph. 5 of the Financial Services Act 2008). - Statutory requirement extends to the Rule Book including the AML/CFT requirements in Part 9 of the Rule Book. - Supervision undertaken through off-site reviews and analysis and on-site inspection visits. ### Financial sector bodies — Insurance and Pensions Authority (IPA) - IPA: - Statutory board established under the Insurance Act 2008 and responsible for regulation of the insurance and pensions sector in the Isle of Man. - Regulatory objectives (Insurance Act): - (a) The securing of an appropriate degree of protection for policyholders; - (b) The maintenance of confidence in the Island’s insurance industry in the Island and elsewhere; and - (c) The reduction in the extent to which it is possible for any insurance business to be used for a purpose connected with financial crime. - Supervision: - Undertaken through off-site reviews and analysis and on-site inspection visits. - Supervisory framework includes responsibility for matters in relation to AML and CFT. ### DNFBP and other supervisory bodies - Gambling Supervision Commission (GSC): - Body corporate established in 1962; consists of a Chairman and four members appointed by the Council of Ministers. - Undertakes offsite and onsite supervision of the terrestrial casino and on-line casinos. - FSC — Companies Registry: - FSC responsible for the Isle of Man Companies Registry where Isle of Man incorporated companies are registered and statutory documents filed for public viewing. - Registry administers legislation relating to foreign companies, limited liability companies, business names, limited partnerships and societies incorporated under the Industrial and Building Societies Acts. - Public access facilitated physically and online. ### Approach Concerning Risk (AML/CFT) - Risk-based approach adoption: - IOM adopted a risk-based approach following enactment of the FSA, 2008 with effect from August 1, 2008. - FSC supplemented the AML Code 2008 with Part 9 of the Financial Services Rule Book 2008 (“Rule Book”) concerning money laundering and the financing of terrorism. - Part 9 of the Rule Book came into effect on August 1, 2008 for all licenseholders. - Requirements on licenseholders: - Adopt a risk based approach to AML/CFT measures and conduct a risk assessment of their businesses, including on their customers. - Conduct customer due diligence (CDD) procedures in accordance with the risk assessment. - Conduct enhanced CDD where higher risks identified by the risk assessment. - All risk assessments conducted by FSC licenseholders should be recorded and documented and fed into the licenseholders’ policies, procedures and controls in respect of AML/CFT. - FSC produced a Handbook of guidance in complying with the Rule Book and the AML Code 2008 to guide adoption of a risk based approach. - Insurance sector particulars: - IPA’s statutory remit includes supervision of insurers in respect of AML/CFT compliance. - With effect from September 1, 2008 the Anti-Money Laundering Standards for Insurance Businesses were replaced by: - Insurance (Anti-Money Laundering) Regulations 2008 (IAMLR 2008) - Guidance Notes on Anti-Money Laundering and Preventing the Financing of Terrorism – for Insurers (long term business) (IGN 2008) - Regulations (applicable to all insurers) and binding guidance notes (applicable to insurers writing long term business) introduce limited flexibility for risk-based assessment: common standards applied as standard; deviation permitted in limited circumstances where the business’ risk assessment identifies lower risk, subject to defined criteria. - All risk assessments must be fully documented and recorded; decision to apply reduced CDD must be approved by a senior member of the business’ staff and will be reviewable by the IPA on on-site visits. - Any decision to apply a deviation against a group of policies must be formally approved and minuted at a board meeting of directors. - All business subject to ongoing due diligence and customer risk profiles must be monitored and appropriate action taken where profiles change. ### Progress Since the Last IMF Assessment - Authorities have addressed most recommendations of the last AML/CFT assessment; previous IMF assessment conducted against pre-2003 FATF Recommendations. - FSC produced an action plan entitled ‘FSC Plan in relation to recommendations made by the IMF in Volume II of the IMF Report on the Isle of Man October 2003–progress update July 04’ and regularly updated it. - Last update document from January 2008 entitled ‘Anti Money Laundering and Criminal Justice Matters Relevant to FSC’. - Authorities focused on revised international standards following their revision after the IMF’s last inspection. - IPA-specific update table (selected actions completed): - Record Keeping Rules: Expand CTP to include verification standards and retrospective review requirements — Completed. - Review of Anti-Money Laundering Code 1998: New provisions to verify identity, ensure branches/subsidiaries outside IOM undertake AML procedures no less strict, evidence verifying existence/place of incorporation/corporate nature when body corporate applicants — IPA/FSC/DHA — Completed. - Review of Anti-Money Laundering Guidance: Inclusion of provision to cover AML/CFT standards for branches outside the IOM — FSC/IPA — Completed (updated guidance April 2003; further updated 2008). - Power to impose regulatory sanctions and remove auditors: Expand framework to remove/disqualify auditor and impose civil money penalties against individuals and legal persons — IPA — Completed (Insurance (Amendment) Act 2004; to be consolidated in Insurance Act 2008). - Authority to issue Anti-Money Laundering Guidance Notes: Clarify legal authority — IPA — Completed (contained in Insurance (Amendment) Act 2004 and consolidated in Insurance Act 2008). - Requirement to appoint an AML/CFT compliance officer: Consider requirement for FIs other than banks and reporting changes to regulator — FCU/IPA — Completed. - Regulators staffing/resources: IPA and FSC should increase staffing levels to sustain comprehensive surveillance — FSC, IPA and Treasury — Ongoing review of resources. ### Legal system and related institutional measures — Criminalization of Money Laundering (R.1 & 2) - Legal framework: - Money laundering criminalized through Criminal Justice Act 1990 (CJA 1990), Drug Trafficking Act 1996 (DTA 1996) and Anti-Terrorism and Crime Act 2003 (ATCA 2003). - CJA 1990 covers money laundering related to all predicate offenses; DTA 1996 and ATCA 2003 limited to drug trafficking and terrorism predicate offenses respectively. - Proceeds of Crime Act 2008 (POCA 2008): - Legislative package of amendments and consolidation adopted by Tynwald as POCA 2008. - Some provisions came into force on October 22, 2008. - Remaining parts effective from August 1, 2009. - POCA 2008 will codify and update the law in relation to ML and no longer differentiate between predicate offenses of drug trafficking, terrorism, and other crimes. - International conventions: - As a Crown Dependency the IOM cannot sign or ratify international conventions in its own right; the UK is responsible for the IOM’s international affairs and may arrange for ratification of any convention to be extended to the IOM following consultation and approval by the IOM Government. - UK’s ratification of the Vienna Convention was extended to the IOM on December 2, 1993. - The Palermo Convention had not yet been extended to the IOM at the time of the mission; UK would only agree to extend Conventions to the IOM once content that necessary legislative changes had been made. No concrete timeframe for extension of the Palermo Convention at the time of the onsite mission. - Current statutory approach (prior to POCA 2008 coming fully into force): - Three-strand approach to ML offenses (CJA 1990, DTA 1996, ATCA 2003) remains effective until replaced on August 1, 2009 by Part 3 of POCA 2008. - CJA 1990 offences extend to all offenses triable on information other than drug trafficking offenses or offenses under ATCA 2003 and to any offenses prescribed by law to be predicate offenses for money laundering. - DTA 1996 money laundering offenses relate to certain offenses defined in the Misuse of Drugs Act 1976 and the Customs and Excise Management Act 1986. - ATCA 2003 money laundering offense differs in language and scope and is discussed separately in the report. *Source: IMF country report text (excerpts provided).* ### 123. Sections 17C CJA 1990 and 45 DTA 1996 provide that a person is guilty of money ### _cr09278 - 123. Sections 17C CJA 1990 and 45 DTA 1996 provide that a person is guilty of money ### Definitions and core elements of money laundering (Sections 17C CJA 1990 and 45 DTA 1996) - A person is guilty of money laundering if he (1) conceals or disguises any property which is, or in whole or in part directly or indirectly represents, his proceeds of criminal conduct/drug trafficking or converts or transfers that property or removes it from the jurisdiction for the purpose of avoiding prosecution for an offense or if he (2) knows or has reasonable grounds to suspect that any property is, or in whole or in part directly or indirectly represents, another person’s proceeds from criminal conduct/drug trafficking and conceals or disguises that property or converts or transfers that property or removes it from the jurisdiction for the purpose of assisting any person to avoid prosecution for an offense/a drug trafficking offense. - Sections 17C (3) and 45 (3) respectively state that the reference to concealing or disguising any property includes concealing or disguising the nature, source, location, disposition, movement or ownership or any rights with respect to it. ### Comparative scope vs. Vienna and Palermo Conventions - Articles 17C CJA 1990 and 45 DTA 1996 require proof that the purpose of the act is to avoid prosecution for a predicate offense for acts of “concealing or disguising” and “converting or transferring”. - The Vienna and Palermo Conventions: conversion or transfer of criminal proceeds require proof that the purpose is either to conceal or disguise the illicit origin of the property or to help any person to evade criminal liability; and no specific purpose must be proven for “concealment or disguise” of the true nature, source, location, disposition, movement, or ownership of proceeds. - Assessment: Articles 17C CJA 1990 and 45 DTA 1996 are not sufficiently wide to fully meet the international standard because they require proving the outlined purpose in all cases. ### Gaps and limitations in related offenses and defenses - The offense of “assisting another to retain the benefit” may cover some situations where purpose cannot be proven by the prosecutor, but: - It does not extend to self-laundering. - It requires proof of the existence of an “arrangement.” - Sections 17B CJA 1990 and 47 DTA 1996 criminalize acquisition, use, or possession when knowing property is proceeds of another’s criminal conduct, but: - Sections 17B (3) and 47(3) provide a defense if the person acquired or used the property or had possession of it for adequate consideration. - “Acquires property for inadequate consideration if the value of the consideration is significantly less than the value of the property.” - “Uses or has possession of property for inadequate consideration if the value of the property is significantly less than the value of his use or possession of the property.” - Concern: The adequate consideration exception is beyond the Vienna and Palermo Conventions’ standard and may be abused by money launderers to avoid criminal liability. ### Burden and standards of proof - IOM law: prosecution must prove beyond reasonable doubt each constituent part of an offense. - Where statute provides a defense, the defendant bears a lesser standard of proof (balance of probabilities) to establish the defense. - Implication: If a defendant raises a statutory defense (e.g., adequate consideration), the prosecution must negate that defense beyond reasonable doubt; thus the defense could be available even where the defendant knew property stemmed from a predicate offense. - Concern: Sections 17B (3) CJA 1990 and 47(3) DTA 1996 present a risk that bona fide defenses may be abused. ### Terrorism financing and ATCA 2003 (Sections 10 and related) - Terrorism financing offenses are explicitly excluded from the scope of CJA 1990 money laundering provisions. - ATCA 2003 contains a money laundering provision applicable to terrorism-related predicate offenses. - Section 10 ATCA 2003: offense to enter into or become concerned in an arrangement which facilitates the retention or control by or on behalf of another person of terrorist property, including through concealment, removal from the jurisdiction, transfer to nominees or any other way. - Elements to be proven under Section 10 (as clarified by authorities): 1. Existence of a written, oral, or implied arrangement. 2. The arrangement facilitates the retention or control of another’s terrorist property. 3. The perpetrator knew or should have known at the time the arrangement was made that the property constituted terrorist property. - Limitation: Requirement to prove all three elements prevents application of the provision to all situations required by the Vienna and Palermo Conventions (e.g., conversion or transfer for the purpose of disguising illicit origin would not be covered unless an arrangement can be established beyond reasonable doubt). ### Laundered property—definitions and scope (Sections 17A/22 CJA 1990, 46/57 DTA 1996, Section 6/75 ATCA 2003) - Sections 17A CJA 1990 and 46(2) DTA 1996 define “proceeds” as “any property which in whole or in part, directly or indirectly, represent...proceeds of criminal conduct”. - Sections 22 CJA 1990 and 57 DTA 1996 specify “property” includes money and all other property, real or personal, heritable or moveable, including things in action and other intangible or incorporeal property; held by a person who has an interest in it, including rights. Property includes all property, whether situated in the Island or elsewhere. - Section 6 ATCA 2003 defines “terrorist property” as any property which wholly or partly, directly or indirectly represents the proceeds of acts of terrorism, including payments or other rewards in connection with its commission. Section 75 ATCA 2003: “property” includes property wherever situated and whether real or personal, heritable or moveable, and things in action and other intangible or incorporeal property. - Finding: Money laundering offenses in CJA 1990/DTA 1996 and ATCA 2003 extend to any type of property, regardless of value, derived from or obtained, directly or indirectly, through commission of a criminal offense. ### Proving property is proceeds of crime (standard and practical issues) - Statutes do not require a conviction for a predicate offense to prove property constitutes proceeds of crime. - Law is silent on the standard of proof to establish illicit source, but authorities state it would have to be established “beyond a reasonable doubt” that property stems from a specific predicate offense. - Practical difficulty: Very difficult to satisfy “beyond a reasonable doubt” particularly for predicate offenses committed extraterritorially where evidence gathering depends on international cooperation. - Authorities: Difficulty in obtaining sufficient evidence to meet high standard is a main challenge in obtaining convictions for stand-alone money laundering, particularly for offenses committed abroad. ### Scope and listing of predicate offenses (coverage) - Money laundering offenses of CJA 1990 extend to offenses prescribed as predicate offenses and all offenses triable on information other than drug trafficking or ATCA 2003 offenses; to date, no offenses have been prescribed. - The source lists categories and corresponding statutes covering FATF-designated predicate offenses, including but not limited to: - Participation in an organized criminal group and racketeering: covered through “conspiracy” Section 330 Criminal Code 1872. - Terrorism, including terrorism financing: Sections 7, 8, 9, 10, 11, and 14 ATCA 2003. - Trafficking in human beings and migrant smuggling: Sections 25 Immigration Act 1971 applicable through Immigration (Isle of Man) Order 1991. - Sexual exploitation, including sexual exploitation of children: Sections 1-31 Sexual Offenses Act 1992. - Illicit trafficking in narcotic drugs and psychotropic substances: Sections 4, 5, 6, 8, 9, 11, 12, 13, 17, 18, 20, 23 Misuse of Drugs Act 1976. - Illicit arms trafficking: Section 47, 69 and 179 Customs and Excise Management Act 1986, Import of Goods (Control) Order 1954, Export of Goods (Control)(Application) Order 2004, and Trade in Controlled Goods (Control) Order 2004. - Illicit trafficking in stolen and other goods: Section 24 Theft Act 1981. - Corruption and bribery: Section 323 Criminal Code 1872, Sections 1, 2, 3, 6, 7 Corruption Act 2008. - Fraud: Sections 14, 15, 15A, 16, 17 and 23 Theft Act 1981. - Counterfeiting Currency: Sections 1, 2, and 3 Coinage Offenses Act 1980. - Counterfeiting and piracy of products: Section 106 Copyright Act 1991, Section 176 Customs and Excise Management Act 1986. - Environmental crime: Section 3 Water Pollution Act 1993. - Murder, grievous bodily injury: Sections 18-20 Criminal Code 1872. - Kidnapping, illegal restraining and hostage-taking: Sections 60B, 60C, 60D Criminal Code 1872. - Robbery or theft: Sections 7, 8, 9, 10, 11, 12 Theft Act 1982. - Smuggling: Sections 47(2) and (3), 69 (2), and 178 Customs and Excise Management Act 1986. - Extortion: Section 23 Theft Act 1981. - Forgery: Sections 2, 3, 4 and 5 Forgery Act 1952. - Piracy: Sections 2 and 4 Piracy Act 1837. - Insider trading and market manipulation: Section 1 Insider Dealing Act 1998. - Note: No statutory tax evasion offense exists; failure to submit a tax return or delivery of an untrue return is an offense under Section 108 Income Tax Act; tax evasion could constitute “false accounting” under Article 19 Theft Act 1981, but no such prosecutions have been taken. - Finding: All FATF-designated categories of predicate offenses are covered under IOM law as outlined. ### Threshold approach for predicate offenses (categorization and trial mode) - IOM differentiates between offenses triable on information and summary offenses; statutes indicate triability. - General rule: offenses punishable with more than six months constitute “offenses triable on information”; others are “summary offenses.” - Section 1(9)(c) CJA 1990: certain offenses designated by law (“prescribed offenses”) and all offenses triable on information (other than drug trafficking and terrorism offenses) constitute predicate offenses for money laundering. - Reference to “all offenses triable on information” extends to offenses that may be tried summarily pursuant to Schedule 2 Summary Jurisdiction Act 1989. - Practice: All charges for money laundering would be brought before the High Court as punishments are generally too high for summary court adjudication. ### Extraterritorial application (dual criminality) - All three statutes cover conduct that would have constituted a predicate offense had it occurred in the IOM (Sections 17A (7) CJA 1990, 1(1)(f) DTA 1996, 1(4)(a) ATCA 2003). - Dual criminality is not required. - No jurisdictional provisions require other links (citizenship, residence) as long as the laundering offense is committed in the IOM. ### Self-laundering - Sections 17C CJA 1990 and 45 DTA 1990 criminalize conceal, disguise, transfer, or convert criminal proceeds whether property stems from the person himself or another. - Acquisition, possession or use of proceeds is criminalized only if the property stems from another person’s criminal behavior and does not extend to self-laundering. - Section 2 Criminal Law Act 1981 principle “ne bis in idem” does not appear to prevent criminalization of self-laundering for acquisition, possession and use. - POCA 2008 (coming into force August 1, 2009) will introduce a self-laundering offense; to avoid violation of Section 3 Criminal Law Act 1981 the prosecution will have to choose whether to charge under the predicate offense or the self-laundering offense. ### Ancillary offenses and inchoate liability - Ancillary offenses are criminalized under Criminal Code 1872 general provisions. - Section 9 Criminal Law Act 1981: sanctions apply to completed and attempted crimes; attempt defined as overt act beyond mere preparation. - Conspiracy: Section 330 Criminal Code 1872; conspiracy to commit any offense punishable by up to ten years’ imprisonment. - Accessory liability and counseling/procuring: Sections 350 and 351 Criminal Code 1872; accused may be punished as if principal offender. - Finding: IOM law allows prosecution of all parties involved in money laundering. ### Additional element—overseas acts that would be predicate if domestic - All three statutes define money laundering to cover conduct that constitutes a predicate offense in the IOM or would have constituted a predicate offense had it occurred in the IOM (Sections 17A(7) CJA 1990, 1(1)(f) DTA 1996, 1(4)(a) ATCA 2003). Dual criminality is not required. *Source: excerpts from the provided IMF content unit.* ### 156. The three money laundering offenses as outlined above are offenses for which intent is ### _cr09278 - 156. The three money laundering offenses as outlined above are offenses for which intent is ### The mental element of money laundering offenses (paras 156–163) - Para 156: The three money laundering offenses require intent and therefore apply to persons who knowingly engage in the conduct in question. With respect to the property in question the required mental element varies depending on the actus reus. - Para 157: For concealing, disguising, converting or transferring of criminal proceeds, criminal liability can be established if the prosecution proves beyond a reasonable doubt that the person knew or objectively should have known that the property stems from the commission of a crime. - Para 158: For acquisition, possession, or use of criminal proceeds, the required mens rea is actual knowledge that the property in question constitutes criminal proceeds. - Para 159: For assisting another person to retain the benefit of crime, it suffices that the prosecution establish beyond a reasonable doubt that the perpetrator knew or suspected the counterparty was or had been engaged in criminal conduct. The prosecutor need not establish actual knowledge of the criminal source of the property, but the defendant has a defense and right to acquittal if he/she can establish by balance of probability that he did not actually have knowledge of the criminal nature of the property. - Para 160: For money laundering based on the predicate offense of terrorism or terrorism financing, ATCA 2003 does not expressly stipulate a mental element requirement with respect to the nature of the property but provides that the defendant has a defense if he/she can prove by a balance of probability that he did not know and objectively had no reasonable cause to suspect the arrangement related to terrorist property. - Para 161: At a minimum, a person may be held criminally liable for money laundering if he acted intentionally and with knowledge that the property involved stems from a criminal source. The Vienna and Palermo Conventions set a minimum standard that the perpetrator acts in the knowledge that the laundered property is the proceeds of crime. Intent as defined in IOM law therefore meets the international standard with respect to the mental element requirement. - Para 162–163: None of the three Acts clarify whether the mental element may be inferred from objective factual circumstances and no case law existed at the time of the onsite mission to clarify that point. However, the English common law principle permitting reasonable inferences from objective factual circumstances applies. For concealing, disguising, converting, or transferring, it is sufficient that the perpetrator objectively should have known the property constitutes proceeds of crime; the intentional element may be inferred from objective circumstances. ### Liability of legal persons and parallel proceedings (paras 164–165) - Para 164: Money laundering provisions of the CJA 1990, the DTA 1996, and the ATCA 2003 apply to any “person” without differentiating between legal and natural persons. The Interpretation Act 1976 defines “person” to cover any person, natural or legal. - Para 165: The language of the money laundering offenses does not preclude parallel criminal, civil, or administrative sanctions against legal entities. Authorities confirmed both criminal and civil/administrative proceedings could be instituted against legal persons at the same time; in practice, civil proceedings are more likely against the legal person and criminal proceedings against directors or managers. At the time of assessment no legal entity had been held criminally liable for money laundering in the IOM. ### Sanctions for money laundering (paras 166–169) - Para 166: Pursuant to Sections 17A (6), 17B (9), 17C (4) CJA 1990, Section 51(1) DTA 1996, and Section 10 ATCA 2003, sanctions for natural and legal persons convicted for money laundering are: - imprisonment for a term not exceeding six months or a fine not exceeding GBP 5,000 (on summary conviction), or - imprisonment for a term not exceeding 14 years or a fine or both (on conviction on information). - Para 167: For comparison, fraud and theft may be sanctioned with imprisonment of up to ten years, forgery with imprisonment of up to 14 years and counterfeiting with imprisonment for life. - Para 168: The IOM’s sanctions for money laundering are identical with those of the UK. - Para 169: Overall, the statutory sanctions for the money laundering offenses seem to be effective, proportionate and dissuasive. ### Analysis of effectiveness (paras 170–177) - Para 170: No complete and accurate official statistics on the overall number and nature of investigations and prosecutions, including cases subsequently dropped, are being maintained by the IOM authorities. - Para 171: FCU representatives estimated that since 2006 only about six STRs resulted in an investigation. - Para 172: Authorities stated that since 2003 four cases for general money laundering based on the CJA 1990 were investigated, all related to predicate offenses committed abroad and subsequently dropped due to difficulties obtaining necessary evidence to show proceeds constituted criminal proceeds. Two investigations discontinued in 2007 and two in 2008. Of the four investigations, two related to fraud, one to obtaining money by deception, and one to theft. - Para 173: At the time of assessment, four prosecutions for money laundering based on the CJA 1990 were ongoing. - Para 174: AG’s Office representatives stated that 16 charges for money laundering had been brought before IOM courts, all filed based on the DTA 1996 and related to drug trafficking predicate offenses: two cases in 2005, six in 2006, six in 2007, and two in 2008. Of the 16 cases, six resulted in convictions, five are still pending, and five resulted in acquittals. All convictions were additional to convictions for the predicate offense and the longest sanction imposed for the money laundering charge was two years. No convictions have been obtained for autonomous money laundering. - Para 175: At the time of assessment, charges had been brought in one case under the stand-alone money laundering provision of the CJA 1990 originating from an STR; it had not yet reached trial stage. - Para 176: The low number of STRs resulting in investigation and prosecution, the low number of convictions, lack of convictions for stand-alone money laundering, and relatively mild sanctions imposed by courts call into question effective implementation of the money laundering offense. Authorities explained that often subjects of STRs and alleged predicate offenses do not reside in the IOM and many predicate offenses occur outside the IOM, requiring dependence on other jurisdictions for evidence, which can be a lengthy process. IOM authorities have been active in sharing information with foreign counterparts. - Para 177: The financial services business in the IOM often involves funds received from abroad on behalf of nonresidents, making local prosecution difficult and sometimes leading to transferring cases to other jurisdictions. Assessors consider it important for the IOM to develop its own case law to: - establish that money laundering is a stand-alone offense prosecutable independently from the predicate offense; and - clarify the level of proof required to determine that proceeds are illicit and how specific evidence must be in relation to specific predicate offenses. ### Recommendations and comments (section 2.1.2) - Legislative amendments recommended: - Amend Articles 17C CJA 1990 and 45 DTA 1996 to: - provide for two alternative purposes for the acts of converting and transferring proceeds, namely to avoid prosecution for the predicate offense or to conceal the illicit origin of the funds, and; - eliminate the purpose requirement for the acts of converting and transferring proceeds of crime. - Eliminate the defense (payment of adequate consideration) in Sections 17B(3) CJA 1990 and 47(3) DTA 1996 as it is not provided for in the Vienna and Palermo Conventions and may be abused to avoid criminal liability for acquisition, possession, or use of criminal proceeds/proceeds. - Amend Section 10 ATCA 2003 to cover all material elements of the money laundering provisions of the Palermo and Vienna Conventions. - Amend the offenses of acquisition, possession, or use in the CJA 1990 and the DTA 1996 as well as the money laundering offense in ATCA 2003 to include criminal proceeds obtained through a predicate offense by the self-launderer. - Recommended actions for authorities: - (i) address any barriers to stand-alone ML prosecutions, including the level of proof needed to determine that property stems from the commission of a specific predicate offense; and - (ii) take steps to develop jurisprudence on autonomous money laundering to establish that ML is a standalone offense. ### Compliance and ratings (section 2.1.3) - R.1 — PC. Summary of factors underlying rating: - Articles 17C CJA 1990 and 45 DTA 1996 are not sufficiently wide to fully meet the international standard due to the purpose requirement for “concealing or disguising” and “converting or transferring” (purpose of avoiding prosecution). - The defenses (payment of adequate consideration) in Sections 17B(3) CJA 1990 and 47(3) DTA 1996 are not provided for in the Vienna and Palermo Conventions and may be abused to avoid criminal liability. - Section 10 ATCA 2003 does not cover all material elements of the money laundering provisions of the Palermo and Vienna Conventions. - The offenses of acquisition, possession, or use in the CJA 1990 and the DTA 1996 and the ATCA 2003 money laundering offense do not extend to self-laundering. - The low level of relevant domestic investigations and prosecutions calls into question the effectiveness of the ML offense. - R.2 — LC. Summary of factors underlying rating: - Statutory sanctions for money laundering are comprehensive, dissuasive and proportional, but the number of convictions and sentences actually imposed by courts appear rather low. - The stand-alone money laundering offense has not yet been tested before the courts, making it difficult to assess its effectiveness; the low number of investigations and prosecutions supports the conclusion that money laundering is not yet dealt with as a stand-alone offense. ### Criminalization of terrorist financing (SR.II) — legal framework and scope (paras 178–192) - Para 178: IOM law criminalizes financing of terrorism through ATCA 2003 Sections 6–9. - Para 179: IOM is a Crown Dependency and cannot sign or ratify international conventions in its own right; the UK is responsible for IOM’s international affairs and may arrange for extension of ratifications to the IOM. The UK’s ratification of the International Convention for the Suppression of the Financing of Terrorism (FT Convention) was extended to the IOM on September 25, 2008. - Para 180: Of 15 other international counter-terrorism related legal instruments, ten have been extended to the IOM: the Diplomatic Agents Convention, the Civil Aviation Convention, the Maritime Convention, the Fixed Platforms Protocol, the Convention on the Making of Plastic Explosives for the Purpose of Detection, the Hostage Taking Convention, the Unlawful Seizure Convention, the Aircraft Convention, the Airport Protocol, and the Nuclear Material Convention. - Para 181: ATCA 2003 Section 7 is the main terrorism financing offense: it criminalizes receiving or providing or inviting another to provide money or other property where the person either intends the property will be used or has reasonable grounds to suspect the property may be used for the purpose of terrorism. - Para 182: ATCA 2003 Section 8 criminalizes use of money or other property for terrorism purposes and possession where the person either intends to use it for terrorism or has reasonable cause to suspect it may be used for terrorism. - Para 183: ATCA 2003 Section 9 makes it an offense to enter into or become concerned in an arrangement that makes money or property available to another where the person knows or has reasonable cause to suspect it will or may be used for purposes of terrorism. - Para 184: ATCA 2003 Section 6 defines “terrorist property” to include money or other property likely to be used for terrorism, including money or property that is or will be made available for use by proscribed organizations, and proceeds of the commission of terrorist acts and acts carried out for the purpose of terrorism. Section 75 specifies that “property” includes property wherever situated and whether real or personal, heritable or moveable, and things in action and other intangible or incorporeal property. - Para 185: The international standard requires the terrorist financing offense extend to any person who provides or collects funds by any means, directly or indirectly, with the intention that they be used for terrorist acts, by a terrorist organization or by an individual terrorist. - Paras 186–191 (terrorist acts): - Para 186: ATCA 2003 Section 1 defines “terrorism” by three criteria: (1) the act involves serious violence against a person or property, endangers a person’s life other than that of the person committing the act, creates a serious risk to the health or safety of the public or a section thereof, or is designed to interfere with or seriously disrupt an electronic system; and (2) the use or threat is designed to influence a government or to intimidate the public or a section thereof; and (3) for the purpose of advancing a political, religious or ideological cause. If acts involve firearms or explosives and are committed for the purpose of advancing a political, religious, or ideological cause, it is terrorism regardless of requirement (2). - Para 187: FATF standard defines “terrorist acts” to include (1) offenses in the nine Conventions and Protocols listed in the Annex to the FT Convention and (2) any other act intended to cause death or serious bodily injury to a civilian or other person not taking an active part in hostilities, when the purpose is to intimidate a population or compel a Government or international organization to act or abstain. - Para 188: ATCA 2003 Section 1 covers all but one aspect of the FATF definition: FATF includes acts designed to intimidate an international organization; ATCA 2003 does not reference international organizations. - Para 189: ATCA 2003 requires acts/threats to be undertaken with intent to advance a political, religious, or ideological cause; this additional element may be deliberate to avoid unintended application, but authorities should assess its domestic advantage and ensure ability to prosecute factual settings contemplated by the Convention is not negatively impacted. - Para 190: ATCA 2003 Section 1 does not expressly refer to offenses defined in the nine Conventions and Protocols; to meet the international standard the generic terrorism offense must be broad enough to cover them. Some offenses in those instruments do not require use or threat of violence (e.g., the Nuclear Material Convention criminalizes possession of nuclear material if mental element met). - Para 191: In practice, the scope of ATCA 2003 may cover many but does not extend to all “terrorist acts” as defined in the FATF standard. - Para 192 (terrorist organizations): ATCA 2003 Section 1(5) includes action taken for the benefit of a proscribed terrorist organization. Sections 7–9 therefore apply to provision or collection of funds for benefit of proscribed organizations (proscribed if listed in Schedule 2 to the Terrorism Act 2000). ATCA does not provide a definition of “terrorist organization”. *Source: Provided IMF assessment text (paras 156–192) from the content unit.* ### 193. To some extent ATCA 2003 Section 7 also applies to situations where a person collects or ### _cr09278 - 193. To some extent ATCA 2003 Section 7 also applies to situations where a person collects or ### Terrorism financing framework and scope (ATCA 2003) - Sections 7–9 ATCA 2003 extend to situations where a person collects or provides funds that he/she has reasonable cause to suspect may be used for terrorism. - If a person funds a terrorist organization not “proscribed” by Parliament, it is assumed that he/she has reasonable cause to suspect that the money may be used for terrorism and may therefore be held criminally liable for terrorism financing. - The terrorism financing provisions have never been tested before the courts; it is not established in what circumstances property is considered to be “used for terrorism”. - It is unclear whether financing that relates to costs of living, education expenses, or similar expenses could be prosecuted under the cited provisions. ### Financing of individual terrorists - ATCA 2003 does not expressly criminalize the financing of individual terrorists nor define “terrorist”. - Authorities indicate that in the IOM, if a person provides funds to an individual terrorist, he/she would be assumed to have reasonable cause to suspect the money “may” be used for terrorism and could therefore be held criminally liable for terrorism financing. - The standard of “reasonable cause to suspect” that funds “may” be used for terrorism is a relatively low one. - It is not clear that provision of living and private expenses to an individual terrorist would be covered as interpreted by a court; the statutory language does not set forth the assumption, and evidence could be adduced to rebut it. There is no jurisprudence. - Provision of any funding to such individuals is a criminal offense under: - Al-Qa’ida and Taliban (UN Measures) (Isle of Man) Order 2002, and - Terrorism (UN Measures)(Isle of Man) Order 2001. - The latter Orders apply to individuals and entities designated pursuant to UN Resolution 1373, extend to any person within the IOM and any British citizen elsewhere ordinarily residing in the IOM, and to bodies corporate established under IOM law. - With these Orders and the possibility that funding would also be captured by Sections 7–9 ATCA 2003, IOM has clear avenues to impose criminal liability for funding living and private expenses of individual terrorists. ### Definition and coverage of “provision of money” and “property” - ATCA 2003 Section 7(4): reference to the “provision of money” includes money or other property given, lent or otherwise being made available, whether or not for consideration. - Section 75: “property” extends to property wherever situated, whether real or personal, heritable or moveable, and things in action and other intangible or incorporeal property. - The language is not limited to property that stems from illegitimate sources; authorities confirmed terrorism property as defined in Section 6 in connection with Section 75 ATCA would extend to property from illegal as well as legitimate sources. ### Requirement on use and mental element - Terrorism financing provisions do not require that the funds be actually used to carry out or attempt commission of a terrorist act, nor that funds be linked to a specific terrorist act. - It is sufficient that the funds are intended for use in the commission of a terrorist act or that the financer has reasonable cause to believe they will be used for terrorism or for the benefit of a proscribed terrorist organization. - ATCA 2003 requires that the perpetrator either: - knows or intends that the funds are being used for a terrorist act, or - has reasonable cause to believe that they may be used for terrorism purposes, including for the benefit of proscribed terrorist organizations. - ATCA 2003 does not expressly provide that intent may be inferred from objective factual circumstances; however, the English common law principle allowing reasonable inferences from objective factual circumstances applies. ### Ancillary offenses, attempts, conspiracy, and accessory liability - ATCA 2003 does not define ancillary offenses for terrorist financing, but general provisions of the Criminal Code 1872 apply with respect to the terrorism financing offense. - Criminal Law Act 1981 Section 9: sanctions for an offense apply to completed and attempted crimes; a crime is attempted if the perpetrator carries out an overt act that goes beyond mere preparation. - Criminal Code 1872 Section 330: conspiracy — if two or more persons conspire to commit any offense, they may be punished with imprisonment for a term not exceeding ten years. - Criminal Code 1872 Sections 350 and 351: liability for accessory before the fact or for counselling, procuring, or commanding another to commit any felony; accused may be punished as if principal offender. - IOM law allows prosecution of all parties involved in commission of a terrorism financing offense. ### Jurisdiction for terrorist financing offense - ATCA 2003 Section 49: a person may be held criminally liable for acts committed outside the IOM that would have constituted a terrorist offense under ATCA 2003 Sections 7–10 had they been committed in the IOM. - “Action” includes any action outside the island; “the public” extends to the public of the IOM and of countries or territories other than the IOM; “the government” refers to the government of the IOM, of the UK, or of any other country or territory. - Terrorist financing offenses apply regardless of whether the alleged perpetrator is in the same or a different country from the terrorist or terrorist organization or the terrorist act. - No jurisdictional provisions require links such as citizenship or residence. ### Liability of legal persons - ATCA 2003 terrorism financing offenses apply to any “person” without differentiating between legal and natural persons; Section 1(4)(b) provides reference extends to any person, wherever situated. - Interpretation Act 1976 (applies to Acts after May 1949) defines “person” to cover any person, natural or legal. - Language suggests criminal liability of legal persons would not preclude parallel criminal, civil, or administrative sanctions against legal entities; authorities confirmed both criminal and civil/administrative proceedings could be instituted against legal persons simultaneously. - In practice, authorities indicated it would be more likely to institute civil proceedings against the legal person and criminal proceedings against directors or managers. - At time of assessment no legal entity has been held criminally liable for FT. ### Sanctions for terrorist financing - Upon conviction: imprisonment for a term of up to 14 years or a fine or both. - Upon summary conviction: imprisonment for a term of up to six months or a fine of up to GBP5,000 or both. - IOM’s sanctions for terrorist financing are identical to those of UK. - There has never been a conviction for FT in the IOM; no sanctions have ever been imposed. ### Analysis of effectiveness - There have been no investigations or prosecutions relating to FT; the FT offense has never been tested before the courts. ### Recommendations and comments (2.2.2) - Amend Article 1 ATCA 2003 to include a reference not only to governments but also to international organizations. - Amend the definition of “terrorism” in Section 1 ATCA 2003 to extend to all terrorism offenses as defined in the nine Conventions and Protocols listed in the Annex to the FT Convention. - Consider the impact of including in the FT offense “intention of advancing a political, religious, or ideological cause” on the IOM’s ability to successfully prosecute in factual settings contemplated by the FT Convention. ### Compliance summary with Special Recommendation II (SR.II) - Rating: LC - Factors underlying rating: - Article 1 ATCA 2003 does not contain a reference to international organizations. - The definition of “terrorism” in Section 1 ATCA 2003 does not extend to all terrorism offenses as defined in the nine Conventions and Protocols listed in the Annex to the FT Convention. --- ### Confiscation, freezing and seizing of proceeds of crime (R.3) — Legal framework - No overarching statutory instrument covers all instances of seizure and confiscation of criminal assets; relevant provisions are found in: - DTA 1996 (confiscation and seizing of the proceeds of drug trafficking offenses), - CJA 1990 (confiscation and seizing of the proceeds of all other offenses), and - ATCA 2003 (freezing and forfeiture of terrorism related assets). - POCA 2008 Part 1 (in effect October 22, 2008) introduced a civil recovery procedure. - POCA 2008 Part 2 (to come into force in August 2009) will stream-line and update legislation, provide criminal confiscation and restraint measures replacing separate drug trafficking and criminal justice legislation, but leave separate rules for terrorist assets untouched. ### Confiscation of property related to ML, FT or other predicate offenses - Laundered property: - No general provision explicitly covers confiscation of laundered assets as the object of a stand-alone ML prosecution; argument exists that CJA 1990 and DTA 1996 implicitly provide for value-based confiscation of the object of the offense but this is a matter of debate and untested in stand-alone ML prosecutions. - Proceeds — general regime (CJA 1990 Part 1): - Confiscation order issued by Summary or High Court upon conviction, ordering defendant to pay a sum “as the court thinks fit”. - Offender must be found guilty of a prescribed offense (prescribed by order of the DHA) or another offense, except drug trafficking under DTA 1996 or an offense under ATCA 2003. - Court must be satisfied offender has benefited from that offense or from that offense together with any other offense for which he is convicted in the same proceedings. - “Benefiting from crime” defined as obtaining property or a pecuniary advantage as a result of or in connection with the commission of the offense; the benefit is the value of the property so obtained (CJA 1990 Sections 1(4) and (5)). - Confiscation order made on written application of the prosecutor; court assesses benefit and orders payment equal to that benefit or an amount estimated to be realizable at time of order (CJA 1990 Section 1(6)). - If payment not made, High Court may appoint and empower a receiver to realize realizable property. - CJA 1990 Section 4 details assessment of realizable property: property held by defendant at time of order plus value of all gifts/transfers for significantly low value after the offense, minus debts from priority obligations. - Drugs (DTA 1996): - Confiscation regime similar to CJA 1990; possibility of confiscation of benefits upon conviction for drug trafficking on prosecutor application. - Under certain conditions, property transferred to offender within six years before institution of criminal proceedings should be taken into account (S4(3)(a)(ii)). - Non-compliance with confiscation orders can be sanctioned by imprisonment with a maximum of 10 years. ### Terrorism-specific forfeiture and instrumentality rules - ATCA 2003 Section 16: possibility of making forfeiture orders upon conviction for terrorism offenses (ATCA Sections 7 to 10). - Forfeiture relates to money and other property the offender possessed or controlled at the time of the offense (fund raising and money laundering offenses) with intention to be used for terrorism or where he had reasonable cause to suspect use for that purpose. - Payments and rewards in connection with terrorism offenses are also subject to forfeiture. - Forfeiture orders at court’s discretion; do not require a prior application by the prosecutor. - ATCA 2003 Schedule 2 provides details and provides for appointment of a receiver to take possession of and realize forfeited property. - Instrumentalities — general: - Criminal Law Act 1981 Section 16: power to forfeit any property used or intended to be used for criminal purposes by a person convicted of the offense, if in his possession or under his control at apprehension or summons; property taken into police possession irrespective of prior seizure. - Forfeiture under this Act applies to all crimes, including drug trafficking and terrorism. - Drugs: - Misuse of Drugs Act 1976 Section 27: upon conviction, Court may forfeit anything shown to relate to the drug offense, to be destroyed or otherwise dealt with as the court orders. - Terrorism: - In addition to Criminal Law Act 1981, ATCA 2003 Sections 16(2)(b) and (3)(b) forfeit all property intended to be used for terrorism purposes (including raising funds and financing terrorism). ### Equivalent value and relation between regimes - CJA 1990 and DTA 1996 confiscation regimes are essentially equivalent value based: payment of a sum reflecting value of proceeds; executed on offender’s assets (“realizable property”) regardless of relation to the offense. - ATCA 2003 forfeiture targets money and other property related to the terrorism offense and in possession or under control of offender when he committed the offense; ATCA 2003 contains no reference to equivalent value confiscation and DTA 1996 or CJA 1990 value confiscation rules do not apply to ATCA 2003 situations. ### Proceeds of Crime Act 2008 (POCA 2008) - Part 1 (effect from October 22, 2008): civil recovery procedure, balance of probability evidence rule, no requirement for previous conviction; property being or representing proceeds from unlawful conduct could be forfeited by High Court; cash representing criminal proceeds or intended to be used in unlawful conduct could be forfeited in civil proceedings before a Summary Court. - Part 2 (effective date for remaining provisions: August 1, 2009): covers confiscation and restraint for all other crimes except those covered by ATCA 2003; Section 66 deals with making confiscation orders, including criminal lifestyle determination, benefit from general criminal conduct or particular criminal conduct, determination of recoverable amount, and ordering payment of recoverable amount. - POCA 2008 Sections 66–73: determination of recoverable amount, defendant’s benefit, and available amount. - POCA 2008 Sections 74–78: procedural matters for confiscation orders. - Sections 79–86: reconsideration; 87–88: where defendant absconds; 89–90: variation and discharge; 91–92: appeals; 93–95: enforcement; 103–117: appointment, powers and procedure regarding management and enforcement receivers. - POCA 2008 Section 215: provides for making of secondary legislation to enable enforcement of confiscation orders made outside the IOM in the IOM. - POCA 2008 is being brought into force in stages by Regulation; existing DTA 1996 and CJA 1990 provisions on restraint and confiscation are being repealed. Previous legislation continues to be used until new secondary legislation is in force to ensure seamless transition. *Source: _cr09278 - excerpt from IMF country report PDF* ### 227. The POCA 2008 does not deal with the forfeiture of the instrumentalities. The existing ### _cr09278 - 227. The POCA 2008 does not deal with the forfeiture of the instrumentalities. The existing ### Confiscation of Property Derived from Proceeds of Crime (c. 3.1.1 applying c. 3.1) - Confiscation under CJA 1990 and DTA 1996 is value based: criminal proceeds are not confiscated as such; courts calculate total value of benefits gained from criminal conduct, including substitute assets, investment yields and other profits. - It does not matter if proceeds are held by the offender or by a third party. - If no voluntary payment follows, the Court may appoint a receiver to execute the order on the offender’s realizable property. - “Realizable property” defined as “any property held by the defendant and any property held by a person to whom the defendant has directly or indirectly made a gift caught by this Act”. - Proceeds of FT offenses subject to forfeiture under ATCA 2003 Section 16 are defined in Section 6 as property wholly or partly and directly or indirectly representing the proceeds of terrorism related activity; definition covers payments and other rewards and immediate and derived benefits. - Forfeiture of instrumentalities relates to identified objects, whether or not the property of the offender. - Rights of bona fide third parties are addressed in the report’s analysis of Recommendation 3. ### Proceeds of Crime Act 2008 (POCA 2008) — definitions and scope - POCA 2008 civil recovery definition (Section 3): property represents criminal proceeds if “obtained by or in return for the conduct” — language not explicit on indirect proceeds. - Court’s benefit assessment comprises value of all property which the Court considers the defendant has acquired as a benefit of crime; benefit not limited to direct proceeds. - POCA Part 4 duplicates and extends production order provisions of DTA 1996 and CJA 1990; POCA 2008 adds search and seizure warrants, disclosure orders, customer information orders and account monitoring orders. - POCA 2008 Section 97 (in force from August 1, 2009) empowers the Court to make a “restraint order” prohibiting dealing with realizable property, applied to all realizable property held by a specified person and transfers after the order; restraint order may allow reasonable living and legal expenses but disallows legal expenses in connection with the offense for which the order is sought. - POCA 2008 Section 96 lowers the threshold for restraint orders, allowing an order once an investigation has been started rather than requiring instituted proceedings and reasonable cause to believe the alleged offender benefited from criminal conduct. - POCA 2008 Section 98 mirrors ex-parte application provisions and Section 69 addresses rights of secured creditors in deciding recoverable amount; POCA 2008 Section 106(8) and Section 98(2)(b) provide procedural safeguards for persons holding interests and for appealing restraint orders (Section 99(2)(b)). ### Provisional Measures to Prevent Dealing in Property subject to Confiscation (c. 3.2) - Police general power of seizure at investigation stage based on reasonable grounds that items are product of crime (“obtained in consequence of the commission of an offense”) or have evidentiary value (PPPA 1998 Section 22). - Police cannot seize assets unrelated to the offense under PPPA 1998 (no equivalent value seizure under PPPA 1998). - Conservatory measures: CJA 1990 Sections 6 and 7 restraint orders prohibit dealing with realizable property; can only be issued if criminal proceedings have been instituted for an offense to which CJA 1990 applies and confiscation proceedings have not been concluded and either a confiscation order has been made or the court expects a confiscation order may be made. - DTA 1996 Sections 25 and 26 follow same line and allow consideration of new elements (Sections 13 to 16 and 19). - ATCA 2003 Schedule 3, part 2: special procedure for seizure/detention of “terrorist cash” and financial instruments convertible into cash — authorized officer may seize for 48 hours, after which High Bailiff order required to detain cash for three months to two years. - Restraint orders under ATCA 2003 Schedule 2.5(1) and (2) may be issued provided criminal proceedings or investigations initiated. - Equivalent value seizure: CJA 1990 and DTA 1996 restraint orders cover assets unrelated to the offense in preparation of value-based confiscation; unclear if equivalent value conservatory measures are available under ATCA 2003. - POCA 2008 Section 97 (effective August 1, 2009) remedies prior restriction by allowing restraint orders once an investigation has started. ### Ex Parte Application for Provisional Measures (c. 3.3) - DTA 1996 and CJA 1990 allow initial applications to freeze or seize property ex-parte by prosecutor to a Deemster in chambers; notice given to persons affected once order made. - ATCA 2003 Schedule 2.5(4) allows application “in private without notice”. - POCA 2008 Section 98 mirrors these provisions. ### Identification and Tracing of Property subject to Confiscation (c. 3.4) - FCU/FIU plays first and important role as receiving agency of suspicious transaction reports under AML/CFT rules. - Police investigative powers include: - Requesting production orders: DTA 1996 Section 52 or CJA 1990 Section 17J. - Applying immediately for search warrants if necessary. - Using PPPA 1998 (Sections 11 and 12, Schedule 1) to seek judge authorization to enter and search premises for serious arrestable offenses (including terrorism financing per Schedule 2 of PPPA 1998) where material likely of substantial value to investigation. - Special procedure for “serious or complex fraud”: CJA 1990 Section 24 empowers AG to require persons with relevant information to attend and answer questions and furnish information; discretionary power subject to judicial review. - POCA Part 4 allows production orders in civil recovery and contains additional powers (search and seizure warrants, disclosure orders, customer information orders, account monitoring orders); CJA 1990 Section 24 and PPPA 1998 remain unchanged. ### Protection of Bona Fide Third Parties (c. 3.5) - CJA 1990 and DTA 1996 account for creditors and bona fide third parties in valuing realizable property: “amount that might be realized” = total value of property less obligations having priority; market value less value of other persons’ interest (DTA Sections 6 and 7; CJA 1990 Section 4). - Bona fide third parties may make representations where receiver empowerment is sought (DTA 1996 Section 29(8); CJA 1990 Section 10(8)). - Third parties affected by restraint orders may apply to discharge or vary restraint (DTA 1996 Section 26(10); CJA 1990 Section 7(7)). - ATCA Section 16(7) provides innocent third party protection in forfeiture context. - Forfeiture of instrumentalities under CLA 1981 can be challenged by third parties under CLA 1981 Sections 16(4)(b). - General right to apply to High Court with a Petition of Doleance for judicial review against confiscation/forfeiture measures. - POCA 2008 mirrors secured creditor provisions (Section 69) and requires reasonable opportunity for persons holding interests before conferring receiver powers (Section 106(8)); restraint relief and appeal rights provided (Section 98(2)(b); Section 99(2)(b)). ### Power to Void Actions (c. 3.6) - Actions intended to willfully obstruct effective confiscation/forfeiture (aiding and abetting money laundering) are criminal offenses and give cause to prosecution; such contracts/agreements not taken into account in confiscation/forfeiture decisions. - Courts have wide powers to void any action that would undermine the value of realizable property in the context of receiver proceedings. ### Analysis — strengths and issues - Overall legal framework generally solid and comprehensive; CJA 1990, DTA 1996 and, since October 22, 2008, POCA 2008 provide a value-based confiscation regime capturing benefits gained from criminal conduct. - Benefit assessment procedure is detailed and considers necessary factors; ATCA 2003 focuses appropriately on deprivation of assets related to FT. - Identified issues needing review for compliance with international standards: - Deficiencies in criminalization of ML and FT may affect criminal conviction-based confiscation and forfeiture. - “Corpus delicti” confiscation of laundered assets is untested and application doubtful: proving money laundering may not require conviction of predicate offense, but jurisdictional issue exists — court judges money laundering conduct and confiscation of benefits of that conduct, not benefits from predicate offense; court’s authority to pronounce on benefits of predicate conduct is subject to challenge. - Equivalent value seizure not fully covered in all circumstances: CJA 1990 Section 6 and DTA 1996 Section 25 restraint orders only when proceedings instituted, allowing defendants to dispose of assets once alerted; POCA 2008 Section 96 (effective August 1, 2009) remedies this. - IMF 2002/03 assessment noted equivalent value confiscation in FT context not covered; issue unresolved under ATCA 2003 where forfeiture requires property represent proceeds of the offense (ATCA 2003 Section 6 (2)(a)) and Section 16 requires assets be supposed to be used for terrorism — may impose need to establish concrete link. - ATCA 2003 Schedule 2.3(3) appears to require forfeited assets to have specific connection to the offense, limiting receiver liability protection and complicating equivalent value application. ### Effectiveness - Statistical data 1997 to 2003: 113 drug related confiscation orders (ranging from two to 44 per year). - Partial statistics for 2008 (up to June): seven confiscation orders issued. - Recovery shortfall: assessed benefit vs amount actually recovered — no confiscation order fully or substantially realized. - Highest recovery percentage typically around 30 percent (one exception of some 50 percent). - Lowest recovery percentage around 0.01 percent. - Timely immobilization/freezing of assets identified as crucial to increase recovery effectiveness. - POCA 2008 civil recovery introduction effective August 1, 2009 may increase effectiveness. - Statistics on domestic restraints and confiscations are partial and insufficient for comprehensive performance assessment. ### Recommendations and Comments (2.3.2) - Amend law to address deficiencies affecting the scope of ML and FT offenses to improve criminal confiscation regime quality. - Amend law to: - allow equivalent value seizure at any stage of the investigation; and - address in ATCA 2003 the issue of equivalent value confiscation in the context of FT-related assets. - Develop case law on stand-alone money laundering confiscations. - Address low effectiveness of current asset recovery measures by focusing on timely tracing and immobilization of recoverable or realizable assets. ### Compliance with Recommendation 3 (2.3.3) - Rating: R.3 PC - Factors underlying rating: - Deficiencies in ML and FT criminalization impact on scope of criminal confiscation. - Confiscation of laundered assets might not succeed in stand-alone ML cases. - At time of assessment, no equivalent value seizure possible before start of proceedings. - For FT, barriers to application of equivalent value confiscation and seizure. - Overall effectiveness of confiscation measures needs improvement. *Source: Excerpt from assessment text in PDF content unit _cr09278.* ### 259. Specific legislation on freezing suspected terrorist assets is found in the Al-Qa’ida and ### Specific legislation on freezing suspected terrorist assets is found in the Al-Qa’ida and ### Legislation and legal measures - Primary statutory instruments: - Al-Qa’ida and Taliban (United Nations Measures) (Isle of Man) Order 2002 (SI 2002 N° 259) - Terrorism (United Nations Measures) (Isle of Man) Order 2001 (SI 2001 No. 3364) - European Communities (Terrorism Measures) Order 2002 (SD 111/02) - European Communities (Al-Qaida and Taliban Sanctions) (Application) Order 2002 (SD 444/02) - ATCA 2003 provides criminal and administrative measures aimed at restraining terrorist-related assets in whatever form, including: - Criminal seizure and forfeiture provisions covering investigating and judicial phases. - Administrative freezing measures taken by the Treasury under ATCA Sections 50 to 55 (preventive, pre-investigative; fall under scope of SRIII). ### Freezing assets under UNSCR 1267 (c. III.1) - Enforcement instrument in the IOM: - Al-Qa’ida and Taliban (United Nations Measures) (Isle of Man) Order 2002 [SI 2002 N° 259], extended to the IOM (Section 1(3)). - Prohibits supply/delivery of "restricted goods" to designated persons and makes it an offense to make any funds available to or for the benefit of a designated person. - Article 8 provides for freezing of funds where the Treasury has reasonable grounds to suspect they are held or under control of a designated person. - EC compliance: - IOM applies EC Council Regulation 881/2002 of May 27, 2002, via European Communities (Al-Qaida and Taliban Sanctions) (Application) Order 2002 [SD 444/02] using European Communities (Isle of Man) Act 1973 powers. - EC Regulation 881/2002 requires member states to implement measures to freeze funds or other assets of designated persons. ### Freezing assets under S/Res/1373 (c. III.2) - Enforcement instrument in the IOM: - Terrorism (United Nations Measures) (Isle of Man) Order 2001 [SI 2001 No. 3364], extended to the IOM (Article 1(4)), installs a freezing regime; Article 6 gives the (UK) Treasury the right to issue notices freezing any funds held by, for, or on behalf of a suspected terrorist or associated person. - EC compliance: - IOM applies EC Council Regulation 2580/2001/EC of December 27, 2001, via European Communities (Terrorism Measures) Order 2002 [SD 111/02] using European Communities (Isle of Man) Act 1973 powers. - Regulation 2580/2001 requires member states to implement measures to freeze terrorist funds or other assets and to give effect to requests from other countries to freeze funds or assets in their jurisdiction. ### ATCA Section 50 and domestic freezing regime - ATCA 2003 Section 50 empowers the IOM Treasury to make a freezing order without court application when it reasonably believes a foreign person or government presents a threat to: - the life or property of IOM and UK residents, and - the IOM or UK economy. - A Section 50 freezing order prohibits making funds available to or for the benefit of persons specified and can be issued to comply with UNSCR 1267 and UNSCR 1373 obligations. - Procedure: - A Protocol by Customs and Excise Division (adopted October 2008) makes the Sanctions Officer in Customs and Excise responsible for coordinating consideration of Section 50 orders. - Domestic listing: - IOM Treasury has not issued its own list of suspected terrorists; IOM lists are kept in line with UK designations. - Designations would be drafted in consultation with the UK and likely based on information from the FIU or other law enforcement bodies. ### Freezing actions based on foreign lists and limitations (c. III.3–III.4) - IOM has not incorporated foreign terrorist lists directly into domestic freezing regime except via EC Regulation and UK list; foreign designations may be considered voluntarily by industry (example: US OFAC list). - No statutory procedure exists to incorporate another jurisdiction’s list into the IOM freezing mechanism; Terrorism (United Nations Measures) (Isle of Man) Order 2001 is silent on this. - ATCA Section 50 may act as central authority for processing such requests, but conditions are restrictive: - Targets only foreign persons and governments; - Excludes any listing where there is no threat to the IOM and UK economy or to life/property of IOM or UK nationals or residents. - Definitions: - ATCA 2003 lacks detailed definition of funds other than “money or other property” and “financial assets and economic benefits of any kind” (Section 51(6)). - Special statutes and EC Regulations define funds subject to freezing (Article 2 of Orders, Article 1 of EC Regulations), but do not expressly refer to assets “jointly” and “indirectly owned or controlled” by designated persons. Derivatives (interests, dividends, etc.) are covered. ### Communication, guidance, and industry dissemination (c. III.5–III.6) - Dissemination: - UN, UK and EU lists are disseminated by IOM Customs and Excise via Public Notices and publication on government and Customs and Excise websites. - Changes are communicated through Weekly Circular to Customs and Excise staff and forwarded to FSC, IPA, AG’s Chambers, DHA, and other departments. - FSC and IPA place notices of list changes on their websites; Public Notices available to non-regulated entities (real estate agents, high value dealers). - Timing: - News releases are normally issued no later than the day following notification by HM Treasury of changes. - Guidance: - Customs and Excise provided guidance in Sanctions Notice 22 and dissemination is done through regulators’ websites. ### De-listing, unfreezing, access, and review procedures (c. III.7–III.10) - De-listing and unfreezing under ATCA and Orders: - ATCA 2003 does not specifically provide for withdrawing/cancelling a Section 50 freezing order; Section 28 of the Interpretation Act 1976 (power to make public document) is relevant for amending or revoking such documents. - Terrorism (United Nations Measures) (Isle of Man) Order 2001 Section 6(7) provides a formal challenge procedure against direction of designation by the Treasury “in the same manner as the review of a direction under the Banking Act 1998” (subsequently replaced by FSA 2008 Section 32 providing for the Financial Services Tribunal to consider appeals). - Transitional application: until rules under Section 8 of the Tribunals Act 2006 come into effect, Financial Services Review Regulations 2001 apply to an appeal under Section 32 of the FSA 2008 (Article 8 of the Financial Services Act 2008 (Appointed Day) Order 2008). - Practice: - The review request/procedure has not been applied in the IOM; de-listing and unfreezing decisions in the UK are automatically followed in the IOM. - IOM authorities do not intervene in requests to the UN Sanctions Committee to de-list under UNSCR 1267; IOM liaises with UK authorities on such actions. - Note: Details of how to apply to the relevant UN department for delisting from UN-derived sanctions lists were added in March 2009 to all relevant Sanctions Notices issued by Customs and Excise. - Unfreezing for humanitarian/basic expenses (c. III.9): - Access can be provided for humanitarian purposes and basic expenses if a license or authorization is granted by the Treasury under: - Terrorism (United Nations Measures) (Isle of Man) Order 2001 Article 14; - EC Regulation 2580/2001, as applied in the IOM; - ATCA 2003 (Section 4 of Schedule 9). - No provision exists for access to assets frozen as a result of UNSCR 1267. - Judicial and common-law remedies (c. III.10): - No specific ATCA remedies for appeal to court; common law remedy of Petition of Doleance exists to challenge Treasury reasonableness before the High Court of Justice of the IOM. - Court cannot overturn the decision but can remit to Treasury with guidance and can award damages. ### Enforcement, penalties, protection of third parties, and complementary measures (c. III.11–III.13) - Criminal and regulatory penalties: - Non-compliance with ATCA 2003 freezing orders constitutes an offense under Section 6 of Schedule 9, punishable by custody up to two years. - UN Orders 2001 and 2002 provide penalties that may run to seven years custody. - Sanctions for breaches of EC Regulations 2580/2001 and 881/2002 as applied in the IOM must be determined by each Member State; European Communities (Terrorism Measures)(Enforcement) Regulations 2008 [SD 941/081] and European Communities (Al-Qaida and Taliban Sanctions)(Enforcement) Regulations 2008 [SD 942/081], effective November 28, 2008, create offenses and penalties making breaches punishable by custody for up to two years. - Regulatory measures: - Regulatory authorities (FSC, IPA, DHA) can apply sanctions up to revocation of a license; noncompliance could lead to criminal prosecution for FT. - Protection of bona fide third parties: - Can be addressed in freezing orders under ATCA 2003 Section 50 (licensing and authorization possibilities under UN/EC orders and ATCA Schedule 9). - Possibility to apply for review by the Review Committee and to seek remedy via Petition of Doleance. ### Analysis and effectiveness - Institutional linkage: - Implementation of UNSCRs 1267 and 1373 and EC Regulations is closely linked to the UK; all UK lists become automatically incorporated in the IOM freezing regime, and IOM has limited input on designations, delisting, and unfreezing decisions. - Gaps and limitations: - ATCA Part VII provides domestic listing/freezing but is insufficient for a comprehensive preventive, pre-investigative approach required by international standards. - ATCA Section 50 applies only to foreign persons or governments presenting a threat to IOM/UK interests and excludes IOM or UK suspects; implications of these restrictions are unclear. - Key formal issues remaining (listed in analysis and recommendations): - No formal procedure to receive and assess requests based on foreign freezing lists (UNSCR 1373 requirement). - Definition of “funds” does not cover assets “jointly” or “indirectly” owned or controlled. - No procedure for considering de-listing or unfreezing requests in the context of EC Regulations. - No procedure or provision enabling access to UNSCR 1267 frozen funds for humanitarian purposes or basic expenses. - Effectiveness evidence: - Assets of a designated person were frozen in a bank account for an amount of GBP 72,924 in 2007 (all in the same case). - Another case was reported to the FCU in the form of an STR, as there were no more assets to be frozen. - These figures indicate a certain level of awareness and compliance by the industry. - Overall assessment: - Obligations imposed by supranational bodies have received an adequate, if not fully comprehensive, response from IOM authorities. - System needs completion with adequate measures, especially in protection of basic interests and rights of persons affected by listings; other deficiencies are mostly technical. ### Recommendations and comments (2.4.2) - Put in place a formal procedure governing the receipt and assessment of requests based on foreign freezing lists, as required by UNSCR 1373. - Amend the legal framework implementing the UN Resolutions and EC Regulations to expressly extend the definition of ‘funds’ subject to freezing to cover assets ‘jointly’ or ‘indirectly’ owned or controlled by the relevant persons. - Amend the legal framework for the implementation of the EC Regulations to provide a procedure for considering requests for delisting or unfreezing. - Provide for and publicize a clear procedure enabling access to UNSCR 1267 frozen funds for humanitarian purposes and to cover basic expenses. ### Compliance with Special Recommendation III (rating summary) - SR.III: PC - Factors underlying rating: - No procedure in place to respond to and examine foreign freezing requests. - Definition of “funds” does not cover the ‘jointly’ and ‘indirectly’ owned or controlled assets. - No delisting or unfreezing procedure provided in the context of the EC Regulation lists. - No access provided to UNSCR 1267 frozen assets for humanitarian reasons and basic expenses. *Source: IMF country report text on freezing suspected terrorist assets (excerpts as provided).* ### 291. The legal basis for the reporting regime is currently found in CJA 1990 Sections 17A(3) and ### _cr09278 - 291. The legal basis for the reporting regime is currently found in CJA 1990 Sections 17A(3) and ### Legal basis and reporting obligations - Reporting obligations derive from: - CJA 1990 Sections 17A(3) and 17B(5) - DTA 1996 Sections 46(3), 47(5) and 48 - ATCA 2003 Sections 11(2), 12, 13(2), 14 and 26 - Suspicion reports under these instruments are to be made to a “constable”; in practice all such reports are directed to the FCU (part of the IOM Constabulary). - AML Code 2008 Section 20(2)(f) specifies the “constable who is for the time being serving with the organization known as the Financial Crime Unit” as the person to whom Money Laundering Reporting Officers of covered entities should disclose suspicions of money laundering (which includes suspicions of terrorism financing under Section 2(1) Interpretation). - POCA 2008 (Sections 142–144; in force from August 1, 2009) will formally appoint (a constable or customs officer serving with) the Financial Crime Unit as the reception point for “authorized disclosures” (Section 154(1)). POCA 2008 Sections 154(1)(b) and 155 will make it obligatory to use the prescribed form and create an offense for disclosures made otherwise without a reasonable excuse. - For FT-related STRs, ATCA 2003 provisions remain relevant as the Act replaces CJA 1990 and DTA 1996 only. ### Establishment and structure of the FIU (c. 26.1) - The FCU acts as the FIU for the Isle of Man (IOM); it is a joint police/customs unit supported by civilian personnel. - The FIU is formalized in the AML Code 2008 as the receiving and processing agency for ML and FT disclosures by regulated and associated sectors. - Internal organization: FIU is a subsection within the FCU, acting as first reception point and conducting initial analysis; analytical section selectively disseminates to the investigation section. - FCU operational since 1999 following organizational restructuring creating specialized sections within the Constabulary. - FCU Strategic Board composition and strategic aims: - Strategic Board members: the Chief Constable, The AG, and the Collector of Customs. - Strategic aims: - To protect the Island’s financial reputation and guard its financial community; - To ensure that the Island is not seen as a safe haven for the laundering of money or the financing of terrorism; - To provide a one stop of professionals who ensure compliance with the law and with international standards predicated upon removing the profit from crime. ### Guidance to reporting entities and reporting process (c. 26.2) - FCU-developed disclosure form encouraged; form includes identification, supporting documents, reasons for suspicion, and other detailed fields sufficient for initial analysis and statistics. - Use of the form is not mandatory currently but widely used. - The FSC’s AML/CFT Handbook contains guidance on STR disclosures and the forms to be used. - FIU engages industry via seminars and training sessions to guide MLROs on proper use and expected quality of forms. - Reporting remains manual; an on-line system is being considered but no concrete automation steps have been taken. ### Access to information and data sources (c. 26.3) - As a joint police/customs unit, the FCU has full and direct access to: - all IOM police and customs registers - main UK law enforcement databases - administrative registers such as VAT and tax data - Financial information of a non-public nature is not readily available; obtaining such data normally requires court approval if used in evidence. - Informal collection of information held by financial institutions for intelligence purposes is possible but not formalized. - Data Protection Act 2002 Section 25(3) limits data access and usage: information can only be collected and used for the purpose of prevention and detection of crime. - FIU uses internet-based search engines and commercial databases such as World Check, Experian, and C6. ### Additional information requests and powers (c. 26.4) - FCU officers can use powers conferred by: - Police Powers and Procedures Act (PPPA) Sections 11–25 - DTA 1996 Sections 1(2), (3)(f), and 52–54a - CJA 1990 Sections 17J, 24, and 25 - For FT: ATCA 2003 Sections 18, 24, 25, 31, 32 and Schedules 4, 5, 6 - Use of these powers generally requires magistrate/court approval except in hot pursuit cases; primarily intended for investigative purposes and evidence collection; non-compliance can carry criminal sanctions. - For intelligence/analytical purposes only, no direct coercive powers apply; information must be provided voluntarily and requests cannot be enforced. - Reporting entities subject to AML Code 2008 generally cooperate voluntarily, including on beneficial ownership queries; incomplete or deficient disclosures are returned for correction. ### Analysis and dissemination of STRs (c. 26.5) - All STRs are analyzed by the FIU section; analysis includes database checks, further enquiries, and comparison with ML and FT typologies. - Exchange of information with counterpart FIUs and consultation with IOM regulatory authorities are integral to analysis. - If analysis grounds a suspicion, information is passed to FCU investigators. - Dissemination rules: - Generally requires consent of the information supplier except for dissemination to domestic judicial, law enforcement, and regulatory authorities. - FIU information can be supplied to foreign law enforcement and prosecution authorities (CJA 1990 Sections 17H and 17I). - FIU has Memoranda of Understanding with domestic authorities (e.g., FSC and Tax authorities) to facilitate exchange. - Disseminated information may be used by authorities for investigation and prosecution of any offense, not limited to ML or FT. ### Operational independence and governance (c. 26.6) - FCU operates with a distinct degree of operational autonomy despite being part of the IOM Constabulary; personnel are seconded from parent organizations but fenced from parent operational duties. - Operational independence and impartiality are further protected by the multidisciplinary Strategic Board. - Budget arrangements: - FCU budget is separate from police budget. - Budget provided by IOM Treasury to the Department of Home Affairs (DHA), delegated and controlled by Head of FCU. - Operational cooperation: - FCU works closely with Constabulary units such as Drug Trafficking Unit (DTU), Force Intelligence Bureau, Covert Operations, Criminal Investigation Department. ### Protection and confidentiality of FIU information (c. 26.7) - All FCU information is registered on Government/Police secure servers accessible only by authorized personnel. - Dissemination is governed by legislation: CJA 1990 Sections 17G–I, DTA 1996 Section 50, ATCA 2003 Sections 56–57, and the Data Protection Act, plus internal FCU policies and procedures. - Personnel subject to Police Disciplinary Regulations, IOM Civil Service Regulations, and the Official Secrets Act as applicable. - FIU-specific information is stored on the police computer; access restricted to FIU analysts and supervisors and shielded from other investigators by ‘interest markers’—any release must be cleared by the Head of the FCU/FIU. ### Reporting, feedback, and typologies (c. 26.8) - FCU produces annual STR statistics published in the Chief Constable’s report pursuant to Police Act 1993; report available at www.gov.im/dha/police. - Typologies and trends are communicated to industry via lectures, presentations, joint seminars with regulators, Advisory Notices, press releases, and case feedback as appropriate. ### International cooperation and membership (c. 26.9–26.10) - FIU has been an active member of the Egmont Group since 2000. - FIU committed to Egmont Statement of Purpose and Principles for Information Exchange; contributes to running costs of the Egmont Secretariat, has access to Egmont Secure Web, and attends plenary sessions. ### Resources, staffing, and training (c. 30.1–30.3) - Infrastructure and resources: - FCU/FIU has separate premises from Police and Customs, own vehicles, and personnel fenced from parent organizations’ duties. - Current budget including salaries and allowances is a sizeable percentage of the whole Constabulary budget; budget includes training, IT systems and equipment, travel and expenses; Head of Unit controls budget use. - FCU utilizes Isle of Man Constabulary’s IT system for STR management and other in-house IT and analytical tools. - Integrity and vetting: - Personnel security cleared to ‘secret’ level; subject to Official Secrets Act and confidentiality legislation. - Training and skills: - Personnel primarily recruited from experienced detective backgrounds with criminal investigation training and evidence-based application process. - FIU personnel receive additional training including professional qualifications in compliance and AML. - Courses undertaken include national terrorism financial investigation, national fraud courses, criminal investigation, suspect interviewing, check and credit fraud, financial investigators, bookkeeping, fraud examiners, high-tech courses including data analysis, and internet investigators. ### Statistics and operational effectiveness (applying R.32 to FIU) - Statistics maintained on STRs include: number of STRs, sources, grounds for suspicion, nationality of subjects, and other relevant information. - Reported figures for 2004–2007 period (detailed in Recommendation 13 analysis): - 2,315 disclosures in 2004 - reporting levels fell in 2006 (spike in 2005 linked to South African tax amnesty and EU Tax Savings Directive) - 1,555 disclosures in 2007/08 - Numbers for 2008 expected to remain at a similar level - Investigative outcomes: - Estimated number of investigations resulting from the reporting system: six cases over the last two years. - Only two prosecutions over the years originated from STRs. - Analysis observations: - Formal appointment of FCU as FIU embedded by POCA 2008 (in force August 1, 2009); prior to that formal foundations were not in specific primary legislation but did not prevent adequate FIU functioning. - FCU created an internal FIU team distinguishing intelligence/analytical functions from investigative functions, enabling pre-investigative filtering and added value to STRs. - Human and financial resources reflect serious commitment by IOM authorities; assessors noted professional staff and multidisciplinary approach. - Informal collection of additional analytical information offers flexibility but depends on reporting entities’ cooperation; refusal would require recourse to courts and statutory investigative powers not suitable for analytical stage. - Effectiveness concerns: - Despite active reporting levels (2,315 in 2004; 1,555 in 2007/08), only six investigations over two years and two prosecutions overall indicate limited concrete results. - The modest amounts of effective asset recovery raise questions about the FIU’s role in asset recovery and overall effectiveness when measured by concrete outcomes. *IMF staff report content unit _cr09278 - 291.* ### 327. There may be several reasons explaining the low levels of cases and asset recovery, but one ### _cr09278 - 327. There may be several reasons explaining the low levels of cases and asset recovery, but one ### FIU/FCU effectiveness and case/asset recovery - Low levels of cases and asset recovery are partly explained by the offshore nature of the IOM financial industry: a number of disclosures relate to foreign predicate activity, with proceeds coming to the IOM. - The FCU/FIU is largely dependent on assistance from foreign counterparts, which is not always forthcoming or does not add much relevant information. - Frequent dissemination of information by the FIU/FCU to competent authorities of other jurisdictions has a positive impact on those jurisdictions’ analysis. - Delays in processing STRs are not typically due to internal structural factors; delays occur when the FIU depends on external sources (e.g., foreign counterparts). - Potential measures to improve effectiveness, particularly for asset recovery where assets remain in the IOM: - Endow the FCU/FIU with the power to freeze transactions. - Require prior consent of the FCU/FIU to release funds that are the subject of an STR (to be introduced on coming into force of the POCA 2008). - Timely reporting by the reporting sector is a prerequisite for improved effectiveness; concerns about sector reporting are raised in Recommendation 13 analysis. - Weakness in information-gathering capacity of the FCU when acting as an FIU: - FATF standard expects the FIU to have direct or indirect access to financial and additional information for analytical functions. - In the IOM the direct process at FIU level is informal and voluntary; formal access is available through court application but is an investigative measure generally only considered at a high evidentiary stage. - Informal access could be open to challenge and affect analytical capacity; consideration should be given to providing a formal (additional) information-gathering process at FIU level. - Overall assessment of FCU/FIU: - Adequately performing its role as a key player in the AML/CFT system. - Developed a relation of trust and openness with the financial sector, contributing to acceptable STR volume. - STRs are appropriately dealt with in a focused and professional manner; clear separation between intelligence and investigative handling is significant. - Low number of STRs resulting in investigations and prosecutions is a serious effectiveness issue affecting the domestic system. ### Recommendations related to FIU/FCU (from 2.5.2) - The authorities should supplement the current informal arrangement by providing formally for access by the FIU to additional information held by covered entities, for use in its analytical work. - The FCU and other authorities should implement steps to improve the effectiveness of the reporting system to support an increase in the number of investigations and (potentially) prosecutions and in funds and other assets frozen. ### Compliance and rating summary (Recommendation 26) - R.26 LC - Factors relevant to s.2.5 underlying overall rating: - No formal power of access to additional information for FIU analytical purposes. - Limited effectiveness of the overall reporting system, as reflected in low numbers of domestic FCU investigations. ### Law enforcement, prosecution and related framework (R.27 & R.28) - Legal framework instruments: - CJA 1990 (non-drug crimes related ML) - DTA 1996 (drug related ML) - ATCA 2003 (FT and related ML) - Police Powers and Procedures Act (PPPA) 1998 (investigative powers and conservatory measures) - Designation of authorities and roles: - IOM Constabulary primarily responsible for investigation of all offenses; ML and FT cases allocated to investigation branch of the FCU. - Customs and Excise Division empowered under Customs and Excise Management Act 1986 for assigned matters including drug trafficking and money laundering related to Customs offenses and enforcement of UN and EU sanctions. - FCU established as joint police and customs department responsible for financial crime investigations; officers from Constabulary and Customs placed in FCU. - POCA 2008 inserted new Section 77A into PPPA 1998 effective October 22, 2008, authorizing customs officers at the FCU, when authorized by the AG, to have powers of a constable in relation to FCU work; AG signed authority on November 12, 2008. - Prosecution: - Primarily in hands of the AG and his staff; five prosecutors at time of assessment (increased to seven subsequently). - Distinction between summary proceedings (may be handled by police officer) and proceedings on information for more serious cases handled by prosecutors. (Footnote: arrangement altered subsequent to the assessment; with effect from June 22, 2009, prosecutions are handled only by lawyers from the AG’s chambers.) - AG’s Chambers provides legal advice and expert assistance; two full time dedicated legal officers supporting the FCU. - Ability to postpone/waive arrest or seizure: - PPPA 1998 provides arrest and seizure power which may be deferred, postponed, or waived to identify persons or gather evidence; responsibility rests with officer in charge. - Use of special investigative techniques: - Interception of Communications Act 1988 Sections 2–7 allows interception with warrant signed by the Chief Minister. - Regulation of Surveillance etc. Act 2006 provides authorization for surveillance and human intelligence sources, including directed and intrusive surveillance and covert human intelligence sources. - Controlled delivery and deferment of arrest are permitted under IOM legislation; these powers had not yet been used in ML or FT cases at assessment time. - CJA 1990 Sections 17A and 17B offer protection to employees of financial institutions who cooperate with police when techniques like controlled delivery are used. - Investigative specialization and training: - FCU officers trained as financial investigators; legal officers of AG’s Chambers focus on investigation, seizure, freezing, and confiscation. - Drug Trafficking Unit has received AML/CFT training from the FCU; operational policy is to address financial aspects in any drug investigation. - Training on POCA 2008 provided through sergeants’ development courses and briefings to specialized departments. ### Powers to compel information, search, and witness statements (R.28 elements) - Powers to obtain CDD and other information and to search premises via court application under: - DTA 1996 Sections 1(2), (3)(f), and 52-54a - CJA 1990 Sections 17J, 24, and 25 - PPPA 1998 Sections 11–25 - FT-specific powers under ATCA 2003 Sections 18, 24, 25, 31, 32 and Schedules 4, 5, and 6 for account monitoring orders, search warrants, and financial information orders. - CJA 1990 Sections 24 and 25 give the AG powers to obtain evidence without a court order in respect of serious or complex fraud; refusal to comply is an offense. - Customs Officers included within definition of ‘Constables’ for these powers. - All law enforcement officers entitled to take witness statements as inherent to their functions. ### Resources, integrity, training, and statistics (R.30 & R.32) - Police operational independence; no recorded undue political influence. - IOM Constabulary comprises 293 full time officers. - AG’s Chambers had five prosecutors at time of assessment; two additional prosecutors recruited in anticipation of POCA 2008 civil recovery regime. - Recruitment and integrity safeguards for Constabulary: - Stringent recruitment process, 10 week training in law and other skills, tutoring period, and minimum two years probation before assignment to specialized departments. - Statistics: - FCU keeps statistics on number of investigations and prosecutions in relation to ML where persons have been arrested. - FCU informed assessors that two prosecutions to date were based on cases triggered by an STR. - Overall observation: - Law enforcement authorities are adequately resourced and trained and possess adequate legal powers. - Limited number of successful prosecutions points to lack of overall system effectiveness; more emphasis needed on development of case law on stand-alone money laundering where prosecution is less dependent on evidence outside jurisdiction. ### Recommendation related to law enforcement/prosecution (from 2.6.2) - The authorities should implement steps to improve effectiveness by seeking to increase the number of investigations and prosecutions pursued domestically. ### Compliance and rating summary (Recommendations 27 & 28) - R.27 LC - Limited effectiveness of the system as reflected in low numbers of domestic investigations and prosecutions. - R.28 C ### Cross-border declaration or disclosure (SR.IX) - Legal and implementation timeline: - European Communities (Cash Controls) (Application) Order 2008 came into effect on June 1 2008; Cash Controls (Penalties) Regulations 2008 provide penalties. - Proceeds of Crime Act 2008 (Appointed Day)(No.1) Order 2008 [SD 743/08] brought Part 8 into operation and replaced the Order with effect from October 22, 2008. - Customs and Excise (Cash Declaration and Disclosure) Order 2008 [SD 745/08] prescribed the declaration form effective November 1, 2008. - New cash declaration regime came into operation on November 1, 2008; revised Public Notice and new form made available at the airport and sea terminal and on the Customs and Excise website. - Declaration system design: - IOM opted for a declaration system aligned with EC Regulation 1889/2005 (October 26, 2005) obligations. - Obligation applies to persons importing into or exporting from the IOM cash and bearer-negotiable instruments to a value of EUR10,000 or more. - Import and exports by post, courier, and freight are in principle covered by same legal provisions as travelers; movements of goods by mail between the UK and IOM are not regarded as imports or exports under customs legislation in both jurisdictions but treated as “domestic”. - Interference with mail between the UK and IOM permitted only by court order, except where Post Office regulations permit detention (e.g., drugs, noxious substances, explosives) or contraband evaded customs controls. - Items covered by declaration regime: - currency in any denomination, - bearer-negotiable instruments (such as travelers’ checks), - negotiable instruments (such as money orders, checks and promissory notes) that are either in bearer form, endorsed without restriction, made out to a fictitious payee or otherwise in a form such that title passes upon delivery, - incomplete negotiable instruments (that are signed, but with the payee's name omitted). *Source: Extract from the provided IMF assessment document (paragraphs 327–361).* ### 362. At the time of the on-site visit two such declarations had been made (importation of ### _cr09278 - 362. At the time of the on-site visit two such declarations had been made (importation of ### Declarations and Powers to Request Information (c. IX.2) - At the time of the on-site visit two such declarations had been made (importation of GBP30,300 and GBP15,000, respectively, in cash). Three more declarations have been received subsequently (two outgoing and one incoming – none of then gave rise to suspicions). - Section 79(4) of the Customs and Excise Management Act 1986 allows a customs officer to put questions to anyone entering or leaving the IOM in all circumstances, including questions on the origin of the money when there are doubts regarding its legality. - With effect from October 22, 2008, Part VA of the Customs and Excise Management Act 1986 provides explicit powers for customs officers to question persons and to proceed to search them, their luggage, and their means of transportation. - The Proceeds of Crime Act 2008 (Appointed Day)(No.1) Order 2008 [SD 743/08] brought Part 8 of the Act into operation, inserting the new Part VA into the Customs and Excise Management Act 1986, with effect from October 22, 2008. - The scope of the declaration obligation is explicitly extended to situations where cash is not actually being ‘carried’ with or on the person but is contained in goods, or in a vehicle, ship, or aircraft (Section 76 Customs and Excise Management Act 1986). ### Restraint and Seizure of Currency (c. IX.3, c. IX.10, c. IX.11) - Filing a false or incomplete declaration does not in itself warrant restraint or seizure of the cash; seizure may occur if there are reasons to believe the cash might be proceeds of crime or intended for criminal purposes (DTA 1996 Section 39, CJA 1990 Section 23A; becomes POCA2008 Section 46 with effect from August 1, 2009). - CJA 1990 Section 76G, introduced by POCA 2008 (Schedule 5) with effect from October 22, 2008, specifically authorizes Customs to seize cash if more than (the equivalent of) EUR10,000 is being carried and one of the following applies: - the person has refused to make a disclosure; - the officer reasonably suspects the disclosure is false in a material particular; - evidence has been required from the person but not produced, or does not support the information given by the person; - the officer reasonably suspects that the cash is property obtained through unlawful conduct or is intended for use in money laundering, other unlawful conduct or terrorism. - Police and customs officers can seize cash when entering or leaving the IOM where there are reasonable grounds to suspect it may be linked to crime (CJA 1990 Section 23A and DTA 1996 Section 39), including ML and FT. Part 1 of POCA 2008 (effective October 22, 2008) extended these powers to any situation or place where an officer is lawfully present anywhere in the IOM. - Persons crossing the border with funds subject to UNSCR 1267 and 1373 sanctions, or attempting to do so, are in breach of the legislation imposing those sanctions; cash would be liable to seizure under CJA 1990 Section 23A or ATCA 2003 Schedule 3 and potentially to confiscation depending on evidentiary value. ### Retention and Access to Declaration Information (c. IX.4–IX.6, IX.12–IX.13) - All information contained in the declarations is stored in the Customs database. - Sections 174B and C of the Customs and Excise Management Act provide for mutual information exchange for law enforcement purposes, subject to the Data Protection Act 2002. - Copies of declarations and details of any false declaration or suspicions are to be forwarded to the FCU. There is no formal and specific provision making such communication to the FCU mandatory; customs officers at the FCU automatically have access to the declaration registered on the Customs database. - Coordination between Customs and Police is structured within the FCU, which would deal with all AML/CFT issues arising from the declaration system. - Section 174B specifically refers to international cooperation, enabling Customs and Excise to cooperate with other authorities in exchanging information or documents for broad criminal investigation or proceedings purposes, whether in the IOM or elsewhere. - Customs and Excise participates in global information exchange networks based on bilateral and multilateral Customs agreements; many EC regulations governing exchange of information on customs, excise, and VAT fraud are applicable in the IOM, along with conventions such as the Nairobi Convention, the 1998 Vienna Convention, the Naples II Convention, and the CIS Convention. - The holding, recording and dissemination of information is subject to the IOM’s Data Protection Act 2002 (transposing EC Data Protection Directive 95/46/EC). Access is only permitted for law enforcement purposes to the relevant authorities (Sections 174 B and C Customs and Excises Management Act 1986). - Customs and Excise uses applicable EU legislation permitting mutual assistance in customs matters (Council Regulation (EC) No. 515/97) and EU-third country customs mutual assistance agreements under Protocol 3 to the UK’s Act of Accession to the European Community. - Section 174B permits disclosure of information to any agency anywhere for the purposes of: - any criminal investigation whatever which is being or may be carried out, whether in the IOM or elsewhere; - any criminal proceedings whatever which have been or may be initiated, whether in the IOM or elsewhere; - initiating or bringing to an end any such investigation or proceedings, or of facilitating a determination of whether it or they should be initiated or brought to an end. ### Sanctions and Penalties for False or Refusal to Declare (c. IX.8–IX.9) - Non-compliance with the European Communities (Cash Controls) (Application) Order 2008 is penalized according to the Cash Controls (Penalties) Regulations 2008, replaced since October 22, 2008 by Schedule 5 of the POCA 2008. - Part VA (Sections 76A to 76H) inserted into the Customs and Excise Management Act 1986 through POCA 2008 (Schedule 5) penalizes any ‘refusal’ to declare or disclose and any untrue declaration or disclosure as follows: 1) on summary conviction, by custody for a term not exceeding six months or by a fine not exceeding GBP5,000, or both; or 2) on conviction on information, by custody for a term not exceeding two years or by a fine, or both. - The ‘refusal’ is understood as any kind of willful non-declaration, excluding negligence. - Section 76G provides for the possibility to seize any cash ‘to which the refusal, declaration, disclosure....relates’, irrespective of the amount. - ML and FT-related criminal procedure and code provisions can apply and criminal charges can be brought in the context of the cross-border declaration regime depending on evidentiary value. ### Statistics and Operational Notes (applying R.32) - No computerized database has been established by Customs and Excise to date. Statistics can be maintained manually, considering the limited number of declarations (five since June 1, 2008). - The declarations are also recorded in the FCU/FIU database. - Analysis point: Current requirements do not extend to mail between the UK and the IOM, which may undermine effectiveness regarding cash transportation by mail (SR.IX compliance issue). - Analysis point: The IOM declaration threshold is “more than EUR10,000”, which is noted as not technically in full compliance with the EU Regulations that refer to amounts of “EUR10,000 or more”. ### Analysis, Reservation, and Recommendation (c. IX.6—2.7.2) - Assessment: The cash declaration system largely corresponds with international standards but a small reservation exists regarding proportionality and dissuasiveness of sanctions compared with other jurisdictions where non-declaration can be sanctioned by seizure. Part VA of the Customs and Excise Management Act 1986 (effective October 22, 2008) addressed this with stiffer sanctions including seizure. - Recommendation: - The cross-border control requirements should be extended to cover cash transportation by mail between the UK and the IOM. - Compliance note: SR.IX rating LC with underlying factor: The cross-border control regime does not cover cash transportation by mail between the UK and the IOM. ### Preventive Measures — Financial Institutions (overview) - Characteristics indicating elevated potential for ML/FT abuse in the IOM financial system: - More than 90 percent of the customer relationships and of financial service business conducted are on a non face-to-face basis for nonresidents of the IOM. - In many cases business relationships are established through introducers (IOM or foreign) that are subject to varying levels of regulation. - Financial services provided include private banking facilities for non-residents. - Use of legal persons and arrangements such as trusts is prevalent, creating challenges to identify the ultimate beneficial owner or controller. - Regulatory framework and implementation points: - An effective de minimis threshold is applied in determining whether a person provides relevant services ‘by way of business’ and thus falls to be licensed under the FSA 2008 and subject to monitoring of AML/CFT requirements; ‘By way of business’ is not a defined term in the legislation. - The DHA may issue codes under CJA 1990 Section 17F; AML Code 2008 came into force on December 18, 2008 and applies to persons conducting relevant business as listed in Schedule 1 to the Code. - Categories of financial institution and regulatory authorities (as listed): - Banks/deposit takers — FSA 2008 — FSC - Building Societies/other societies — FSA 2008 — FSC - Investment businesses and services to collective investment schemes — FSA 2008 — FSC - Money services businesses — FSA 2008 — FSC - Insurance business — IA 2008 — IPA - Insurance intermediaries — IA 2008 — IPA - Moneylenders — Moneylenders Act 1991 — Office of Fair Trading - Supervisory note: Responsibility for authorizing money services businesses (MSB), including bureaux de change, passed to the FSC on August 1, 2008. The FSC began to apply a supervisory regime (including AML/CFT measures) to the MSBs with effect from January 1, 2009. *Source: _cr09278 - 362. At the time of the on-site visit two such declarations had been made (importation of* ### 392. As outlined above, CJA 1990 Section 17F provides the DHA with the power to issue Codes ### _cr09278 - 392. As outlined above, CJA 1990 Section 17F provides the DHA with the power to issue Codes ### Legal basis for AML/CFT measures and scope (Sections 392–396, 401–404) - CJA 1990 Section 17F provides the DHA with the power to issue Codes “to prevent and detect money laundering, including money laundering relating to the benefits of proceeds of criminal conduct, of drug trafficking or otherwise.” - The scope of CJA 1990 does not expressly extend to terrorist financing (FT) as defined in the ATCA 2003; authorities consider FT to be within the DHA’s power under the phrase “whether in respect of the benefits or proceeds of criminal conduct...or otherwise.” - Assessors did not consider that interpretation alone a convincing legal basis for FT inclusion; they noted that AML Code 2007 and AML Code 2008 underwent parliamentary process and no annulment was raised by Tynwald, and therefore accepted the codes as including FT for this assessment. - Assessors recommended that authorities “provide a more explicit legal basis in primary legislation.” - FSC authority and objectives under FSA 2008: - FSA 2008 Section 2(2) lists among regulatory objectives “the reduction of financial crime” defined as “any crime involving (a) fraud or dishonesty; (b) misconduct in, or misuse of information relating to, a financial market; or (c) handling the proceeds of crime or funds connected with terrorism.” - This definition explicitly includes FT but is “significantly narrower than the full range of predicate offenses for ML and FT required to be covered under the FATF Recommendations.” - FSC rulemaking and parliamentary process: - FSA 2008 Section 18 allows the FSC to make rules (the Rule Book) to give “full effect to the regulatory objectives.” - Consultation with the Treasury (FSA 2008 Section 44(5)) and the Tynwald procedure (FSA 2008 Section 45) apply; unless Tynwald approves the Rule Book within the next two sittings it ceases to have effect. - The FSC brought Chapter 9 of the Rule Book relating to AML/CFT into force for all licenseholders with effect from August 1, 2008; the whole Rule Book was voted on and adopted by Tynwald. - Remaining chapters: brought into force for new licenseholders from August 1, 2008 and for existing licenseholders from January 1, 2009. - Assessors’ view on Rule Book and Handbook: - The Rule Book, having been approved by a parliamentary body, is accepted as secondary legislation and meets the FATF definition of “law and regulation.” - The FSC issued an AML/CFT Handbook intended to “outline the regulatory powers which the FSC may exercise and to set out the FSC’s requirements of licenseholders.” The Handbook’s cover states it “is not a legal document and should not be relied upon in respect of points of law.” - The Handbook is therefore not accepted as meeting the FATF criteria for “other enforceable means” (OEM) but contains detailed supporting and explanatory material used in the assessment. - Potential overlap/conflict between AML Code 2008 and FSC Rule Book: - Financial institutions regulated by the FSC are subject to both AML Code 2008 and the FSC Rule Book (both secondary legislation), raising possible precedence questions. - Assessors found no judicial decision resolving such conflicts and recommended authorities “conduct a further review to remove any residual potential for conflicts and bring the requirements into full consistency with each other and with the international standard.” - Assessors note that amendments introduced shortly after the on-site visit “have already addressed the material inconsistencies.” ### Insurance sector legal framework (Sections 397–403, 400, 401, 402) - Insurance regulatory changes and dates: - Anti-Money Laundering Standards for Insurance Business (most recent version issued in March 2003) were superseded with effect from September 1, 2008 by: - Insurance (Anti-Money Laundering) Regulations 2008 (IAMLR 2008); and - Guidance Notes on Anti-Money Laundering and Preventing the Financing of Terrorism – for Insurers (Long Term Business) (IGN 2008). - Much insurance legislation was superseded by the Insurance Act 2008 (IA 2008), Royal Assent received and provisions brought into effect on December 1, 2008. For the assessment, both IA 1986 (as amended) and IA 2008 are taken into account; the report mainly refers to IA 2008. - IPA objectives and regulatory powers: - IA 2008 Section 2 links IPA functions to regulatory objectives including “the reduction in the extent to which it is possible for any insurance business to be used in connection with the commission of financial crime,” defined by Section 52 IA 2008 to include “handling the proceeds of crime or funds connected with terrorism.” - IA 2008 Section 2(2) requires IPA to have regard to “the desirability of insurers being aware of the risk of their businesses being used in connection with the commission of financial crime.” - IAMLR 2008 and IGN 2008 legal status: - Section 50 IA 2008 provides the IPA may issue regulations “as it considers are necessary or desirable to carry [the] Act into effect.” IAMLR 2008 was issued pursuant to Section 32 IA 1986 and extended scope to include countering FT; legal basis provided by IA 2008 Section 50. - IAMLR 2008 is accepted as secondary legislation for this assessment because: - issued under specific power in primary legislation to issue regulations (including for prevention and detection of money laundering); - was laid before Tynwald under a passive approval process (Section 50(4) IA 2008); - contains mandatory provisions enforceable by the IPA and subject to Insurance Acts’ sanctions. - IAMLR 2008 applies to insurers; other IPA-regulated entities (insurance intermediaries and managers, registered scheme administrators, and scheme trustees) are subject to AML Code 2008. - IGN 2008 (for long-term business) was accepted as “other enforceable means” (OEM) because: - issued pursuant to IA 1986 Section 24C (superseded by Section 51 IA 2008) authorizing IPA to issue “binding guidance”; - IGN 2008 is stated to have been laid before Tynwald; - IGN 2008 states “while these are Guidance Notes, the requirements set out herein must be considered as a mandatory minimum” and uses mandatory language; - issued under explicit statutory powers and linked to primary and secondary legislation and enforceable under IPA supervisory powers; - non-compliance exposes insurers to regulatory sanctions under the Insurance Act, constituting an acceptable sanctioning basis for the February 2008 revision to the FATF Methodology. - No sanctions had been applied at the time of the on-site visit as IGN 2008 had only been in effect “for a number of days.” - IAMLR 2008 coverage: - IAMLR 2008 applies to insurers; insurance intermediaries, insurance managers, registered scheme administrators, and scheme trustees are covered by AML Code 2008 instead. ### Summary table snapshot and legal mapping (paragraphs 404 and footnotes) - Position as at: December 18, 2008 — summary includes primary legislation, secondary legislation, and OEM across institutions covered. - Key entries (verbatim text preserved where relevant): - CJA 1990 — Primary legislation — Tynwald — All covered entities — Scope includes AML only. - AML Code 2008 — DHA/CJA 1990 — Laid before Tynwald — All covered entities — AML covered explicitly, CFT by interpretation. - FSC Rule Book — FSC / FSA 2008 — Approved by Tynwald — All FSC licenseholders (banks, securities firms, funds, CSPs, TSPs) — AML and CFT. - FSC Handbook — FSC/ FSA 2008 — All FSC licenseholders (banks, securities firms, funds, CSPs, TSPs) — AML and CFT — accepted as OEM (note: Handbook not legally binding). - Insurance Act (IA 2008) — Tynwald — All insurance businesses — AML and CFT. - IAMLR 2008 — IPA/ IA 2008 — Laid before Tynwald — Insurers — AML and CFT. - IPA Insurance Guidance Notes — IPA/ IA 2008 — Laid before Tynwald — Insurers (long-term business) — AML and CFT — accepted as OEM. ### Customer due diligence, prohibition of anonymous accounts, and timing of CDD (paragraphs 405–414) - Prohibition of anonymous accounts: - Primary legislation does not expressly prohibit anonymous accounts and accounts in fictitious names in the IOM, but secondary legislation effectively prohibits them directly or indirectly. - AML Code 2008 paragraph 4(1) requires identification and verification procedures on all applicants for business; opening an anonymous account would conflict with this requirement. - FSC Rule Book 2008 Rule 9.3(1) expressly prohibits a licenseholder from maintaining an anonymous account or an account in a fictitious name. - IAMLR 2008 Section 15 expressly prohibits establishment or creation of anonymous bonds or contracts in fictitious names, and any such existing relationships “must be treated as high risk and subjected to enhanced due diligence and ongoing monitoring.” - Assessors and interviewed financial institutions reported no indication of operation of anonymous accounts; assessors noted possibility that some old anonymous accounts might still exist. - Numbered accounts: - Numbered accounts are not proscribed in primary legislation or AML Code 2008. - FSC Rule Book 2008 Rule 9.3(2) requires licenseholders maintaining numbered accounts to “identify, and verify the identity of the customer” and maintain the account “in such a way as to comply fully with the requirements of the Code” and the AML/CFT requirements of the FSC Rule Book 2008. - Financial institutions interviewed indicated no knowledge of numbered accounts operating in the IOM. - When CDD is required: - Authorities set CDD requirements in secondary legislation consistent with FATF Recommendations. - AML Code 2008 paragraph 6: identification procedures apply to new business relationships; relevant persons “must identify the applicant for business before the business relationship is entered into or during the formation of this relationship ‘but in any event as soon as reasonably practicable (taking into account the need not to interrupt the normal conduct of business where there is little risk of money laundering or terrorist financing occurring) after contact is first made’” (paragraph 6(2)). - AML Code 2008 paragraph 6(9): in the absence of satisfactory evidence of identity, the business relationship shall not proceed any further, the relevant person should terminate the relationship, and must consider whether to file an STR. - AML Code 2008 paragraph 6(5): limited exception where evidence of identity need not be produced for new business relationships if the applicant is regulated by FSC or IPA, or is an advocate or registered legal practitioner or an accountant carrying on business in or from the IOM subject to equivalent AML/CFT professional rules, or is conducting regulated business in a country listed by the IOM as having an acceptable AML/CFT regime. Relief applies only to the applicant meeting specified criteria and not to customers of or business introduced by such an applicant (except intermediaries and fiduciary deposits). - FSC Rule Book 2008 Rule 9.6(5) requires licenseholders not to proceed with a business relationship unless specified CDD measures, including identification and verification, have been conducted; Rule 9.5 allows FSC-regulated entities to conduct CDD “on the basis of materiality and risk.” - IAMLR 2008 Section 8 permits insurers to complete required CDD measures “as soon as reasonably practical” after receipt of an application; if relationship is utilized before CDD is completed, insurer must apply measures to control the type and volume of transactions. IGN 2008 provides examples and rationale for transactions conducted before CDD completion. *Source: Excerpt from the IMF assessment document (content unit _cr09278, paragraphs 392–414).* ### Section 2.5, in the absence of satisfactory evidence, the business relationship must not proceed. ### _cr09278 - Section 2.5, in the absence of satisfactory evidence, the business relationship must not proceed. ### Timing of identity verification for insurers - For IPA regulated insurers, discretion regarding the timing of verification of identity is permitted, except for beneficiaries under a trust. - Pursuant to IAMLR Section 12, for a beneficiary named or nominated under a life policy, such verification can be undertaken "at or before the time of a payout of a claim or exercising of rights under the policy." (5.2(b)) ### One-off (occasional) transactions and thresholds - AML Code 2008 defines ‘one-off transaction’ (other than an exempted one-off transaction) as any transaction carried out by relevant persons other than in the course of an established business relationship (Code paragraph 2). - An ‘exempted one-off transaction’ is a one-off transaction (single transaction or series of linked transactions) where the amount or aggregate is less than: - EUR3,000 (or the equivalent thereof) for transactions entered into in the course of bookmaking or casino businesses; or - EUR15, 000 (or the equivalent thereof) in any other case. (Code paragraph 2(1)) - FSC Handbook Section 4.3: FSC has no objection to adoption of the previous UK standard of three months as the minimum acceptable monitoring period to determine whether a series of transactions has exceeded the applicable threshold for linked transactions. (5.2(c)) ### CDD waivers and insurer-specific monetary concessions - IAMLR 2008 Section 7 permits CDD requirements to be waived for contracts where: - the premium, payable in one installment, does not exceed GBP7,500; - the regular premium payable in any calendar year does not exceed GBP2,500; or - the contract does not have a maturity or surrender value, such as term life insurance. (417) - For insurers using these threshold concessions, CDD measures must be undertaken if a claim or return premium is greater than the monetary waiver thresholds (IAMLR 2008 Section 7(4)(5)). (418) - For all transactions outside the scope of these concessions, the regulated entity must undertake the same identification procedures as when entering into a new business relationship before a one-off transaction is entered into (AML Code 2008 paragraph 9). (418) ### Wire transfers - No provision in primary legislation, AML Code 2008, or FSC Rule Book 2008 relates to wire transfers; IOM implemented European Regulation 1781/2006 by secondary legislation: the “European Community (Wire Transfers Regulation) (Application) Order 2007”, as amended by the “European Communities (Wire Transfers Regulation) (Application) (Amendment) Order 2007”. (420) - Payment service providers must, before transferring funds other than from an account, verify complete information on the payer using documents/data from a reliable and independent source where the amount exceeds EUR1,000 (or linked operations together exceed EUR1,000). The exemption threshold does not apply where there is suspicion of money laundering. (European Regulation (Application) Order, paragraph 5.4). (421) - Measures applicable to wire transfers are compliant for purposes of Recommendation 5 and are analyzed later in the report when addressing SR.VII. (422) (5.2(d)) ### Suspicion overrides exemptions — applicability to ML and FT - AML Code 2008 requires financial institutions to undertake CDD measures regardless of any available exemption if they know or suspect (or a suspicious pattern causes them to know or suspect) that the transaction is or may be related to money laundering when entering into a new business relationship or conducting a one-off transaction (paragraphs 6(8)(a) and (b), 9(8)(a) and (b), and 11(11)(a) and (b) AML Code 2008). (423) - Application to financing of terrorism (FT) relies on AML Code 2008 definition of ‘money laundering requirements’ which includes ATCA 2003 Sections 7–11 and 14; assessors recommend seeking a more explicit legal basis for FT but concluded IOM can be considered compliant with Recommendation 5 in this respect. (424) - For IPA-regulated insurers, simplified or reduced levels of CDD must not be applied where there is a suspicion of money laundering (IAMLR 2008 Section 13(3)); IAMLR Section 5 extends this to FT. IGN 2008 5.3: CDD must also be undertaken upon surrender or maturity of a contract if there is suspicion of ML or FT. (425) - AML Code 2008 paragraph 7(2)(f) and 7(2)(e) require CDD when a relevant person becomes aware of anything causing doubt as to the veracity/adequacy of identity evidence or doubt as to the identity of the applicant for business; these apply regardless of exemptions or thresholds. (426) - AML Code 2008 paragraphs 6, 9, and 11 allow waivers but require that any option to waive be ignored if the business has cause to doubt identity or bona fides of applicant or beneficial owner (paragraphs 6(8)(c), 6(8)(d), 9(8)(c), 9(8)(d), 11(11)(c), and 11(11)(d)). Assessors found IOM compliant with Recommendation 5 in this regard. (427) ### Identification measures and verification sources (c. 5.3) - AML Code 2008 paragraphs 6(3) and 9(3) require procedures for: - (a) identification of, and - (b) verification of the identity of the applicant for business using reliable, independent source documents, data, or information. - Applicant for business includes any person, natural or legal. (428) - FSC Rule Book 2008 Rule 9.6 imposes specific identification and verification requirements for legal persons and legal arrangements. (429) - FSC Handbook Section 4: required information for natural persons includes name, permanent residential address, date and place of birth, nationality, and gender. Except in lowest-risk cases or to guard against financial exclusion, information should include an official personal identification number or other unique identifier contained in an unexpired official document. Risk-based approach may warrant collecting occupation, name of employer, source of income, and public/high-profile positions. Section 4.2.2 lists verification procedures and acceptable official and occupation-related documentation. Licenseholders bear primary responsibility to satisfy themselves they have taken adequate steps to identify and verify applicants, with discretion to use independent electronic data sources subject to quality criteria and guidance for nonstandard identity situations (elderly, disabled, students, minors). (430) - IAMLR 2008 Section 9 requires an insurer to take reasonable measures to verify the identity of the applicant and beneficial owner and satisfy itself as to the source of wealth and funds using reliable, independent source documents, data or information. Evidence of identity is not satisfactory unless reasonable measures have been taken. IGN 2.6: all applicants must at minimum be subject to a standard range of CDD measures including identification of the beneficial owner while permitting a risk-based approach. Identification and verification requirements apply to natural or legal persons and legal arrangements. (431) - Discretion for insurers: original or suitably certified copies of identification documentation or "undertake a form of investigation which has satisfied the insurer as to the identification of the person concerned." IGN 2.5 and 2.9 expand on flexibility including non face-to-face verification, verification by outside agency or databases, and internet or other methods. (432) - In practice, FSC and IPA licenseholders: account-opening or policy application forms include matters in the Handbook, IAMLR 2008, and IGN 2008, with questions on source of funds and purpose. Verification usually via official document (preferably passport or national identity card) and original recent utility bill for address. Many applicants are nonresident and non face-to-face, often involving introducers; licenseholders often rely on copy passports certified by a suitable certifier or delegate verification to an eligible introducer. (433) ### Identification of legal persons or other arrangements (c. 5.4) - Effective December 18, 2008, AML Code 2008 paragraph 5(3) requires a relevant person to: - (a) verify that any person purporting to act on behalf of a legal person or legal arrangement is so authorized, and - (b) identify that person and take reasonable steps to verify their identity using reliable and independent source documents, data, or information. (434) - FSC Rule Book Rule 9.6(3)(a) and (b) contains similar requirements for licenseholders. Although not applicable to all institutions at on-site visit, measures were introduced shortly afterwards and assessors were satisfied they were being applied. (434) - For IPA-regulated insurers, IAMLR 2008 Section 11(1) requires confirming appropriate authorization of any person acting on behalf of a legal person or body and Sections 9(1) by reference to 10(1)(c) requires verification of identity. (435) - AML Code 2008 paragraph 5(3)(e) (effective December 18, 2008) requires verification of the legal status of the applicant using relevant information or data from a reliable source. Applicant for business includes any person, natural or legal. (436) - FSC Rule Book 2008 Rule 9.6(3) requires licenseholders to, inter alia: - Verify the legal status of an applicant for business using relevant information or data obtained from a reliable source; - Identify any known beneficiaries in the case of a legal arrangement; and - Obtain information concerning the names and addresses of the legal person or legal arrangement, any natural person having power to direct its activities, and any person who may (and the means by which they may) impose obligations on the legal person or arrangement. (437) - FSC Handbook sections 4.7 and 4.6 provide detailed guidance on legal persons and trusts/legal arrangements. Handbook clarifies ‘legal person’ scope (bodies corporate or unincorporated capable of establishing a permanent customer relationship or owning property, including foundations, anstalts, partnerships). Licenseholders are obliged to "lift the corporate veil" and know beneficial owners; reasonable measures should verify identity of principals where owner is another corporate entity or trust. For ‘standard risk’ business, at least two signatories and two directors should be identified; all must be identified for higher risk business. Handbook uses mandatory language for identification and verification of trustees and express trusts and supplements FSC Rulebook Rule 9.2(1) and definition of beneficial owner for legal arrangements; Rule 9.6(3)(c) requires beneficiaries to be identified and Rule 9.8 requires verifying identity of beneficiaries. (438–440) - IAMLR 2008 Section 11 requires insurers to ascertain legal status, existence, identity, nature, appropriate authorization of any person acting on behalf of the legal person or body, and take reasonable measures to understand ownership and control structure. IGN 2008 Sections 4.3–4.15 detail evidence requirements (incorporation, trustees, directors, memorandum and articles, extracts of trust deeds, identities of beneficiaries). (441) - Assessors found the IOM in compliance with this aspect of Recommendation 5 on the basis of provisions in effect at or shortly after the on-site visit and quality of implementation observed. (442) ### Identification of beneficial owners (c. 5.5; 5.5.1 & 5.5.2) - AML Code 2008 paragraph 2 defines ‘beneficial owner’ as "the individual who ultimately owns or controls the applicant for business or on whose behalf a transaction or activity is being conducted." - In relation to a legal person, beneficial owner includes a natural person who: - (a) ultimately owns or controls (directly or indirectly, including through bearer shares) more than 25 percent of the shares or voting rights; or - (b) otherwise exercises control over the management of the legal person. (443) - In the case of a legal arrangement, beneficial owner includes the trustees or other persons controlling the applicant. (443) - FSC Rule Book 2008 Rule 9.6.2(a) and (b) requires licenseholders to determine who is the beneficial owner of the applicant for business. Rule 9.2(1) definition (extract) includes: - (a) in the case of a legal person other than a company whose securities are listed on a recognized stock exchange, a natural person who ultimately owns or controls (through direct or indirect ownership or control, including through bearer share holdings) more than 25 percent of the shares or voting rights in the legal person; or - (b) in the case of any legal person, a natural person who otherwise exercises control over the management of the legal person; and - (c) in the case of a legal arrangement — (i) the trustees or other persons controlling the applicant; and (ii) the settlor or other person by whom the arrangement is made. (444) *Italic: Summary derived from _cr09278 - Section 2.5, in the absence of satisfactory evidence, the business relationship must not proceed.* ### 445. Rule 9.6 further requires licenseholders to: ### _cr09278 - 445. Rule 9.6 further requires licenseholders to: ### Beneficial owner identification and verification (5.5.1) - Rule 9.6 requires licenseholders to: - take reasonable steps to verify the identity of the beneficial owner, using relevant information or data obtained from a reliable source; and - determine whether the applicant is acting on behalf of another person and, if so, to take reasonable steps to identify and verify that other person. (5.5.1) - IAMLR 2008 Section 9(1) requires IPA-regulated insurers to undertake “reasonable measures” for identification and verification; insurers are also subject to the AML Code 2008 which requires identification in all cases and provides for “reasonable measures” for verification in accordance with the FATF Recommendations. (5.5.1) - IAMLR Section 12 permits verification of a beneficiary named or nominated under a life policy at or before the time of a payout of a claim or exercising of rights under the policy. (5.5.1) - Assessors observed no evidence of weaknesses in implementation of identification procedures by insurers. (5.5.1) ### Concession for intermediaries and associated risks (5.5.2 (a)) - FSC Handbook Section 4.12 permits, subject to specified risk-based conditions, that where an intermediary acting on behalf of underlying customers falls under the definition of an “Acceptable Applicant” the licenseholder can regard the intermediary as its customer and not identify the underlying depositors; the CDD obligations regarding the persons for whom the intermediary is acting rests with the intermediary. (5.5.2 (a)) - Examples in the Handbook include overseas banks (Swiss banks mentioned as an example) placing fiduciary deposits with IOM banks. (5.5.2 (a)) - Practical implementation: each distinct holding within the account held in the intermediary’s name appears to be identified by a unique reference number. (5.5.2 (a)) - Risks identified by assessors: - significant reputational reliance on the quality of the AML/CFT processes of the originating foreign bank or other “applicant”; - potential inability of the IOM bank to spot-check originator’s CDD measures or obtain copies of CDD documentation when required (e.g., for FCU or law enforcement purposes); - bank secrecy laws (Swiss banks example) could prevent obtaining information on the beneficial owner of funds held on behalf of customers of the foreign bank; - assessors concluded the arrangement could not be considered fully compliant, including on a risk-based approach, with Recommendation 5 (requirement to determine whether customer is acting on behalf of another person and take reasonable steps to obtain sufficient identification data to verify that person). (5.5.2 (a)) ### Ownership and control structure requirements (5.5.2 (b)) - From December 18, 2008, AML Code 2008 paragraph 5(3)(h) requires financial institutions and other relevant persons to obtain information to understand the ownership and control structure of the applicant. (5.5.2 (b)) - FSC Rule Book Rule 9.6(3)(g) requires licenseholders to “take reasonable steps to understand the ownership and control structure of the applicant” where applicants are legal persons or legal arrangements; FSC Handbook Section 4.7 advises to “look behind the institution to identify those who have control over the business and the company’s/partnership’s assets, including those who have ultimate control and ultimate principal ownership.” (5.5.2 (b)) - IAMLR 2008 Section 11(2) requires insurers to “take reasonable measures to understand the ownership and control structure of the legal person or body”; IGN 4.3–4.24 provide supporting detail for listed/private corporates, trustee/nominee structures, partnerships, pensions, charities, foundations, holding companies. (5.5.2 (b)) - Assessors were satisfied there was evidence of compliance with this aspect of Recommendation 5 at the time of the on-site visit. (5.5.2 (b)) ### Legal arrangements, trusts, and beneficiaries (5.5.2 (c)) - AML Code 2008 paragraph 5(3) requires relevant persons to identify any known beneficiaries and the settlor (or equivalent) for legal arrangements. (5.5.2 (c)) - FSC Rule Book Rule 9.6(3)(c) requires licenseholders to identify any known beneficiaries for legal arrangements; Rule 9.8 requires licenseholders to have identified a beneficiary and verified their identity before making any payment of capital or income. (5.5.2 (c)) - FSC Handbook guidance: for trusts the trustee(s) or other persons controlling the applicant must be identified, as well as settlor(s), protector(s), any person having power to direct activities, any person whose wishes the trustee may be expected to take into account, known beneficiaries, and potential beneficiaries presenting a high risk (FSC Handbook, Section 3.2.1). (5.5.2 (c)) - IAMLR 2008 (9) and (10) require insurers to identify and verify beneficial owners (natural or legal) in relation to legal arrangements; Section 12 requires insurers to have identified a beneficiary under a life insurance policy and verified their identity before making any payment under a policy. (5.5.2 (c)) - IGN 2008 4.3–4.14 and 4.5 require evidence of officers, specimen signatures, satisfactory evidence of corporate investors, verification of controllers holding 25 percent or more, and where the controller is another entity to lift the veil to the ultimate owner or controller; for trusts, identification of trustee(s), settlor(s), protector(s), known and potential beneficiaries, nature and purpose of the trust, and source or origin of assets under trust. (5.5.2 (c)) ### Reliance on third parties and eligible introducers (context for Recommendation 9) - IOM financial institutions, mainly banks, may depend on others (eligible introducers or otherwise, resident or nonresident) to conduct identification and verification procedures on their behalf. (context) - Vulnerability arises when relying on third parties to reliably identify and verify ultimate beneficial owners. (context) - Financial institutions stressed reputational concerns and indicated they take care in addressing beneficial owner challenges and appeared to implement measures equivalent to those later formalized in AML Code 2008. (context) - The issue of reliance on third parties is addressed further in analysis of Recommendation 9. (context) ### Purpose and intended nature of business relationship (c. 5.6) - AML Code 2008 paragraph 6(3)(c) requires financial institutions and other relevant persons to establish, maintain, and operate procedures in relation to new business relationships and to obtain information on the purpose and intended nature of the business relationship. (c. 5.6) - FSC Handbook Section 3 provides detailed guidance on CDD measures and development of client profiles, requiring understanding of purpose and intended nature of the relationship. (c. 5.6) - IAMLR 2008 Section 14 requires an insurer to satisfy itself as to the purpose and intended nature of the business relationship; IGN 4.5(c), 4.7(a), and 4.13(e) extend this to trustee business, partnerships/unincorporated businesses, and foundations. (c. 5.6) - Financial institutions reported that account opening or policy application forms include questions on purpose and intended nature, reviewed during customer acceptance procedures. (c. 5.6) ### Ongoing due diligence and review requirements (c. 5.7; 5.7.1 & 5.7.2) - AML Code 2008 paragraph 15 requires ongoing and effective monitoring of existing business relationships and scrutiny of transactions to ensure consistency with institution’s knowledge of the customer, business, and risk profile, including source of funds when necessary. (c. 5.7) - FSC Rule Book Rule 9.15 requires licenseholders to perform ongoing and effective monitoring with extent and frequency determined on basis of materiality and risk and in accordance with current risk assessment; FSC Handbook Sections 3.2.5 and 5 provide practical guidance. (c. 5.7) - IAMLR 2008 Section 18(1) replicates the ongoing due diligence requirement; PEPs reinforced in Section 20(6); IGN 2008 sections 1.4, 3.4, 3.5, 5, and 9.5 provide detailed requirements on enhanced CDD, PEPs, existing policyholders, and complex/unusual transactions. (c. 5.7) - Assessors largely satisfied effective ongoing due diligence procedures were in place and implemented, but noted significant differences in scale and scope across financial institutions that could not readily be explained by the risk-based approach. (5.7.2) ### Maintaining up-to-date CDD information (paragraph 15(1)(a)) - AML Code 2008 paragraph 15(1)(a) requires customer CDD information be reviewed to ensure it is up to date and appropriate, particularly where the relationship poses a higher risk. (paragraph 15(1)(a)) - FSC Rule Book Rule 9.15(1)(a) already required licenseholders to review CDD information to ensure it is up to date and appropriate “in particular where the relationship poses a higher risk.” Rule 9.9 requires enhanced CDD for relationships posing a higher risk. (paragraph 15(1)(a)) - FSC Handbook guidance on keeping information up to date appears at Sections 2.1.1, 3.1, 3.2.1, 3.2.5, and 4.7; Section 5 provides guidance on further CDD procedures where basis of relationship changes and risk-based monitoring considerations for high risk relationships. (paragraph 15(1)(a)) - For IPA-regulated insurers there is no specific parallel requirement in insurance regulations to maintain up-to-date documents, data, or information, creating potential confusion as to which set of requirements insurers should follow; IAMLR 2008 Section 18(1) requires insurers to continually consider changing risk profile and whether additional CDD is required. (paragraph 15(1)(a)) - IGN 2008 provides detailed policy guidance on enhanced due diligence and monitoring, trigger events, subsequent unexpected business transactions, and retrospective risk-based reviews of deficient identification documentation, implying review and updating of existing records as necessary. (paragraph 15(1)(a)) ### Enhanced due diligence for higher-risk customers (c. 5.8) - AML Code 2008 paragraph 8 requires relevant persons to carry out enhanced CDD where applicant for business poses a higher risk. Paragraph 8(2) specifies higher-risk customers include, but are not restricted to: - PEPs; - persons in a country that does not apply or insufficiently applies the relevant FATF Recommendations; - a person subject to a warning issued by a competent authority; or - a company with bearer shares. - FATF example categories of high-risk business (not exhaustively listed in paragraph 8(2)) include nonresident customers; private banking; trusts or other personal asset-holding vehicles; and companies with nominee shareholders — these are not listed but are not excluded from enhanced diligence requirements. (c. 5.8) - FSC Rule Book Rule 9.9 requires enhanced CDD in circumstances including: - (a)(i) a business relationship with a politically exposed person; or - (a)(ii) a person or legal arrangement resident or located in a country which the licenseholder has reason to believe does not apply, insufficiently applies, the FATF Recommendations in respect of the business or transaction in question; - (b) a person or legal arrangement which is the subject of a public warning issued by the FSC for the purposes of Rule 9.9; and - (c) a company which has shares in bearer form. (c. 5.8) - For non face-to-face business, FSC Rule Book Rules 9.6(4) and 9.15(3) require adequate measures to compensate for the risk; Rule 9.11 sets specific requirements for relationships with politically exposed persons. AML Code 2008 contains parallel provisions at paragraphs 6(6), 7(5), 9(5), 15(3) (non face-to-face) and paragraph 10 (PEPs). (c. 5.8) - IAMLR 2008 Section 13 requires IPA-regulated insurers to risk-assess clients and apply enhanced due diligence to those considered higher risk; IGN 2.6 and 4 provide recommended minimum detail for risk assessment, while allowing insurers to adopt a risk-based approach for assessing documentation. (c. 5.8) - IOM authorities recognize most financial services business in IOM is potentially high risk due to being largely nonresident, non face-to-face, and much originating through introduced business; authorities extended requirements in late-2008 with detailed guidance in FSC Handbook and IGN 2008 to encourage appropriate enhanced due diligence. Assessors regarded current approach as largely consistent with Recommendation 5 but recommended authorities expand list of high-risk categories to consider including private banking and business involving trusts and other legal arrangements. (c. 5.8) ### Application of simplified/reduced CDD measures (c. 5.9) - Secondary legislation and guidance provide a number of concessions to standard CDD requirements; determining whether these concessions fall within the scope of FATF Recommendation 5 as appropriate reduced or simplified CDD measures is not straightforward given FATF wording and guidance. (c. 5.9) - The source indicates a conclusion on these concessions follows analysis not included in the supplied extract. (c. 5.9) *Source: _cr09278 - 445. Rule 9.6 further requires licenseholders to:* ### 477. AML Code 2008 paragraphs 6(4) and 9(4) provide for what is commonly termed in the IOM ### _cr09278 - 477. AML Code 2008 paragraphs 6(4) and 9(4) provide for what is commonly termed in the IOM ### Acceptable Applicant process (AML Code 2008 paragraphs 6(4) and 9(4)) - Permits both FSC and IPA licenseholders to conduct business with particular types of regulated businesses without having to obtain full CDD documentation for purposes of identity verification. - Businesses listed in the Code (paragraph 477): - a) a regulated person (defined in paragraph 2 of the Code to include specified categories of regulated financial institutions and fiduciaries in the IOM). - b) an advocate within the meaning of the Advocates Act 1976 or legal practitioner within the meaning of the Legal Practitioners Registration Act 1986 or an accountant carrying out business in or from the IOM, where subject to rules of a professional body that include requirements and procedures at least equivalent to the Code; - c) a person who acts in the course of external regulated business (defined in paragraph 2 of the Code to mean a regulated business outside the IOM that corresponds to any of those businesses regulated by the FSC or IPA) and which is regulated under the law and regulations of a country in the list in Schedule 2 to the Code (in which the IOM authorities have listed jurisdictions which, in their view based at least in part on published AML/CFT assessment reports, adequately apply the FATF Recommendations). ### Conditions for applying the concession (paragraph 478 and related) - Licenseholder must: - know the identity of the applicant for business i.e., it must not be anonymous; - know the nature and intended purpose of the relationship; and - be satisfied that the applicant for business is one of the businesses listed at paragraph 6(5) and 9(4) of the Code. - Concession does not apply (paragraphs 6(7), 9(7), 6(8), 9(8)): - where the licenseholder has any reason to believe that the country in which the applicant for business is incorporated or formed does not apply or insufficiently applies the FATF Recommendations; - where there is knowledge or suspicion of money laundering or terrorist financing or there is doubt about the identity or bona fides of the applicant for business. ### IPA-regulated insurer obligations and guidance (paragraphs 480, 489–491, 496–498) - For IPA-regulated insurers undertaking long-term business: - Detailed obligations set out in IGN 2008 Paragraphs 2.13 and 4.1 with respect to business involving Acceptable Applicants, including provision for the Acceptable Applicant to provide verification of identity documents, duly certified. - If this documentation is not provided by the Acceptable Applicant, the insurer must itself obtain it. - The insurer must monitor the status of the Acceptable Applicant on an ongoing basis. - IAMLR 2008 Section 7(1) permits concessions for reduced or delayed CDD relating to monetary thresholds of a single premium and accumulated related premium in a calendar year; Section 7(2) permits concessions where the policy has no surrender or maturity value. - Where concessions apply pursuant to Section 7, CDD must still be undertaken before a payout under the contract. - IAMLR 2008 Section 13(3) does not permit the use of the concessions if the application is considered a higher risk or there is a suspicion of ML/FT. - IPA requires a risk sensitive approach pursuant to IAMLR 2008 Section 13 and provides extensive Guidance Notes on minimum recommended standards and treatment of concessions. ### Practical use, assessors’ view, and compatibility with standards (paragraphs 482, 481) - Financial institutions confirmed the Acceptable Applicant facility is used; institutions determine on a risk basis the level of due diligence warranted. - Assessors noted many institutions conduct higher levels of due diligence regardless of the concession and expressed uncertainty about the value of maintaining the concession in its current form. - Assessors conclude the current Acceptable Applicant facility is not fully compatible with the FATF Recommendations, including on a risk-based approach, nor with the guidance in the Basel CDD paper. - Broader issues with scope of concession (paragraph 481): - It goes beyond the suggested example in the FATF methodology which refers to financial institutions, underlining that any concession granted should have a low risk threshold. - Inclusion of certain IOM-regulated DNFBPs (particularly CSPs and TSPs) may be justifiable, but AML/CFT measures for a number of DNFBP categories in the IOM are still in development and implementation; current wording could be misinterpreted as already granting the concession without regard to needed enhancements, particularly for advocates and accountants. - No basis or proposal to apply or supervise AML/CFT measures for non-IOM legal practitioners registered to conduct certain business in the IOM, yet the concession could apply to them subject to the external regulated business test. - The scope of the definition of external regulated business is broad and imposes a challenge for IOM institutions to determine accurately the extent of supervision of external regulated businesses and whether that supervision adequately addresses AML/CFT matters. ### Eligible Introducer system and related concessions (paragraphs 483–488) - AML Code 2008 paragraph 11 provides the Eligible Introducer’s system: introducers may maintain verification documentation relating to the applicant for business being introduced, subject to Code controls. - FSC-regulated businesses: further requirements at Rule 9.10 of the FSC’s Rule Book. - IPA-regulated insurers: further requirements specified in IGN 2008 Section 8 for an Introducer’s Certificate; Insurance Certificates seldom used in practice and often accompanied by supporting identity and address documentation. - FSC Rule Book (Rule 9.2) permits a concession for beneficial ownership where applicant is a company whose securities are listed on a recognized stock exchange. - FSC’s AML/CFT Handbook includes concessions with unclear legal basis (Section 4.8, 4.10, 4.12): - Section 4.8: clarifies that for employee benefit schemes, share option plans, and pension schemes the trustee/controller/administrator/scheme manager is the principal to be identified and verified for CDD purposes; broad consistency with FATF but appears only in guidance, not law. - Section 4.10: permits accepting source of funds as evidence of identity where “the ML and FT risk has been assessed to be at its lowest” subject to conditions (a)–(e). Conditions include limits on payments, no third-party payments, funds repayable only to the customer, cash payment restrictions, and no suspicion of ML/FT; concession applies to that product or service only. Assessors note potential for abuse and unclear legal basis. - Section 4.12: where an intermediary acting on behalf of underlying customers falls under the definition of an ‘Acceptable Applicant’, the licenseholder can, subject to risk-based conditions, regard the intermediary as its customer and not identify underlying depositors; assessors could not identify legal basis and concluded arrangement is not compliant with Recommendation 5. ### Restrictions tied to Schedule 2 jurisdictions and risk scenarios (paragraphs 492–495) - Concessions (and Eligible Introducer arrangements) are restricted to countries listed in Schedule 2 of the AML Code 2008; Schedule 2 prepared by the DHA in consultation with the FSC and IPA as a list of selected FATF members and other jurisdictions the IOM authorities are satisfied adequately meet the FATF Recommendations. - Concessions cannot be applied if the licenseholder has any reason to believe the jurisdiction does not apply, or insufficiently applies, the FATF Recommendations — prohibition set out in AML Code 2008 paragraphs 6(7), 9(7), and 11(6) and complies with Recommendation 5. - In line with Recommendation 5, concessions are not allowed by AML Code 2008 paragraphs 6(8), 9(8), and 11(11) where there is any knowledge or suspicion of ML (Code defines money laundering to also include FT). - Code makes no reference to disapplying concessions where specific high-risk scenarios apply. - For FSC-regulated entities, lack of clear legal basis for some FSC Handbook concessions creates uncertainty whether disallowance in the Code (where there is knowledge/suspicion of ML) applies to those Handbook concessions. - FSC Rule Book provisions: - Rule 9.5 requires licenseholders to apply CDD measures on the basis of materiality and risk. - Rule 9.9 requires enhanced CDD for certain higher risk relationships. - Rule 9.11 applies further requirements for relationships involving politically exposed persons. - Rule 9.15 requires appropriate ongoing monitoring of all relationships and would trigger steps to ensure CDD is appropriate where simplified CDD had been applied and ongoing monitoring shows higher risk scenarios. - IPA-regulated insurers: IAMLR 2008 Section 13(3) disallows concessions where application is higher risk or there is suspicion of ML or FT. ### Risk-based implementation, guidance, and timing of verification (paragraphs 496–501) - AML Code 2008 does not contain provisions that implementation of CDD measures on a risk-sensitive basis must be conducted in consistence with guidance issued by competent authorities; however: - Paragraph 4(3)(a) allows Courts to take account of regulatory guidance applied by a competent authority when determining compliance. - AML Code 2008 introduced, with effect from December 18, 2008, a requirement that relevant persons must conduct risk assessments which would be expected to take into account relevant guidance. - FSC provides extensive guidance in the FSC Handbook on implementation and specified concessions. - Timing of CDD: - AML Code 2008 paragraph 6(2) requires identification and verification of identity to take place before a business relationship is entered into, or during formation, but in any event as soon as reasonably practicable after first contact (subject to not interrupting normal conduct of business where there is little ML/FT risk). - AML Code 2008 paragraph 9(2) (one-off transactions) and Paragraph 11(3) (introduced business) require identification and verification to be completed before entering into a transaction or relationship, respectively. - FSC Rule Book Rule 9.6(5) stipulates licenseholders must not proceed unless they have determined who the beneficial owner is and taken reasonable steps to verify that beneficial owner and, where appropriate, applied specified basic CDD measures; Rule 9.8 permits verifying beneficiaries after relationship commencement but must be completed before any payment of income or capital is made. - FSC Handbook Section 4.13 clarifies identification and verification should be completed before entering into a business relationship but allows, in exceptional low-risk circumstances, that procedures may be carried out as soon as reasonably practicable with senior management approval and specified controls (monitoring, limiting transaction types/amounts, and monitoring large/complex/unexpected transactions). - Assessors note differences in terminology and scope between AML Code 2008 and the FSC Rule Book that could create potential confusion and conflict; Handbook guidance is useful but does not resolve basic differences in terminology. *Source: IMF assessment text as provided in the content unit.* ### 502. For IPA-regulated insurers, IAMLR 2008 Section 9(1) requires that insurers must not proceed ### _cr09278 - 502. For IPA-regulated insurers, IAMLR 2008 Section 9(1) requires that insurers must not proceed with a business relationship unless they have conducted CDD ### Customer Due Diligence (CDD) timing and concessions - IAMLR 2008 Section 9(1): insurers must not proceed with a business relationship unless they have conducted CDD. - IAMLR 2008 Section 12: verification of the identity of beneficiaries of a life policy can be obtained after a relationship has commenced but must be completed before any payment is made under the contract. - The concession in Section 12 is not available if the beneficiary of a life policy is also an applicant under the same policy. - FATF methodology allows some discretion to defer completion of initial CDD (example: non face-to-face business). - In the IOM, assessors were informed: - Some institutions allow up to 30 days for verification documentation to be submitted. - At least one institution would allow up to 60 days. - In most—but not all—cases, active business would not be allowed to commence on the account prior to completion of all relevant CDD measures. - Delays typically related to minor technical deficiencies (e.g., poorly-photocopied or outdated verification document) rather than complete absence of initial due diligence. - Some legal and accounting professionals allow themselves up to three months to complete the CDD; situations arise where business is completed within that timeframe and CDD is never conducted. ### Failures to complete CDD — legal prohibitions and practice - Failure to complete CDD before commencing the business relationship (c. 5.15): - AML Code 2008 paragraph 4(2): offense to form a business relationship or carry out a one-off transaction without establishing, maintaining, and operating CDD procedures (identification procedures in paragraphs 5 to 15). - AML Code 2008 paragraphs 6(9), 7(6), 9(9), and 11(12): where identification and verification are not completed, the business relationship and transactions shall not proceed further, the relationship shall be terminated, and the relevant person shall consider whether to file an STR. - FSC Rule Book Rule 9.6(5): prohibition on proceeding with a business relationship or transaction repeated for FSC-regulated entities. - FSC Handbook Section 4.13.1: where verification cannot be concluded within a reasonable timeframe and without adequate explanation, licenseholders must assess whether circumstances are suspicious and consider making a disclosure/STR to the FCU. - FSC Handbook Section 5.4.4: customer refusal to provide information without reasonable explanation can give rise to suspicion. - FSC Handbook Section 6.5: guidance on reporting declined business to the FCU where there is knowledge or suspicion of ML or FT. - IAMLR 2008 Section 16: IPA-regulated insurers must consider making an STR when unable to obtain satisfactory evidence of identity and throughout the policy’s lifetime, including for any claim payment (Section 18(2)). - IGN Section 9.4(a): examples of insufficient identity verification as triggers for suspicion. - In practice, financial institutions confirm they refer suspicions to the FCU and file STRs where warranted; FCU corroborated this. - Failure to complete CDD after commencing the business relationship (c. 5.16): - AML Code 2008 paragraph 7(6): business relationship shall not proceed further if satisfactory CDD information and verification is not obtained; relevant person shall consider terminating the relationship and filing an STR. - FSC Rule Book Rule 9.6(5) and FSC Handbook Section 6.5: licenseholders must not proceed unless CDD requirements at Rule 9.6 are complied with; guidance on reporting declined business to the FCU. - IAMLR Section 9(1) and IGN 2008: where absence of satisfactory evidence to verify identity exists, the application for a business relationship must not proceed further; requirement continued throughout IGN 2008. ### Existing customers and anonymous accounts (c. 5.17–5.18) - AML Code 2008 Paragraph 7(2): relevant persons must apply CDD to existing business relationships, including upon defined “triggers” relating to perceived changes in circumstances (including doubt as to adequacy of CDD information). - IGN 2008 Paragraph 5: obligations of IPA-regulated long-term insurers for ongoing review of existing policyholders, including trigger events such as subsequent business transactions or any redemption request. - FSC Rule Book Rule 9.4: in conducting mandated risk assessments, licenseholders must cover existing relationships, including review of information and documentation held. - Assessors understand a program of reidentification was undertaken on the basis of materiality and risk when CDD standards were increased substantially in 2003/4 and that work on risk assessments had commenced. - AML Code 2008 paragraph 7: where CDD information for anonymous accounts is inadequate, steps must be taken to obtain adequate information or documentation; no anonymous accounts were identified to assessors. ### Analysis of Effectiveness — Recommendation 5 (R.5) - Measures were in force and effect at the time of assessment; some introduced only shortly before or shortly after the onsite visit, making full effectiveness assessment difficult. - Effective dates provided in source: - AML Code 2007 — September 1, 2007 - AML Code 2008 — December 18, 2008 - FSC Rule Book — August 1, 2008 - FSC Handbook — August 1, 2008 - Insurance Act 2008 — December 1, 2008 - IPA Insurance (Anti-Money Laundering) Regulations 2008 (IAMLR 2008) — September 1, 2008 - IPA Guidance Notes on Anti-Money Laundering and Preventing of the Financing of Terrorism – for Insurers (Long Term Business) (IGN 2008) — September 1, 2008 - Authorities and financial institutions indicated consultation phases allowed internalization of provisions prior to coming into effect; many changes upgraded legal status of preexisting guidance into regulations. - Regulatory authorities had not, in the main, yet had opportunity to assess implementation of recent changes by on-site visits; FSC and IPA planned to do so from early 2009. - Assessors found: - Very high level of awareness of AML/CFT risks and requirements among financial institutions. - Many institutions involved in supporting development of CDD measures and had experience implementing a risk-based approach. - Overall high level of compliance with CDD requirements reported by institutions, though assessors could not directly test compliance. - Majority of institutions are part of UK, Irish, or other international financial services groups and must comply with group AML/CFT policies as well as IOM requirements. - Concerns and recommendations: - The permitted risk-based approach increases scope for subjective judgment and can make internal management and regulation more difficult; if not carefully managed and documented, it could increase ML and FT vulnerability. - Assessors observed instances where the risk-based approach appeared to explain less than full compliance; recommended regulatory authorities include testing of this in on-site visit programs. - High-risk profile of much IOM financial sector business (nonresident, non face-to-face, introduced by third parties, management from the IOM, concessionary identification arrangements) increases vulnerability. - Reliance on Eligible Introducers and others—often outside supervisory reach of IOM authorities—raises risk; quality of implementation may be uneven and dependent on due diligence by those to whom work is delegated. - Some institutions use Suitable Certifier, Eligible Introducer, or Acceptable Applicant arrangements without indicating need for enhanced due diligence. ### Foreign Politically Exposed Persons (PEPs) — identification, risk management, source of wealth/funds, and ongoing monitoring - Identification (c. 6.1): - AML Code 2008 paragraph 10 (effective December 18, 2008): requires relevant persons to maintain procedures and controls to determine whether an applicant, customer, or beneficial owner or controller is a politically exposed person (PEP). - AML Code 2008 Paragraph 2: detailed definition of PEP includes an extensive range of nonresident officials and those holding other relevant positions, together with their close relatives and associates. - FSC Rule Book Rule 9.2: detailed PEP definition covering FATF glossary aspects; includes categories of natural persons entrusted with prominent public functions, their family members, close associates; domestic PEPs excluded from FSC definition. - FSC Rule Book Rule 9.11: licenseholders must maintain appropriate procedures and controls to determine whether applicants, existing customers, or beneficial owners or controllers are PEPs; guidance in FSC Handbook Section 3.5. - IAMLR 2008 Section 2: for IPA-regulated insurers, defines PEPs as natural persons entrusted with prominent public functions, their immediate family members, or persons known to have influence over decisions of such persons. - IGN 2008: extends PEP definition to include close associates, detailed lists of natural persons entrusted with prominent public functions, family members, close associates, and legal PEPs; IGN 2008 aligned with FATF glossary. - IAMLR 2008 definition does not expressly include persons who previously held such a position; inconsistency noted but binding guidance notes accepted as other enforceable means. - Domestic PEPs are not excluded from IAMLR 2008 definition, although they are outside scope of AML Code 2008. - Risk management (c. 6.2; 6.2.1): - AML Code 2008 Paragraph 10(2): relevant persons must maintain procedures for obtaining senior management approval to establish a business relationship or conduct a one-off transaction with a PEP, or to continue a business relationship with a customer discovered to be a PEP. - FSC Rule Book Rule 9.11(2): licenseholders must have procedures for senior management approval before establishing or continuing business relationships with PEPs; FSC Handbook Section 3.5 requires regular review, on at least an annual basis. - FSC Rulebook Rule 9.11(2)(b): approval of senior management required to continue existing business involving a PEP. - IAMLR 2008 Section 20(4): IPA-regulated insurers must apply procedures and controls for senior management approval to accept an application when a prospective client is identified as a PEP. - IGN 2008 Section 3.3: requires senior management involvement and approval, documentation of such approval, and retention of the documentation. - Requirement to determine source of wealth and funds (c. 6.3): - AML Code 2008 paragraph 6(3)(d): requires relevant persons to take reasonable steps to establish the source of funds of an applicant for business (applicable to all new business relationships, including PEPs). - FSC Rule Book Rule 9.7: licenseholders must take all reasonable steps to establish the source of funds for all customers (including PEPs). - FSC Rule Book Rule 9.9: for PEPs, licenseholders must take reasonable measures to establish the source of the wealth of the customer and any beneficial owner. - For IPA-regulated insurers, IAMLR Section 9.1 and 24: requirement to establish source of funds and source of wealth is a general business requirement and not explicitly PEP-specific. - IGN 2008 Section 1.4: where a PEP is identified, higher due diligence requirements should apply, including additional enquiries into source of wealth. *Source: _cr09278 - 502.* ### 530. With application to all relevant persons, AML Code 2008 paragraph 8(3) includes as one of ### _cr09278 - 530. With application to all relevant persons, AML Code 2008 paragraph 8(3) includes as one of ### Enhanced due diligence and PEPs (paras 530–531) - AML Code 2008 paragraph 8(3) requires, for higher-risk business categories defined in paragraph 8(2) (including PEPs), as an enhanced due diligence measure a requirement to take reasonable steps to establish the source of the wealth of the customer and any beneficial owner (para 530). - For FSC-regulated entities: - FSC Rule Book Rules 9.9 and 9.15 require enhanced ongoing monitoring of a business relationship involving a PEP (para 530). - Further guidance is set out in the FSC Handbook Section 5.1.1 (para 530). - For insurers regulated by the IPA: - IAMLR 2008 Section 20(6) and IGN 2008 3.4 require ongoing oversight of policies which have a PEP as a policyholder, beneficial owner, settlor, trustee, or beneficiary (para 531). ### Domestic PEPs and ratification context (paras 532–534) - Domestic PEPs—Requirements: - IOM requirements do not extend to domestic PEPs for FSC licenseholders, though assessors found that in practice a number of banks appear to apply measures to domestic PEPs (para 532). - For IPA-regulated insurers, IAMLR 2008 and IGN 2008 do not exclude domestic IOM PEPs (para 533). - Domestic PEPs—Ratification of the Merida Convention: - The IOM is not a Sovereign State and cannot sign or ratify the UN Convention against Corruption in its own right; the UK is responsible for international relations and may extend its ratifications to include the IOM after consultation and approval by the IOM Government (para 534). - The IOM enacted a revised Corruption Act in July 2008; the Council of Ministers agreed in May 2007 that the UK’s ratification of the Merida Convention should be extended to include the IOM, and ancillary legislative provisions are being progressed to extend the UK’s ratification to the IOM (para 534). ### Effectiveness of implementation — Recommendation 6 (para 535) - Financial institutions reported identifying PEPs as higher-risk customers and applying enhanced due diligence in accordance with internal controls; none indicated particular difficulty implementing due diligence in practice (para 535). - Institutions use well-known international database products to determine PEP status; some checks automated and integrated, others manual (para 535). - A number of banks include domestic IOM PEPs within the scope of enhanced due diligence (para 535). ### Cross-border correspondent accounts and payable-through accounts (paras 536–539) - AML Code 2008 paragraph 13 (effective December 18, 2008) introduced correspondent banking requirements in line with FATF Recommendations; FSC Rule Book Rule 9.12 sets out corresponding requirements for FSC licenseholders (para 536). - Before entering a correspondent relationship or transaction, a licenseholder must (para 537): - obtain sufficient information about the respondent bank to understand fully the nature of its business; - determine from publicly available information: (i) the reputation of the respondent bank, (ii) the quality of the supervision to which it is subject, and (iii) whether it has been subject to investigation or regulatory action with respect to money laundering or the financing of terrorism; - assess the procedures and controls maintained by the respondent bank for preventing money laundering or the financing of terrorism, and ascertain that they are adequate and effective; - ensure that the approval of the licenseholder's senior management is obtained; and - document the respective responsibilities of the licenseholder and the respondent bank with respect to measures to prevent money laundering and the financing of terrorism. - Payable-through accounts: - AML Code 2008 paragraph 13(5) and FSC Rule Book Rule 9.12(5) require that, where a relationship or transaction involves a payable-through account, a licenseholder must be satisfied that the respondent bank (para 538): - (a) has taken steps complying with the requirements of Recommendation 5 (customer due diligence and record keeping) with respect to every customer having direct access to the account; and - (b) will provide the licenseholder on request with relevant evidence of the identity of the customer. - Effectiveness (para 539): - IOM banks are not in the business of providing correspondent banking services on a cross-border basis. - Some IOM subsidiaries of UK clearing banks provide clearing services to smaller banks in the IOM, but no case was identified to assessors that would constitute cross-border correspondent banking or the use of payable-through accounts. ### Misuse of new technology for ML/FT and related guidance (paras 540–543) - AML Code 2008 paragraph 23 requires relevant persons to maintain appropriate procedures and controls to prevent misuse of technological developments (para 540). - FSC Rule Book Rule 9.13 (effective August 1, 2008) imposes the same requirement on FSC licenseholders; limited guidance appears in FSC Handbook Section 2.8 advising licenseholders to keep staff abreast of relevant technological developments and identified methodologies in ML and FT schemes (para 540). - FSC Handbook advises feeding risks and impacts of technological developments into the business risk assessment required at FSC Rule Book Rule 9.4 (para 540). - Gaps in requirements/guidance (para 541): - Neither requirements nor guidance refer to specific technological risks such as internet banking, establishing accounts by internet or non face-to-face electronic services, use of credit/debit cards to nonresidents on a non face-to-face basis, or security of customer-accessible computer systems to address fraud, phishing, or improper access. - Recommendation to develop more detailed guidance, perhaps with financial institutions, to improve effectiveness of basic requirements given importance in the IOM of non face-to-face relationships. - Authorities noted they have provided relevant training on aspects of IT abuse and followed the FATF methodology. - Industry practices (para 542): - Prospective customers can access account-opening forms on the internet, but opening an account requires forwarding hard-copy documentation with an original signature. - Emergence of certain UK-based financial services products marketed, including in the IOM, on the basis that the customer relationship can be created using the internet. - Financial institutions issue debit and credit cards to nonresidents to give access to funds in the IOM; when combined with likely non face-to-face account opening and reliance on third parties to conduct CDD, this scenario may merit additional guidance. - For IPA-regulated insurers (para 543): - IAMLR 2008 Section 37 requires insurers to have procedures and policies to prevent misuse of technological developments for ML or FT. - Training requirement pursuant to Section 32 extends to all staff on information on new developments, techniques and trends. - IGN Section 2.23 refers to IAMLR 2008 Section 37 and expands on misuse of technological developments; reviews can be risk-assessed and are particularly relevant where application or contact is made by electronic methods. ### Risk of non-face-to-face business relationships (paras 544–547, 549) - AML Code 2008 (effective December 18, 2008) added requirements into CDD measures that relevant persons take adequate measures to compensate for risks arising from dealing with applicants otherwise than face-to-face (paragraphs 5(5), 6(6), 7(5), 9(5), and 15(3)) (para 544). - FSC Rule Book Rule 9.15(3) (effective August 1, 2008) requires licenseholders to take adequate measures to compensate for any risk as a result of not dealing face-to-face with the customer; none of the requirements specify the types of measures to be applied (para 544). - FSC Handbook Section 4.5 guidance (para 545) — to guard against identity fraud when a customer relationship is established remotely, a licenseholder must either: - (a) Obtain copies of documents certified by a suitable certifier; or - (b) If suitably certified copy documents cannot be obtained, verify address using electronic data sources and undertake at least one of the following before full activation: - (a) Require payment for the product or service to be drawn from an account in the customer’s name at a credit institution in an equivalent jurisdiction. - (b) Send a letter by registered post to validate the address and ensure account is not activated until signed acknowledgement of receipt is returned. - (c) Make a “physical” validation, e.g. initial telephone call by staff to a telephone number independently validated. - (d) Requisition additional documents to complement those required for face-to-face customers. - (e) Internet sign-on following verification procedures where the customer uses security codes, tokens and/or other passwords provided by mail (or secure delivery) to the named person at an independently verified address. - Recommendations on elevating guidance (para 546): - FSC Handbook guidance is worded in mandatory terms though not directly enforceable; assessors recommend elevating essential elements to an instrument with direct legal effect (e.g., FSC Rule Book) and adding more detailed guidance on non face-to-face risks and mitigation steps. - IAMLR 2008 (para 547): - Section 13 requires insurers to assess each applicant or policyholder on a risk basis to determine inherent ML/FT risk; higher risk business subjected to higher CDD and enhanced ongoing due diligence. - Sections 4 and 22 enforce that ultimate responsibility remains with the insurer when activities are outsourced or delegated; such functions are undertaken as if by the insurer. - Insurers must have procedures to meet Regulations including ensuring activities carried out on their behalf comply with IAMLR Section 21 when reliance is placed on an introducer. - Effectiveness observations (paras 548–549): - Specific requirements to prevent misuse of technological developments were only recently introduced at the time of the onsite visit (August 1, 2008 for FSC licenseholders; September 1, 2008 for IPA-related businesses; December 18, 2008 in the AML Code), so meaningful assessment of effectiveness was not realistic (para 548). - Non face-to-face business is the norm in the IOM; practices vary by institution with some conducting direct CDD until certainty is achieved and others using concessions such as Suitable Certifiers and Eligible Introducers, indicating uneven standards and a need for supervisory focus (para 549). ### Recommendations (3.2.2 — R.5 and R.8) - R.5 recommendations: - The authorities should take steps to eliminate any residual inconsistencies in AML/CFT legal requirements and terminology. - The authorities should expand the current list of categories of higher-risk customers and consider including, for example, private banking and business involving trusts or other legal arrangements. - The authorities should conduct a risk-based review of the current scope of the Acceptable Applicant facility and, if warranted, limit its availability for consistency with the FATF Recommendations. To comply with the FATF Recommendations, financial institutions should be required in all cases to determine whether a customer is acting on behalf of another person and to take reasonable steps to obtain sufficient identification data to verify the identity of that other person. - If the exceptions to the CDD requirements of secondary legislation as currently set out in the FSC Handbook are to be retained, the authorities should amend the secondary legislation as necessary to provide for them. - Should the authorities decide to continue allowing source of funds to be used as principal evidence of identity in certain low-risk circumstances, the requirements should be tightened further to eliminate any remaining risk of abuse for ML or FT purposes. - The authorities should review on a risk basis the implementation of the concession allowing operations to commence prior to completion of full CDD procedures to ensure it is not being misused. - The authorities should ensure that insurance managers and insurance intermediaries are included within the scope of all relevant AML/CFT requirements. - R.8 recommendation: - To support the implementation of the basic requirement in this area, the authorities should issue more detailed guidance on the specific ML and FT risks of new technologies, for example in relation to e-money and e-commerce. ### Compliance ratings and factors underlying ratings (3.2.3) - R.5 — PC - Available concessions from conducting full CDD represent an overly-generous implementation of the FATF’s facility to apply reduced or simplified measures, including where the customer is acting on behalf of another person. - Financial institutions are not required in all cases to determine whether a customer is acting on behalf of another person and take reasonable steps to obtain sufficient identification data to verify the identity of that other person. - Current list of suggested high-risk customers omits some significant high risk business categories relevant in the IOM. - Some residual inconsistencies and potential overlap/conflict between pieces of AML/CFT secondary legislation. - Some exceptions to CDD requirements provided for only in guidance. - As recently introduced at the time of the on-site visit, the effectiveness of implementation of some CDD requirements and supplementary provisions of the AML Code 2008 could not be fully assessed. - R.6 — C - R.7 — C - R.8 — LC - Limited evidence of special attention to specific ML and FT risks of new technologies, including in relation to e-money and e-commerce and no evidence of testing by the FSC of implementation by financial institutions of appropriate measures. - Effectiveness of implementation of requirements regarding the risk of misuse of technologies and non face-to-face business relationships could not be fully assessed due to recent introduction at the time of the on-site visit. ### Third parties and introduced business (R.9) — description and analysis (para 550) - Much financial business in the IOM is conducted on a non face-to-face basis for nonresidents; IOM banking, insurance, and other financial services products are marketed globally, including through business introducers (para 550). - Potential risks: - The potentially long distribution chain may increase exposure of IOM financial institutions to misuse for ML and FT, including through layering and structuring, as institutions are remote from the customer and face added challenges in identifying the ultimate beneficial owner(s) or controller(s) (para 550). - Authorities’ response: - IOM authorities developed a protocol to accommodate the use of business introducers by IOM entities subject to the AML Code 2008. - A defined class of introducer (‘Eligible Introducer’) was provided for by availing of FATF Recommendation 9 provisions to fulfill CDD obligations of Recommendation 5; objective to eliminate duplication of effort and documentation where conditions in secondary legislation and guidance are met (para 550). - Analysis focus: - In addition to formal compliance with Recommendation 9, analysis considers whether the protocol is sufficiently robust and implemented effectively to control risks arising from reliance on third parties for conducting and documenting CDD. *Source: Extracted text from the provided IMF content unit* ### 551. AML Code 2008 paragraph 11 sets out the basis on which CDD measures should be applied ### _cr09278 - 551. AML Code 2008 paragraph 11 sets out the basis on which CDD measures should be applied ### Background and scope - AML Code 2008 paragraph 11 sets out the basis on which CDD measures should be applied where business is introduced by a third party. - The Code defines an introducer commonly referred to in practice as an “eligible introducer” (see AML Code 2008 paragraph 11(5)(c)(i) definition elements). - The analysis assesses consistency with the criteria of FATF Recommendation 9. ### Requirement to immediately obtain certain CDD elements from third parties (c. 9.1) - AML Code 2008 paragraph 11(4) requires IOM financial institutions or other relevant persons to establish, maintain, and operate procedures that include either: - (a) The production by the introducer of evidence of the identity of the applicant for business; or - (b) The taking of such other measures as will produce evidence of their identity; - In each case in accordance with AML Code 2008 paragraph 6(3), which includes requirements to verify identity, obtain information on the purpose and intended nature of the business relationship; and taking reasonable steps to establish the source of funds. - It is not expressly provided that the evidence should be furnished to the IOM financial institution, but this is understood by the requirement for “production”. - AML Code 2008 paragraph 11(3) places the obligation to conduct CDD directly with the IOM financial institution; reliance on the introducer is limited to sourcing information and documentation on behalf of the (prospective) customer and, as appropriate, the beneficial owner. - Paragraph 11(5) provides an exemption from the requirement to produce verification of identity if: - a) The relevant person has identified the applicant for business and the beneficial owner and knows the nature and intended purpose of the relationship; and - b) The introducer meets the definition of an ‘eligible introducer’ (see definition elements below). - Definition elements of “eligible introducer” used in practice (AML Code 2008 paragraph 11(5)(c)(i)): - a) a regulated person (defined in paragraph 2 of the Code to include specified categories of regulated financial institutions and fiduciaries in the IOM; specifically: banks, investment businesses, building societies, CSPs, TSPs, trustees of retirement benefit schemes, and retirement benefits scheme administrators); - b) an advocate or legal practitioner within the meaning of the Legal Practitioners Registration Act 1986 or an accountant carrying out business in or from the IOM, where subject to rules of a professional body that include requirements and procedures at least equivalent to the Code; - c) a person who acts in the course of external regulated business (defined in paragraph 2 of the Code to mean a regulated business outside the IOM that corresponds to any of those businesses regulated by the FSC or IPA) and which is regulated under the law of a country in the list in Schedule 2 to the Code. - Observed issues with scope of the definition: - Inclusion of certain IOM-regulated DNFBPs (specifically CSPs and TSPs) may be premature given ongoing development and implementation of AML/CFT measures for DNFBP categories. - No basis or proposal existed at time of assessment for applying or supervising AML/CFT measures for non-IOM legal practitioners registered to conduct certain business in the IOM; nevertheless the concession could apply subject to the external regulated business test. - Basis for AML/CFT measures for IOM accountants based on membership of professional bodies had not been finalized at the time of the on-site visit. - Broad scope of “external regulated business” complicates IOM institutions’ determination of the extent and adequacy of supervision of external introducers. - Compliance with timing requirements: - AML Code 2008 paragraph 11(2) provides that production of satisfactory evidence of identity (or equivalent measures) shall be undertaken before entering into a business relationship. - Assessors found that the more liberal timeframe in practice at the time of the on-site visit was sometimes interpreted inconsistently with Recommendation 9; the scope for deferred CDD was subsequently removed by the authorities (effectiveness of implementation not confirmed by assessors). - For business sourced from eligible introducers, verification may be waived provided the financial institution has identified applicant and beneficial owner, knows nature and intended purpose, and confirms eligibility criteria are met. - Insurance-specific provisions: - Insurers are subject to AML Code 2008 and IAMLR 2008; IAMLR 2008 Sections 4 and 21(5) reinforce insurer responsibilities. - IAMLR 2008 Section 9 requires insurers to take reasonable measures to verify client identity and satisfy on source of wealth and source of funds; hold either original documents or suitably certified copies, or undertake an investigation satisfying the insurer; information must be reliable, independent. - Introducer may supply information but is not permitted to certify CDD documentation unless classified as a suitable certifier; if introducer retains information, it must be made available to insurer “upon request and without delay” (IAMLR Section 21). - IGN 2008 defines an Introducer’s Certificate (Section 12(i)) and limits acceptance by IPA-regulated entities among other requirements to introducers regulated in jurisdictions listed in Schedule 2 of the AML Code 2008; assessors were advised Introducer Certificates are now rarely used (currently used by only one insurer and only then from UK FSA-authorized and regulated intermediaries, per IPA). - IAMLR 2008 Section 8 requires production of satisfactory evidence “as soon as is reasonably practicable”; if relationship commences before completion of CDD, insurer must apply measures to control type and volume of transactions. AML Code 2008 paragraph 11(3) introduced a requirement for identification before entering into a business relationship, consistent with Recommendation 9. ### Availability of identification data from third parties (c. 9.2) - AML Code 2008 paragraph 11(7) requires written terms of business before entering into a business relationship with a person introduced by a third party. - Paragraph 11(7)(e) requires terms of business to require the introducer to supply forthwith upon request copies of evidence verifying identity of the applicant and beneficial owner and all other CDD data held by the introducer. - IAMLR 2008 Section 21 imposes a similar requirement for insurers; Section 21(3) requires introducers to supply forthwith upon request evidence verifying identity and all related CDD of the applicant and beneficial owner or controller. ### Regulation and supervision of third party (applying R.23, 24 & 29, c. 9.3) - AML Code 2008 paragraph 11(8) requires the relevant person to ensure introducer procedures are fit for purpose and that produced evidence is satisfactory. - Paragraph 11(9) requires relevant businesses to randomly test introducer procedures to ensure robust and effective compliance. - Paragraph 11(10) requires financial institutions to satisfy themselves that the introducer is regulated and supervised for AML/CFT purposes and to take steps to ensure awareness of material changes to the intermediary’s status or that of its jurisdiction—identified as a significant strengthening. - IAMLR 2008 Section 21(2) requires IPA-regulated entities to ensure ongoing monitoring of an introducer includes information on the introducer’s regulatory status. - IGN 2008 Section 7.4–7.5 outlines insurer procedures to assess regulatory status and monitor ongoing status of regulated introducers who hold CDD documentation on their behalf, including sample testing and procedures to retrieve documents. ### Adequacy of application of FATF Recommendations (c. 9.4) - AML Code 2008 paragraph 11(6) excludes from the Eligible Introducer concession introducers from any country that does not apply or insufficiently applies the FATF Recommendations in respect of the business of the introducer. - IGN Section 7.4 requires insurers to consider location, regulatory status, and regulatory body of the introducer but contains no specific mandatory requirement to assess whether the introducer’s jurisdiction adequately applies the FATF Recommendations. - IGN 7.4 permits insurers, where they believe an introducer is subject to insufficient ML/FT regulation, to introduce additional measures (including devising CDD procedures for the introducer); such additional measures are discretionary, not mandatory. ### Ultimate responsibility for CDD (c. 9.5) - AML Code 2008 paragraph 11(13) provides that ultimate responsibility for ensuring CDD procedures comply with the Code remains with the relevant person. - FSC Handbook Sections 4.11 and 4.12 clarify responsibility remains with the IOM licenseholder for FSC-regulated entities. - IAMLR Section 9(4) prohibits delegation of responsibility for CDD for IPA-regulated insurers; responsibility remains with the insurer for outsourced or delegated functions to ensure activities comply with the Regulations. - IGN Section 2.5 permits reliance on information collected by a third party, but Section 7.1 affirms ultimate responsibility for CDD and verification remains with the insurer. - A potential question exists as to legal precedence between AML Code 2008 and IAMLR 2008 where provisions overlap or conflict. ### Effectiveness of implementation - Introducers are an important source of new and continuing business for IOM financial institutions. - Observed approaches by financial institutions vary: - Some place full reliance on Eligible Introducers to the extent permitted. - Others are selective, relying on a smaller subset of known and trusted introducers by type or jurisdiction. - Some institutions require all CDD procedures to be conducted directly by their staff. - Some institutions no longer rely on introducers following unsatisfactory experiences. - Challenges undermining effective implementation: - Difficulty in determining whether a foreign introducer is regulated and supervised specifically for AML/CFT purposes given the wide definition of external regulated business (AML Code 2008 Section 2). - Assessors found strong indications that the Eligible Introducer arrangement posed reputational risk to the IOM, with anecdotal evidence of significant deficiencies in some cases contrasted with high satisfaction in others. - Regulatory authorities provided evidence they consider inherent risks and focus on introduced business in on-site work; continued focus in onsite inspection programs recommended. ### Recommendations and comments (3.3.2) - The authorities should review the range of business introducers in respect of which concessions are applied to ensure that all categories are subject to equivalent AML/CFT requirements. - By means of on-site supervision or otherwise, the regulatory authorities should assess the effectiveness of CDD being obtained from Eligible Introducers or Introducers including, in the case of insurers, the use and effectiveness of Introducer’s Certificates. - The authorities should remove any residual inconsistencies in secondary legislation following the coming into force of the AML Code 2008. ### Compliance with Recommendation 9 (3.3.3) - Rating: R.9 LC - Factors underlying rating: - Not all permitted categories of introducer were subject to full AML/CFT requirements. - Indications of inconsistent implementation by financial institutions in relation to requirements in place at the time of on-site visit in applying due diligence relating to their reliance on Eligible Introducers, introducers, or Introducer’s Certificates, as applicable. *Source: _cr09278 - 551. AML Code 2008 paragraph 11 sets out the basis on which CDD measures should be applied* ### 575. With regard to access by relevant (including supervisory) authorities to confidential ### _cr09278 - 575. With regard to access by relevant (including supervisory) authorities to confidential ### Access by relevant (including supervisory) authorities to confidential information (FSA 2008) - FSA 2008 came into effect on August 1, 2008 and largely replicates earlier supervisory legislation. - Section 15 FSA 2008 brings into effect Schedule 2 FSA 2008, which lists FSC powers to: - inspect books, accounts, and documents of financial institutions; - require provision by financial institutions of such information as the FSC may reasonably require for performance of its functions under the FSA 2008 (including explicitly as a regulatory objective in Section 2 (2)(c) FSA 2008 “the reduction of financial crime”); - enter property and take possession of documents; - require appointment of reporting accountants or appoint an external inspector to provide reports relevant to supervision. - Section 34 FSA 2008: - empowers the FSC to enter into mutual assistance agreements with regulatory authorities (as defined in Section 48 FSA 2008); - Section 34(3) empowers the FSC to conduct an investigation on behalf of another regulatory authority where requested to assist that authority. - Section 34(4) provides that these provisions “shall not permit the disclosure of any information relating to the affairs of a customer other than in accordance with Schedule 5” FSA 2008. - Schedule 5 FSA 2008: - contains provisions limiting provision of customer information to ensure information may be used only in accordance with regulatory powers and for valid purposes; - unless customer approval is obtained before information is provided to a foreign authority, information is subject to controls on use and dissemination. - The FSC’s published policy (including as signatory of the IOSCO MMOU) is to provide full and timely assistance to other regulators. - The matter is addressed further in the report’s analysis of compliance with R.40. ### Inspection and investigative powers of the IPA (IA 2008) - IA 2008 Schedule 5 enables the IPA to exercise powers to inspect books, accounts, and documents and undertake inspections and investigations in relation to: - an insurer or former insurer; - a person suspected of or appearing to carry on contracts of insurers; - a controller including a body corporate; - any associate or former associate; - any partnership; - customers or former customers; - any other person with whom the insurer had formed a business relationship. - Such powers include power of entry and access. - Limitations on IPA disclosure: - Schedule 6 IA 2008 provides that the IPA shall treat information relating to the business or other affairs as restricted and shall not disclose such information other than in relation to the exceptions listed in Schedule 6.2. - Schedule 6.1 does not preclude disclosure to a recognized regulator, whether governmental or private, in the IOM or elsewhere, for purposes of discharging its functions and exercising functions relating to financial crime pursuant to Section 37 and Schedule 6.2(2) IA 2008. - IA 2008 Schedule 5 largely replicates IA 1986 powers and extends inspection and investigative powers specifically to: - registered or former insurance intermediaries; - managers; - persons exempt from registration; - any scheme or former scheme including administrators or trustees to such schemes; - “any person who the Supervisor has reason to believe has information that is relevant to the discharge of the Supervisor’s functions under the Act” on reasonable grounds. ### Recommendations and Compliance (R.4) - Recommendation: - Bring into force the provision that financial institutions do not breach their confidentiality duty in exchanging customer information between themselves for AML/CFT purposes. - Compliance rating summary for R.4: LC - Underlying factor: Explicit exclusion from common law duty of client confidentiality not yet brought into force to permit financial institutions to exchange information. ### Record keeping and wire transfer rules (R.10 & SR.VII) — Legal framework - Record keeping requirements are set out in the AML Code 2008: - paragraph 4(1)(a)(ii) requires establishment, maintenance, and operation of record keeping procedures in accordance with paragraphs 16–19 (records of verification of identity; records of transactions; retention of records; format and retrieval). - For FSC-regulated entities: - FSC Rule Book 2008 Rule 9.16 sets further requirements, supported by detailed guidance in the Handbook 2008. - Accounting records: - Banking Act 1998, Code 78 of the Banking (General Practice) Regulatory Code 2005 requires a licenseholder to keep accounting records necessary to accurately disclose its business transacted in or from the IOM at any time; records must be maintained for a period of six years. - For IPA-regulated insurers: - record keeping requirements are set forth in IAMLR 2008 Regulations 28–30 and further detailed in the IGN 2008. ### Record-keeping & Reconstruction of Transaction Records (c. 10.1 & 10.1.1) - AML Code 2008 paragraphs 16 and 17(1) require financial institutions and other relevant persons to keep records of all transactions for at least five years from the date of the transaction, including identification data, account files, business correspondence records, and records sufficient to permit reconstruction of individual transactions and compliance with the Code. - Insurers: - IAMLR 2008 Regulation 29 requires “that records be maintained for at least five years from the date of the last transaction or when the business relationship was formally ended”. - AML Code 2008 paragraph 17(3) (effective December 18, 2008) provides that where a relevant person becomes aware that a request for information or an enquiry is underway by a competent authority, all relevant records must be maintained for as long as required by the competent authority. - Eligible introducer arrangements: - AML Code 2008 paragraph 11(7) requires that record keeping in accordance with paragraph 17(1) be included in written terms of business with the eligible introducer. - AML Code 2008 paragraph 11(9) requires testing, on a random and periodic basis, of procedures (including supply forthwith upon request of identity and beneficial owner evidence). - AML Code 2008 paragraph 18(2) requires introducer to produce upon request copies of requested records and notify if no longer able to comply. - AML Code 2008 paragraphs 11(7)(f) and (h) require introducer to “supply to the relevant person forthwith copies of” identification/verification evidence and all other CDD data where: - (a) The introducer is to cease trading; - (b) The introducer is to cease doing business with the applicant for business; or - (c) The relevant person informs the introducer that it no longer intends to place reliance on that introducer. - FSC Rule Book Rule 9.16 restates Code record-keeping requirements and additionally requires records be available to staff of the licenseholder and to the FSC. - IAMLR 2008 Regulations 28–30 require records be maintained for at least five years and be sufficient to: - identify the source and recipient of payments to permit authorities and competent third parties to assess the insurer’s observance of ML policies and procedures; - compile an audit trail for the reconstruction of any transactions; and - satisfy within a reasonable timeframe any enquiries or court orders as to disclosure of information. - IAMLR 2008 Regulation 29(2): where a report has been made to the FCU, or where the insurer should know or knows of a matter under investigation, the insurer must retain all records for as long as required by the FCU. - IGN 2008 expands on record-keeping requirements pursuant to Section 10. ### Record-Keeping for Identification Data, Files and Correspondence (c. 10.2) - AML Code 2008 paragraph 16 requires maintenance of identification data, account files, and business correspondence records for at least five years. - FSC Rule Book 2008 Rule 9.16 requires retention of all information resulting from any step taken in identifying or verifying identity or ascertaining source of funds. - Some accounting/business records have a mandatory minimum retention period of six years. - For IPA-regulated insurers: - records must be retained for at least five years from the date of the last transaction or when the business relationship was formally concluded; timeframe can be extended as required by the FCU. - IAMLR 2008 Regulation 30: all CDD information must be available for investigative purposes “wherever held, and whether held by the insurer or not”. - IGN 2008 Section 10.4: insurers must advise introducers of applicable requirements of the AML Code 2008, IAMLR 2008 and IGN 2008; insurers retain legal responsibility to ensure retrieval/recreation of transaction records even where maintained by third parties. ### Availability of Records to Competent Authorities in a Timely Manner (c. 10.3) - AML Code 2008 paragraph 18: - hard copies kept in the IOM must be capable of retrieval without undue delay; - hard copies kept outside the IOM must be capable of being sent to the IOM and made available within seven working days; - other records (including computer copies) must be readily accessible in or from the IOM and capable of retrieval without undue delay. - AML Code 2008 paragraph 11(7)(d) requires record keeping in accordance with paragraph 16 to be included in written terms of business with an eligible introducer. - FSC access methods: - FSA 2008 Section 15 and Schedule 2 provide powers of inspection and investigation, including power to request information about the affairs of a customer (Schedule 2, Paragraph 2) and power to issue direction (Schedule 2, Paragraph 2(3)). - Paragraph 3 of Schedule 2 provides FSC power to require information where authorized in writing by a Justice of the Peace (the method normally used to obtain AML/CFT information for investigations). - For IPA-regulated entities: - IAMLR 2008 and IGN 2008 require insurers to retrieve all records and satisfy, within a reasonable time, court orders or enquiries requiring disclosure; no maximum timeline is stipulated. - IAMLR 2008 Regulation 28(2): electronic records must be available, legible, and capable of reproduction in a manner acceptable to the IPA and IOM Courts. - IGN 2008 8.6: insurers must have written procedures for obtaining copies of documentation from the introducer on request, ad hoc or on cessation of business. - Assessment conclusion on legal framework: - Legal framework is in line with the international standard, but some risk remains that information held by third parties outside the IOM might not be released in practice despite IOM licensed entity assurances; requirements introduced in late-2008 mitigate but do not entirely eliminate this risk. ### Effectiveness of implementation — R.10 - In practice: - All financial institutions interviewed confirmed retention of records of transactions, account opening and ongoing due diligence, accounts, and correspondence for at least five years, and more typically for 10 or 12 years. - All records retained in the IOM are available to relevant competent authorities without delay. - Some institutions maintain part of their records at group facilities outside the IOM, mainly in the UK. - Views on reliance on third parties for record maintenance varied: some satisfied, others had ceased relying on third parties. - Competent authorities reported no difficulties or delays in obtaining information and records from licenseholders and follow appropriate legal channels and procedures. ### Obtain Originator Information for Wire Transfers — Introduction - IOM is in monetary union with the UK. - A derogation was approved on December 8, 2008 in respect of EU Regulation 1781/2006, following a request made to the EU by the UK Treasury on behalf of the IOM authorities. - The derogation provides for the UK to establish agreements with Jersey, Guernsey, and the IOM so that the reduced information requirement can apply to payments passing between the UK and these associated territories. - The derogation would not apply between that territory and any other Member State. - For the derogation to take full effect, a formal agreement was required between the IOM and UK authorities; such an agreement was not in place within the timeframe of this assessment. - The assessors took the approved derogation into account for purposes of this assessment as all relevant documentation was available to the assessors. *Source: _cr09278 - 575. With regard to access by relevant (including supervisory) authorities to confidential* ### 600. Provisions in relation to wire transfers are set out, not in primary legislation, the AML Code ### _cr09278 - 600. Provisions in relation to wire transfers are set out, not in primary legislation, the AML Code ### Implementation and legal basis - Provisions in relation to wire transfers are set out, not in primary legislation, the AML Code 2008, or the FSC Rule Book 2008, but by order. - The IOM authorities implemented European Regulation 1781/2006 on Wire Transfers by orders of the Council of Ministers: - “European Community (Wire Transfers Regulation) (Application) Order 2007”, as amended by the “European Communities (Wire Transfers Regulation) (Application) (Amendment) Order 2007”. - EC Wire Transfers Regulation (Enforcement) Regulations 2007 came into force on December 15, 2007. - Article 3 (Scope) of EC Regulation 1781/2006, as applied in the IOM by the Amendment Order 2007: - Regulations are not applied to credit/debit card transactions at paragraph 2. - Payments between financial institutions whilst acting on their own behalf are excluded at paragraph 7(c). ### Guidance and scope (FSC Handbook) - Detailed guidance set out in the FSC Handbook 2008 Section 5.3. - Handbook clarifies Regulation is intended to cover all types of funds transfer made ‘by electronic means’ other than those specifically exempted. - For UK Payment Area based payment system the Handbook includes, but is not necessarily limited to, international payment transfers made via SWIFT, including various EUR payment systems, and domestic transfers via the UK payment systems, CHAPS and BACS. ### Obtain Originator Information for Wire Transfers (applying c. 5.2 & 5.3 in R.5, c.VII.1) - Payment service providers required, before transferring funds other than from an account, to verify complete information on the payer where the amount exceeds EUR1,000 (or the transaction is carried out in several operations that appear to be linked and together exceed EUR1,000). - The exemption threshold does not apply where there is a suspicion of money laundering. (European Regulation (Application) Order, paragraph 5.4). - Complete information on the payer (Handbook Section 5.3.4.1) consists of name, address, and account number. - Substitutes for address: payer’s date and place of birth, or national identity number, or customer identification number. - If payment is not debited to a bank account, the account number requirement must be substituted by a unique identifier permitting traceability. - Some IOM banks report using unique identifiers for wire transfers generally. ### Inclusion of Originator Information in Cross-Border Wire Transfers (c. VII.2) - Chapter II, Article 5, paragraph 1 of EC Regulation 1781/2006, as applied in IOM, requires full originator information to accompany a wire transfer of the required amount. - SR.VII concession relating to batch file transfers applied pursuant to Chapter II, Article 7, paragraph 2 of EC Regulation 1781/2006, as applied in IOM. ### Inclusion of Originator Information in Domestic Wire Transfers (c. VII.3) - Where banks of both payer and payee are located within the UK Payment Area (defined in the IOM as equivalent to domestic), wire transfers need be accompanied only by the payer’s account number or a unique identifier. - If requested by the payee’s bank, complete information must be provided by the payer’s bank within three working days. - On December 8, 2008, the European Commission confirmed Member States agreed to grant a derogation for the IOM for UK Payment Area wire transfers. - IOM provisions define domestic transfers as including those to/from the UK Payment Area; required details must be supplied within three working days if requested. ### Maintenance of Originator Information (c.VII.4) - Banks must have systems to detect when originator information is incomplete or missing pursuant to Chapter III, Article 8 of EC Regulation 1781/2006, as applied in IOM. - If such wire transfers are detected the details must be requested, or the transfer rejected, as per Chapter III, Article 9. - Intermediary payment service providers must ensure all payer information that accompanies a transfer is kept with the transfer pursuant to Chapter IV, Article 12. - Requirements on technical limitations and record retention for five years are detailed at Chapter IV, Article 13. ### Risk-Based Procedures for Transfers Not Accompanied by Originator Information (c. VII.5) - FSC Handbook 2008 requires banks to have effective procedures to detect non-compliant incoming wire transfers; monitoring need not disrupt straight-through processing. - Payment service provider required to adopt a risk-based approach and consider whether such a wire transfer is suspicious and whether to make a report to the FCU (Chapter III, Article 10). - Expected practical measures include post-event random sampling of incoming payment traffic, risk-based and described as: - (a) sampling could normally be restricted to payments emanating from banks outside the UK Payment Area where the complete information requirement applies; - (b) sampling could be weighted towards non-FATF member jurisdictions, particularly those deemed high risk under a bank’s own country risk assessment, or by reference to external sources such as Transparency International, or FATF or IMF country reviews; - (c) focused more heavily on transfers from those Payer banks identified by such sampling as having previously failed to comply with the relevant information requirement; - (d) other measures might be considered, e.g., checking at point of payment delivery that payer information is compliant and meaningful on all transfers collected in cash by payees on a “Pay on application and identification” basis; - (e) None of the above requirements obviate the obligation to report suspicious actions in accordance with normal suspicious transaction reporting procedures. - Practical implementation by IOM banks: - Mixed responses from IOM banks on treatment of incoming transfers lacking full originator information. - One bank systematically reviews incomplete wire transfer receipts from a set of high-risk countries and may request additional information from the sending bank; for other countries a 10 percent sampling rate is applied. - A list of ‘frequent offenders’ is maintained and contacted; controls primarily implemented at UK group level. - Measures in place could be interpreted as within the risk-based terms of SR.VII but represent only a partial application of the objective that obtaining originator information is the expected standard, with exceptions acceptable only in low-risk circumstances. - Smaller IOM banks sometimes contract larger IOM banks to transmit payments; difficulties reported in transmitting full originator information in some cases. - Requirement to restrict future business and take other appropriate action such as terminating the relationship, plus making report to the FSC, is at Chapter III, Article 9, paragraph 2 of EC Regulation 1781/2006, as applied in IOM. ### Monitoring of Implementation (c. VII.6) - FSC does not routinely monitor implementation of wire transfer provisions; it has not been viewed as a higher risk issue but plans to do so as part of the visit cycle process in 2009/10. - Most IOM banks are branches or subsidiaries of banks in the EU and apply group procedures; reliance on group procedures is not fully in compliance with the monitoring requirements of SR.VII. ### Application of Sanctions (c. VII.7: applying c.17.1 – 17.4) - Sanctioning powers for wire transfers pursuant to the EC Wire Transfers Regulation (Enforcement) Regulations 2007 Sections 3 and 5(1–3). - Under Section 43 of the FSA 2008, if an FSC licenseholder is in contravention of any statutory provision, the FSC may exercise any action for breach (with the exception of powers under Section 16 and Section 20 of the Financial Services Act 2008). - Actions for breach defined in Section 48 of the Financial Services Act 2008 include revocation or suspension of a license, issue of directions in respect of an individual’s fitness and propriety and service of warning notices. ### Thresholds and additional elements (c. VII.8 and c. VII.9) - IOM law does not require incoming or outgoing wire transfers under EUR/USD1,000 to contain full originator information. ### Recommendations and compliance outcomes (3.5.2 and 3.5.3) - Recommendations: - The FSC should reconsider whether the current implementation of the risk-based approach for incoming wire transfers lacking full originator information accurately reflect the level of underlying risk. - The FSC should continue to include wire transfers within its program of on-site supervision. - Compliance ratings and factors: - R.10 C - SR.VII LC - Underlying factors: - Tighter implementation may be needed in applying the risk-based approach when dealing with wire transfers that lack full originator information. - Need for additional FSC monitoring of ongoing compliance with wire-transfer requirements. ### Monitoring of transactions and relationships (R.11 & R.21) - AML Code 2008 Paragraph 7 requires procedures in relation to: - A suspicious pattern of transactions; - Transactions or patterns of transactions that are complex or unusually large and which have no apparent economic or visible lawful purpose; - Unusual patterns of transactions which have no apparent economic or visible lawful purpose. (paragraph 7(2) (b), (c) and (d)) - Procedures (AML Code 2008 paragraph 7) include examination of the background and purpose of the transaction and, where necessary, reidentification of the customer or beneficial owner. - AML Code 2008 paragraph 9(6) requires relevant persons to take adequate measures to compensate for any risk arising from one-off transactions that are complex or unusually large or have no apparent economic or visible lawful purpose. - Paragraph 15 requires ongoing monitoring, including scrutiny of transactions and other activities, paying particular attention to transactions that are complex, large, or unusual, or of an unusual pattern, and which have no apparent economic or lawful purpose. - FSC Rule Book Rule 9.15 requires licenseholders to perform ongoing and effective monitoring; Rule 9.15(3) requires enhanced measures for non face-to-face business. - IAMLR Section 17 requires insurers to pay special attention to complex transactions and maintain written records of examinations. - Record-keeping: - AML Code 2008 paragraph 7(4) requires written records of examinations and retention for at least five years (paragraph 17(1)). - FSC Rule Book Rule 9.16(1) requires records of documents produced when further scrutiny is undertaken for complex, large and unusual transactions. - IAMLR Regulations 28–30 require records be kept for at least five years and in a manner that can be produced and reconstructed. - Financial institutions report systems highlighting divergences between actual business and expected activity; unexplained divergences may trigger an STR to the FCU and potentially termination of the customer relationship. - Special attention to countries not sufficiently applying FATF Recommendations: - AML Code 2008 paragraphs 6(7), 9(7), and 11(6) state concessions from full CDD measures have no effect if the relevant person ‘has reason to believe that the country in question does not apply or insufficiently applies the FATF Recommendations’. - AML Code 2008 paragraph 8(2)(a)(ii) requires enhanced due diligence where the applicant poses a higher risk, including where the person is resident or located in a country which the relevant person has reason to believe does not apply or insufficiently applies the FATF Recommendations. - FSC Rule Book Rule 9.9 includes as part of ‘matters which pose a higher risk’ business relationships or transactions with persons located in countries believed not to apply, or insufficiently apply, the FATF Recommendations. *Italic: Source: _cr09278 - 600. Provisions in relation to wire transfers are set out, not in primary legislation, the AML Code* ### 628. For IPA-regulated insurers, IAMLR 2008 Section 6(1) requires insurers to have procedures in ### _cr09278 - 628. For IPA-regulated insurers, IAMLR 2008 Section 6(1) requires insurers to have procedures in ### Jurisdictional risk, insurers, and guidance (paragraphs 628–631) - IAMLR 2008 Section 6(1) requires IPA-regulated insurers to have procedures in place to take into consideration applicants who are located or incorporated in countries on the FATF NCCT list only. - IAMLR 2008 Section 13(2) requires insurers during the risk assessment process to undertake enhanced CDD for applicants considered high risk, but the legislation does not reference consideration of whether a country does not apply or insufficiently applies FATF recommendations. - IGN 2008 (applicable only for insurers undertaking long-term business) requires insurers to consider the jurisdiction when conducting the risk assessment. IGN2008 Section 1.7 states that jurisdictions listed in Schedule 2 of the AML Code 2008 should not be assumed to apply an appropriate standard of AML/CFT regulation and that the list should not be regarded as an automatic trigger to apply reduced CDD. - There are no systematic measures to ensure financial institutions are formally advised of concerns about weaknesses in the AML/CFT systems of other countries; however, relevant information is available from a number of sources: - FSC licenseholders must advise the FSC under Rule 9.14(3) when a foreign branch or subsidiary is unable to apply AML/CFT measures of an appropriate standard. - The IPA requires insurers to submit the same notifications pursuant to Section 3(3) IAMLR 2008. - The Joint Anti-Money Laundering Advisory Group (JAMLAG) provides a regular public/private sector forum that could include concerns about particular jurisdictions. - Authorities have communicated concerns directly to licenseholders or via their websites (for example, warnings issued by the FCU or Customs and Excise). - AML Code 2008 paragraph 7(3) requires financial institutions and other relevant persons to undertake “an examination of the background and purpose of the transactions or circumstances” for categories in paragraph 7, which includes transactions that have no apparent economic or visible lawful purpose. Paragraph 7(4) requires written records of any examination, steps, measures, or determination and provision of findings to competent authorities and auditors on request. Records required by the Code must be retained for at least five years (paragraph 17(1)). - At the time of the assessment, authorities did not identify any basis on which the Isle of Man could apply appropriate counter-measures to countries that do not apply or insufficiently apply the FATF Recommendations. The DHA has the power to remove a jurisdiction from the list in Schedule 2 of the Code that are regarded as applying AML/CFT measures equivalent to those of the IOM. Authorities noted that, given the size of the jurisdiction, any countermeasures applied by the IOM were unlikely in practice to have significant impact. - Footnotes indicate subsequent developments: the Terrorism (Finance) Act 2009 came into force in July 2009, and the FSC updated its AML/CFT Handbook to add an appendix detailing countries with concerns. ### Recommendations, ratings, and follow-up (section 3.6.2–3.6.3) - Recommendation: - The authorities should formalize appropriate means of applying counter-measures to countries that do not or insufficiently apply the FATF Recommendations. - Compliance ratings summary: - R.11 — C - R.21 — LC - Underlying factor: the process to ensure financial institutions are advised of concerns about weaknesses in other countries’ AML/CFT systems had not been formalized at the time of the assessment. ### Suspicious Transaction Reports (STRs) and reporting regime (sections 3.7.1 and SR.IV) - Legal framework and obligations: - Sections 17K CJA 1990, 48 DTA 1996 and 11 ATCA 2003: a person may be held criminally liable if he knows or suspects another person is engaged in laundering proceeds of a predicate offense, that knowledge or suspicion came to his attention in the course of his trade, business, profession or employment, and he does not disclose the information or other matter to a constable as soon as is reasonable practicable after it comes to his attention. - Section 20(2) of the Code requires financial institutions and other relevant persons to establish, maintain, and operate written internal reporting requirements to enable prompt reporting of knowledge or suspicion of money laundering or terrorist financing to the FCU. - The Code clarifies procedures should relate to disclosure to a constable who is with the FCU; the inverted formulation of the STR reporting requirement is considered to have the same meaning in law as a direct formulation and does not appear to impact decision-making by financial institutions on whether to file an STR with the FIU. - Section 14 ATCA 2003 criminalizes non-reporting where the knowledge or suspicion relates to terrorism financing offenses within the scope of that Act; Section 11 ATCA 2003 makes it an offense not to report suspicions relating to offenses under the ATCA. - The terrorism financing offenses under ATCA 2003 fall short of the international standard in a few areas; accordingly, the scope of the reporting requirement involving funds to finance terrorism is limited. - Practical reporting issues: - Financial institutions reported that they would be required to report promptly to the FCU any knowledge or suspicion of FT. - It is not unusual for more than one week to elapse between formation of an initial suspicion and reporting to the FCU while internal or other enquiries are undertaken. Efforts should be made to expedite STR reporting in line with the AML Code 2008 requirement for prompt reporting. - The reporting provisions refer to knowledge or suspicion of illegal activity and are not limited to transactions; attempted transactions and attempts to commence a business relationship are reported in practice. - Reporting obligations make no reference to tax-related matters; tax-related matters are therefore not excluded from the scope of STR reporting offenses. In practice, financial institutions reported they consider themselves obliged to report all cases of suspicion of tax-related offenses. - A material spike in STR reporting in 2005 is attributed in part to information about likely noncompliance with tax requirements in the context of a South African tax amnesty and the EU Savings Tax Directive. ### STR statistics (FCU published statistics cited) - Annual totals (by reporting year): - 2004–05: Total 2,315 - 2005–06: Total 2,265 - 2006–07: Total 1,652 - 2007–08: Total 1,561 - Selected breakdowns (examples preserved exactly as published): - By offence type (2004–05 / 2005–06 / 2006–07 / 2007–08): - Drugs: 211 9.11% | 86 3.80% | 314 19.01% | 85 5.45% - Crime: 2,059 88.94% | 2,168 95.72% | 1,329 80.45% | 1,468 94.04% - Terrorism: 45 1.94% | 11 0.49% | 9 0.54% | 8 0.51% - By type of business (2004–05 / 2005–06 / 2006–07 / 2007–08): - Life Assurance/Insurance Company: 963 41.60% | 803 35.45% | 576 34.87% | 322 20.63% - Retail/Offshore Bank: 818 35.33% | 967 42.69% | 677 40.98& | 926 59.32% - Private Bank: 133 5.75% | 79 3.49% | 84 5.08% | 95 6.09% - CSP: 164 7.08% | 144 6.36% | 153 9.26% | 94 6.02% - Grounds for suspicion (selected examples, 2004–05 / 2005–06 / 2006–07 / 2007–08): - Money Laundering: 856 36.98% | 818 36.11% | 492 29.78% | 165 10.57% - Fraud/False Accounting: 498 21.51% | 627 27.68% | 233 14.10% | 377 24.15% - Fiscal: 0 0.00% | 0 0.00% | 255 15.44% | 412 26.39% - Unsatisfactory Source of Funds: 125 5.40% | 158 6.98% | 73 4.42% | 65 4.16% - Customer status (2004–05 / 2005–06 / 2006–07 / 2007–08): - An Existing Customer prior to Dec 1998: 1,195 51.62% | 780 34.44% | 442 26.76% | 390 24.98% - A New Customer SINCE 1998: 1,120 48.38% | 1,485 65.56% | 1,193 72.22% | 889 56.95% - Residence of subject (2004–05 / 2005–06 / 2006–07 / 2007–08): - Isle of Man: 118 5.10% | 126 5.56% | 105 6.36% | 64 4.10% - UK: 593 25.62% | 842 37.17% | 576 34.87% | 634 40.61% - EU: 291 12.57% | 308 13.60% | 172 10.41% | 148 9.48% - Other: 1,313 56.72% | 989 43.66% | 799 48.37% | 480 30.75% - Observations from authorities and assessors: - The Chief Constable’s Annual Report states the reduction in overall STR numbers in 2006 should not be interpreted as a relaxation in anti-money laundering efforts; higher awareness produced more focused and relevant reporting. - The higher percentage of reports relating to drugs reflects increased awareness of financing of the local drug trade; the Constabulary’s use of financial investigation to target local drug dealing showed early success. - Reporting by professionals (advocates and accountants) remains low. - Assessors found exceptionally high levels of knowledge of AML/CFT requirements, awareness of risk and typologies, and that systems, arrangements, and training were in place to facilitate identification, internal reporting, and filing of STRs with the FCU. *This summary is drawn solely from the supplied IMF assessment text for the referenced content unit.* ### 647. There is no reference to tax-related matters and so they are not excluded from the scope of the ### _cr09278 - 647. There is no reference to tax-related matters and so they are not excluded from the scope of the ### Scope of STR reporting offenses - "There is no reference to tax-related matters and so they are not excluded from the scope of the STR reporting offenses under the ATCA 2003." - This issue is further discussed in the analysis of R.13. ### Additional element — reporting of all criminal acts (c. 13.5) - IOM law does not require dual criminality; "all predicate offenses for money laundering therefore extend to any conduct committed abroad, regardless of whether or not the conduct constitutes an offense in the country where it was committed." ### Protection for making STRs (c. 14.1) - Statutory provisions cited as providing broadly-worded protection from liability for disclosure: - Sections 17A(3)(a), 17B(5)(a), 17K(4)(b), and 21 CJA 1990; - Sections 46(3)(a), 47(5)(a), (48)(4) and (6) DTA, 1996; - Sections 12 and 15 ATCA. - These provisions protect any person reporting knowledge or suspicion of criminal activity pursuant to the three acts from criminal liability for disclosure where required by statute or otherwise. - Identified shortcomings preventing full compliance with the international standard: - "They do not clarify that the protection applies to the financial institution as well as to their directors, officers, and employees (permanent and temporary);" - "They do not explicitly provide protection against civil liability or refer to contracts and it would be a matter for judicial determination as to whether the scope of the protection applies;" - "There is no limitation that the protection should apply only where the disclosure is made in good faith to the FIU." - Uncertainty remains: "It is not clear that the protection is available even without identifying precisely the underlying criminal activity or establishing that illegal activity actually occurred." ### Prohibition against tipping-off (c. 14.2) - Tipping-off provisions specify circumstances for an offense rather than directly prohibiting tipping-off. - Sections creating tipping-off offenses: - Sections 17D CJA 1990 and 49 DTA 1996 — a person is guilty where he knowingly discloses to any person information about: - "an ongoing or proposed investigation by law enforcement;" - "a disclosure to the FCU;" - "an internal disclosure to the MLRO (e.g., within a financial institution) relating to ML offenses covered by the Act, comprising ‘information or any other matter which is likely to prejudice’ an investigation." - Schedule 6 to the POCA 2008 inserted Section 21A into the CJA 1990 (came into operation on October 22, 2008) creating a new tipping-off offense regarding disclosure that an institution had been served with a Section 21 order by the AG seeking information relating to an investigation in another institution. - Exemptions and related provisions: - Sections 17D(4) and 49(4) DTA 1996 exclude professional legal advisors when giving advice in contemplation of, in connection with, or for the purposes of legal proceedings. - Section 27 ATCA adopts a similar approach for FT but does not directly prohibit tipping-off. - Financial institutions reported no concerns; many confirmed internal AML/CFT procedures include measures to avoid tipping-off. ### Confidentiality of reporting staff (c. 14.3) - "There are no explicit measures in place to ensure that the names and personal details of staff of financial institutions that make an STR are kept confidential." - Protections and practices: - FCU staff covered by the Official Secrets Act. - Information received by the FCU covered by confidentiality provisions of CJA 1990, DTA 1996, ATCA 2003, and the Data Protection Act 2002. - Only authorized personnel have access to STR data in the FCU’s database. - Financial institutions indicated they were not concerned about names being revealed and expected MLROs and other staff to be prepared to give evidence in open Court as needed. - Authorities may apply to a judge for a public-interest indemnity in specific Court cases to keep private the names and identities of witnesses if warranted. ### Consideration of reporting currency transactions above a threshold (c. 19.1–19.3) - Authorities considered a threshold-based reporting system for currency transactions, most recently on the basis of an FCU paper in April 2008. - A working group reviewed the FCU paper in August 2008 and "endorsed the position of the FCU, following consultations with the FSC and DHA, that such a reporting system was not feasible for the IOM." - The authorities determined "that the continuation of the current system based on suspicious transaction reporting was more appropriate for the IOM." - Result: "The authorities opted not to introduce a system for reporting large currency transactions." ### Feedback to financial institutions with respect to STR and other reporting (c. 25.2) - The FCU publishes detailed STR statistics via the Chief Constable’s annual report, "with appropriate breakdowns." Latest published statistics are included elsewhere in the report (analysis of Recommendation 13). - FCU provides feedback on typologies and trends through: - seminars and presentations (some jointly with regulatory authorities); - Advisory Notices circulated to licenseholders on latest threats, offenders, or trends; - typology information via regulatory authorities, regular press releases, and lectures; - case feedback as appropriate. ### Recommendations and comments (section 3.7.2) - R.13 - "The FCU and supervisory authorities should take steps to enhance the timeliness of reporting of suspicious transactions to the FCU." - "The law should be amended to provide comprehensively that suspicious attempted transactions must be reported promptly to the FCU." - R.14 - "The authorities should amend the law to extend the protection for persons reporting suspicions to the FIU to cover all aspects in the international standard and limit the protection to reporting in good faith." - "The authorities should consider introducing measures to ensure the confidentiality, including in Court proceedings, of persons reporting suspicions to the FIU." - SR.IV - "The authorities should amend the law as needed to address the deficiencies in the scope of ATCA 2003 and thereby provide the required scope of coverage for STR reporting." - "The FCU and supervisory authorities should take steps to enhance the timeliness of reporting of suspicious transactions to the FCU, including for suspicions of FT." - "The law should be amended to provide comprehensively that suspicious attempted transactions must be reported promptly to the FCU." ### Compliance ratings and underlying factors (section 3.7.3) - R.13 — LC - "Scope to improve timeliness of reporting of STRs to the FCU." - "Comprehensive requirement needed to report attempted transactions that raise suspicions." - R.14 — PC - "The scope of the protection for STR reporting is not sufficient to include all categories of person or circumstances in the international standard and is not limited to good faith reporting." - R.19 — C - R.25 — LC - Section-specific rating would be: C - SR.IV — PC - "The scope of the FT reporting requirement is limited by the incomplete coverage of ATCA 2003." - "Scope to improve timeliness of reporting of STRs to the FCU." - "Comprehensive requirement needed to report attempted transactions that raise suspicions." ### Internal controls, compliance, audit and foreign branches (R.15 & 22) — key elements (section 3.8) - Establish and maintain internal controls to prevent ML and TF (c. 15.1, 15.1.1 & 15.1.2) - AML Code 2008 paragraph 4(1)(a) requires procedures for identification procedures (CDD), record keeping, internal reporting and reporting to a constable (the FCU) of suspicious transactions, staff screening, and AML/CFT preventive procedures. - AML Code 2008 paragraph 4(1)(b) requires employee awareness; paragraph 4(1)(c) requires appropriate training. - AML Code paragraphs 6(1), 7(1), 11(1) require procedures for new business, continuing business relationships, and introduced business. - Paragraph 20(2) requires written internal reporting procedures for reporting suspicious transactions. - Paragraph 21 requires staff screening procedures. - AML Code paragraph 4(2) makes it an offense not to comply with paragraph 4(1). - Sector-specific regulatory requirements in force at the time of the assessment: - Banking: Paragraph 42/87 of the Banking (General Practice) Regulatory Code 2005 — adequate AML/CFT policies and procedures and comprehensive operational risk management policy. - Investment business: Conduct of Business Regulatory Code 2000, Paragraph 6. - CSPs and TSPs: Fiduciary Services (General Requirements) Code, Paragraph 9(1) — documented internal controls, systems, and procedures. - Insurance (IPA-regulated insurers): - IAMLR 2008 requirements: CDD (Section 9); risk assessment and enhanced CDD (Section 13); on-going monitoring (Section 18); MLRO appointment and responsibilities (Section 26); record keeping minimum "of five years" with longer if required by the FCU (Section 29); staff screening and training (Sections 31 and 32); STR reporting procedures including attempted suspicious transactions (Section 27). - Financial institutions reported having developed and documented AML/CFT procedures, often drawing on UK and other parent institutions. ### MLRO requirements (c. 15.1.1) - AML Code 2008 paragraph 20(1): financial institutions must appoint a Money Laundering Reporting Officer (MLRO), "sufficiently senior within the organization," with direct access to directors, managing board, or partners. - The provision does not explicitly require that the MLRO be at management level as per the international standard, but "the essential elements of such status are captured by the language of the provision." - AML Code 2008 paragraph 20(2) further specifies internal management procedures for identification and reporting of suspicious transactions. - IAMLR 2008 Section 26 requires the insurer’s board to appoint an MLRO "able to act independently" with direct access to the board; Section 26(3) treats the MLRO as a manager for purposes of Section 29 of the IA 2008. - For MLROs who are not employees (e.g., insurance managers), IAMLR 2008 Section 4 requires sufficient seniority and experience and direct access to the insurer’s board. - AML Code 2008 paragraph 20(2)(e) requires MLRO to have full access to information "which may be of assistance to him and which is available to the relevant person." The qualifier "available to the relevant person" could undermine effectiveness, particularly for documents held by third parties or outside IOM. - IAMLR 2008 Section 26(6) requires MLROs to have access to all documents and files "no matter where such records be held." ### Independent audit of internal controls (c. 15.2) - "There is no requirement in law, regulation, or other enforceable means to maintain an adequately resourced and independent audit function (having regard to the size and nature of the business), as would be needed for compliance with the international standard." - IPA-regulated insurers: IAMLR 2008 Section 36 requires compliance monitoring procedures for the MLRO to regularly monitor implementation and operation of ML/TF procedures and controls, including monitoring effectiveness of awareness and training techniques. - In practice, many financial institutions are part of international groups and are subject to comprehensive group internal audit processes; assessors confirmed group internal audit and external audit testing often encompass ML/FT risk and AML/CFT internal controls. ### Ongoing employee training on AML/CFT matters (c. 15.3) - AML Code 2008 paragraph 4(1)(c) ties business relationships to education and training requirements set out in Paragraph 22. - AML Code 2008 paragraph 22 requires education and training including refresher training "not less than annually" for: - all directors/partners; - all persons involved in management; - all key staff and appropriate employees; - training must cover: - "(a) the provisions of the money laundering requirements;" - "(b) their personal obligations under the money laundering requirements;" - "(c) the internal reporting procedures established under paragraph 20;" - "(d) the relevant person’s policies and procedures to prevent money laundering;" - "(e) the relevant person’s customer identification, record-keeping and other procedures;" - "(f) the recognition and handling of suspicious transactions;" - "(g) their personal liability for failure to report information or suspicions in accordance with internal procedures;" - "(h) new developments, including information on current techniques, methods and trends in money laundering and the financing of terrorism." - FSC Handbook Section 7 provides guidance on suitable AML/CFT training for licenseholders. - IAMLR 2008 Section 32 requires appropriate and ongoing ML and TF training covering: - "(a) Information on new developments;" - "(b) Current ML and TF techniques including methods and trends;" - "(c) A clear explanation of the relevant significant aspects of applicable laws and obligations and the requirements concerning suspicious transaction reporting." - Specific training must be in place for senior management, specific AML staff and holders of key control positions. - IAMLR 2008 contains no frequency provision for training; IGN 2008 Section 11.5.2 (applicable only to insurers undertaking long-term insurance) requires training "at least annually." - Both IAMLR 2008 and IGN 2008 require new employees be given education and training "as soon as reasonably practicable." - Financial institutions confirmed AML/CFT training is a high priority; training formats include computer-based, classroom-style, and clinics. Institutions maintain detailed training records reviewed during regulatory on-site visits. *Source: _cr09278 - 647. There is no reference to tax-related matters and so they are not excluded from the scope of the* ### 681. AML Code 2008 paragraph 21 requires a financial institution or other relevant person to ### _cr09278 - 681. AML Code 2008 paragraph 21 requires a financial institution or other relevant person to ### Staff screening and hiring practices (AML Code 2008 para 21; IAMLR 2008 Section 31) - AML Code 2008 paragraph 21 requires a financial institution or other relevant person to establish, maintain, and operate appropriate procedures to satisfy itself of the integrity of new directors or partners (as appropriate) and of all new appropriate employees. - The Code does not define "appropriate employees" in this context. - For FSC licenseholders: - FSC Handbook 2008 Section 7.2 explains "appropriate employees" is not unique to high-level staff but may include other members of staff (e.g., frontline staff) where there are ML or FT risks. - The Handbook sets out screening measures including obtaining and confirming references, confirming employment history, requesting details of any regulatory action taken against the job applicant, or of any criminal convictions. - IAMLR 2008 Section 31 requires staff screening procedures to be in place for both the insurer and, where relevant, the insurance manager, to confirm integrity and abilities appropriate to the new employee’s role. - Financial institutions interviewed during the assessment confirmed they apply strict vetting procedures to all applicants for employment. ### Independence and access of the Compliance Officer / MLRO (Additional Element—c. 15.5) - AML Code 2008 paragraph 20(1) requires that the MLRO must have the right of direct access to the directors, managing board, or partners of the financial institution or other relevant person. - IAMLR 2008 Section 26(1) also requires that the MLRO must have the right of access to the board of directors where necessary. ### Application of AML/CFT measures to foreign branches & subsidiaries (Recommendations 22.1, 22.1.1, 22.1.2, 22.2) - AML Code 2008 Paragraph 14 (effective December 18, 2008) requires financial institutions and other relevant persons to ensure any branch or subsidiary outside the IOM takes measures consistent with the Code and guidance issued by a competent authority, to the extent permitted by the laws and regulations of the host country. - For FSC licenseholders, FSC Rule Book 2008 Rule 9.14 sets out similar requirements, in line with the international standard. - Both AML Code 2008 Paragraph 14 and FSC Rule Book Rule 9.14 require that institutions must: - (1) ensure that any branch or subsidiary in a country or territory outside the IOM takes measures consistent with the AML Code 2008, the FSC Rule Book 2008 and AML/CFT guidance, to the extent permitted by the laws and regulations of that country or territory. - (2) where the minimum AML/CFT measures in such a country or territory differ from those required by IOM law, ensure that any branch or subsidiary in that country or territory applies the higher standard, to the extent permitted by the laws and regulations of that country or territory. - (3) inform the IOM competent authority when a branch or subsidiary is unable to take any of the measures referred to in paragraph (1) or (2) above because it is prohibited by the laws and regulations of the country or territory concerned. - For IPA-regulated insurers: - Section 3 of IAMLR 2008 requires insurers with branches or subsidiaries in other jurisdictions to apply practices consistent with the IAMLR requirements for equivalent business. - IGN 2008 Section 1.9 requires branches or subsidiaries in other jurisdictions to implement procedures consistent with IGN 2008 and to comply with any host jurisdiction requirement that is more onerous (Section 1.9.2). - Section 1.9.3 requires insurers to ensure the requirements of IGN 2008 are met where the branch or subsidiary is in a jurisdiction it may have reason to believe does not apply, or insufficiently applies, the FATF recommendations. - Except for IPA-regulated insurers, there is no requirement in law, regulation, or other enforceable means that financial institutions must pay particular attention that the principles of Recommendation 22 are observed with respect to any branches and/or subsidiaries in countries which it believes does not apply, or insufficiently applies, the FATF Recommendations. - Practical applicability is limited in the IOM because most typical IOM financial institutions are subsidiaries or (in a few cases) branches of non-IOM financial groups, rather than operating subsidiaries or branches abroad. At the time of the assessment, the IOM had three banks with overseas branches and a small number of insurance licenseholders abroad whose ultimate parent is an IOM entity. ### Consistency of CDD measures at group level (Additional Element—c. 22.3) - There is no specific requirement in law, regulation, or other enforceable means to apply consistent CDD measures at the group level, taking into account the activity of the customer with the various branches and majority owned subsidiaries worldwide. - For IPA-regulated insurers, IAMLR 2008 and IGN 2008 require branches and subsidiaries in other jurisdictions to implement procedures consistent with IAMLR 2008 and IGN 2008. ### Recommendations and compliance findings (R.15 and R.22) - R.15 Recommendation: - The authorities should supplement current provisions by introducing in law, regulation, or other enforceable means a requirement that, having regard to the size and nature of the business, financial institutions maintain an adequately resourced and independent audit function to test compliance with AML/CFT procedures. - Compliance with Recommendation 15 — Rating: LC - There is no requirement in law, regulation, or other enforceable means expressly covering AML/CFT to maintain an adequately resourced and independent audit function (having regard to the size and nature of the business). - Compliance with Recommendation 22 — Rating: C ### Shell banks (Recommendation 18) - No explicit prohibition on the establishment of a shell bank in the IOM is present in law; however: - A license issued by the FSC pursuant to FSA 2008 Section 7 is required to conduct any activity regulated by that Act, which includes deposit taking. - Section 6 provides that a license will not be issued under Section 7 unless the FSC is satisfied that the applicant is managed and controlled in the IOM. - FSC General Licensing Policy (approved July 1, 2008) paragraphs 3.2.1–3.2.5 require license applicants to establish a "real presence" in the IOM; examples of demonstrating real presence include management and control in the IOM for IOM-incorporated companies, or registration as a foreign company that has established a place of business in the IOM for branches of foreign companies. - The centre of regulated business should be in the IOM and there should normally be two resident officers. - Records relating to the business must be located in the IOM or be accessible from the IOM without recourse to third parties (subject to outsourcing or branch arrangements for which the FSC might give consent). - FSC Rule Book Rule 8.26 allows records to be maintained by third parties, including outside the IOM, in specified circumstances. - The FSC’s licensing policy allows operation of a "managed business" subject to controls sufficient to preclude the operation of a shell bank; a managed operation must be managed or administered by a licenseholder within a specific financial services license (Class 7). - Prohibition of correspondent banking with shell banks: - Rule 9.12(2) of the FSC Rule Book 2008 and AML Code 2008 paragraph 13(2) prohibit entering into or continuing a relationship with a shell bank. - Requirement to satisfy respondent financial institutions prohibit use of accounts by shell banks: - Rule 9.12(3) of the FSC Rule Book 2008 and AML Code 2008 paragraph 13(3) require a licenseholder/relevant person not to enter into or continue a relationship to which this rule applies with a financial institution outside the IOM unless satisfied that the respondent bank does not permit its accounts to be used by shell banks. - Assessors did not encounter any indication that IOM financial institutions provide services to shell banks. - Compliance with Recommendation 18 — Rating: C ### Supervisory and oversight system — regulation, supervision, guidance, monitoring and sanctions (R.23, R.29, R.17 & R.25) - Overall: - For the most part, IOM financial institutions are subject to adequate AML/CFT regulation and supervision, with a small number of areas needing further development for full compliance. - Legal framework and instruments: - AML Code 2008 (secondary legislation) provides for a wide range of measures to comply with many FATF Recommendations; the 2008 Code is a substantial improvement on AML Code 2007 and largely consistent with FSC Rule Book 2008. - FSC Rule Book 2008, Part 9 (effective August 1, 2008) deals in detail with AML/CFT for FSC-regulated entities; FSC Handbook 2008 supplements the Rule Book with substantial guidance (many provisions use mandatory language). - IAMLR 2008 and IGN 2008 apply to IPA-regulated insurers; IAMLR 2008 deals specifically with prevention and detection of ML and covers countering financing of terrorism pursuant to Section 5. IAMLR 2008 applies only to insurers; other parts of the insurance industry (insurance intermediaries and managers) remain subject to AML Code 2008. - Regulation and supervision of money-services business was transferred to the FSC with effect from August 1, 2008; full application of AML/CFT measures by the FSC for MSBs did not come into effect until January 1, 2009 and is beyond the scope of this assessment. - Coverage and scope (position as at: December 18, 2008): - CJA 1990: All covered entities — AML only - AML Code 2008: All covered entities — AML covered explicitly, CFT by interpretation - FSC Rule Book: All FSC licenseholders (banks, investment business, services to collective investment schemes, CSPs, TSPs, and MSBs) — AML and CFT - FSC Handbook: All FSC licenseholders (banks, investment business, services to collective investment schemes, CSPs, TSPs, and MSBs) — AML and CFT - Insurance Act 2008 (IA 2008): All insurance businesses — AML and CFT (IPA) - Insurance Regulations (IAMLR 2008): Insurers — AML and CFT (IPA) - Insurance Guidance Notes: Insurers (long-term business) — AML and CFT - Limitations and implementation: - IAMLR 2008 excludes insurance intermediaries and managers, registered scheme administrators, and scheme trustees from its scope. - IGN applies only to long-term insurers. - Assessors found a high level of awareness among financial institutions of AML/CFT risks, typologies, and IOM/international requirements. - Few weaknesses in implementation were identified; main ML/FT vulnerabilities were dependence on non face-to-face business with nonresidents, often introduced by third parties, and extensive use of concessions in CDD (Acceptable Applicant, Suitable Certifier; fiduciary account; Introducer and Eligible Introducer arrangements). - The inherent risks and extent of concessions call into question the possibility of ever achieving full effectiveness of implementation of AML/CFT preventive measures. - Supervisory activity and resources: - Amount of on-site AML/CFT-specific inspection work in banks and insurers has been limited in recent times; bank visits focused on risk and governance arrangements with at least some coverage of AML/CFT in most cases. - Limited resources devoted to AML/CFT-specific onsite work partly reflect resources spent on updating the AML/CFT legal framework. - Regulatory authorities planned to increase AML/CFT-related on-site visits to financial institutions in 2009/10 once institutions had time to absorb the latest requirements. - Financial institutions indicated they had, for the most part, already implemented new measures in advance of the effective date due to a lengthy consultative process and alignment with group requirements (particularly for UK groups). - The assessors note their findings represent a snapshot and ongoing evaluation of implementation rests with the supervisory authorities. *Italic line: Source: _cr09278 - 681. AML Code 2008 paragraph 21 requires a financial institution or other relevant person to* ### 704. The above table indicates that all IOM financial institutions have a designated regulatory ### _cr09278 - 704. The above table indicates that all IOM financial institutions have a designated regulatory authority for AML/CFT purposes. ### Designated Supervisory Authorities and Objectives - All IOM financial institutions have a designated regulatory authority for AML/CFT purposes. - Financial Supervision Commission (FSC) - Objectives and functions set out in section 2 of the Financial Services Act 2008. - Section 2(1): functions exercised (a) compatible with regulatory objectives in subsection (2); and (b) in a way the Commission considers most appropriate for meeting those objectives. - Section 2(2) regulatory objectives: - (a) securing an appropriate degree of protection for the customers of persons carrying on a regulated activity; - (b) the reduction of financial crime; and - (c) supporting the Island’s economy and its development as an international financial centre. - Assessors noted potential conflict where FSC’s developmental objective could affect effective application of supervisory AML/CFT measures; FSC policy interprets the objective as protecting and enhancing the reputation of the IOM as a financial center, requiring effective AML/CFT implementation. - FSC devoted notable resources over the last two years to updating the AML/CFT framework. - Insurance and Pensions Authority (IPA) - Constitution and function set out in section 3 and Schedule 1 to the IA 2008. - Statutory objectives include making public documents regarding detection and prevention of financial crime and continuously supervising and reviewing administration and implementation of relevant Acts. - IPA has power to make Regulations (Section 50) and Guidance Notes (Section 51) under IA 2008, including in relation to AML/CFT matters. ### Fit and Proper Criteria; Prevention of Criminals Controlling Institutions (c. 23.3 & 23.3.1) - Statutory fit and proper tests applied to all license applicants, owners, controllers, directors, and key managers for IOM financial institutions. - FSC: Fit and Proper requirements in FSA 2008 Section 6: - (1) A license will not be issued under FSA 2008 Section 7 unless the FSC is satisfied that: - (a) the applicant is a fit and proper person to carry on the regulated activity and provide the services described in that application; - (b) any controller or director of the applicant is a fit and proper person to act as such; - (c) such other persons as appear to the FSC to be key persons are fit and proper persons; and - (d) the applicant is managed and controlled in the Island. - (2) In assessing fit and proper, the FSC will have regard to: - (a) the integrity, competence, financial standing, structure and organization of the applicant; - (b) the integrity, competence and financial standing of (i) any controller or director of the applicant; (ii) key persons in relation to the applicant; and - (c) the description of the business the applicant proposes to carry on. - (3) The FSC may publish guidance setting out the criteria it will normally apply. - FSC General Licensing Policy (most recently updated July 2008) details licensing requirements and application of fit and proper test as both initial and continuing. - IPA: IA 2008 requires applicant satisfy IPA that controller, directors, and chief executive are fit and proper (IA 2008 Section 29). - IPA must be satisfied before appointment of director, chief executive, auditor, manager, controller, or insurance manager; IPA can direct that a person not continue in such capacity if unfit. - Similar measures under Retirement Benefits Schemes Act 2000 Section 19 for registered schemes administrators and relevant trustees. - IPA due diligence practices: - Application forms include questions on criminal prosecutions, court judgments, previous dismissals, regulatory actions. - Background checks including reference to law enforcement in certain circumstances. - External checks using company registry records, insolvency databases, and commercially available database sources where available. - Address checks performed where deemed appropriate. ### Prudential Regulation and AML/CFT Alignment (c. 23.4) - IMF FSAP Update Assessment reviewed Basel Core Principles, IOSCO, and IAIS Codes; findings broadly positive for principles relevant to AML/CFT purposes with no significant deficiencies identified. ### Licensing and Supervision of Value Transfer/Exchange Services (c. 23.5 & c. 23.6) - Prior to July 30, 2008: - Money or Value Transfer (MVT) service providers were obliged to register with the Treasury under Anti-Money Laundering (Money Service Businesses) Regulations 2002 (Regulation 4); register maintained by Custom and Excise. - Treasury/Custom and Excise had power of entry and inspection (Regulation 8). - At assessment time there were 19 MVT businesses registered with IOM Customs, including bureaux de change business. - After public consultation, regulatory responsibility for MVT services assigned to FSC pursuant to FSA 2008, since FSA 2008 Section 3(1)f) includes “any service involving money transmission” within regulated activities. - MVT service providers subject to FSA 2008 and related secondary legislation, notably Part 9 of the FSC’s Rule Book 2008 and Handbook 2008 for AML/CFT. - Exemption conditions: - MVT services are licensable unless they satisfy Financial Services (Exemptions) Regulations 2008 conditions creating an exemption if the person notifies the FSC that he carries on or intends to carry on this activity with an annual turnover related to this activity of no more than GBP50,000. - AML Code 2008 classification: - MVT services classified as relevant business in AML Code 2008 Schedule 1 Paragraphs 20 and 22 and required to comply with all its requirements; whether exempt or not, authorities confirmed they must still comply with the Code. - Implementation timeline and scope: - Full application by the FSC of AML/CFT measures for money-services businesses due to come into effect from January 1, 2009. - Section 3 of FSA 2008 and Regulated Activities Order 2008 specify “regulated activities”; Class 6 relates to Money Transmission Services and covers: 1. operation of a bureau de change; 2. transmission of money, or any representation of monetary value, by any means; 3. provision of check cashing services; and 4. issue of electronic money. - Class 6 licenseholders subject to AML/CFT requirements of Part 9 of FSC Rule Book for ML and FT. - Observations: - Despite recent extension of FSC regulatory powers, MVT providers seemed aware of AML/CFT risks and implemented detailed CDD measures beyond current IOM legislative requirements. - AML Code 2008 threshold for one-off transactions exempted from identification requirements is EUR15,000; assessors noted this appears excessive in practice for MVT services, though assessment based on international standard and IOM compliance. ### Licensing and AML/CFT Supervision of Other Financial Institutions (c. 23.7) - Almost all categories of financial institution in the IOM are regulated by FSC or IPA, including all institutions within scope of the Core Principles. - Remaining category: lending and leasing companies subject to registration by the Office of Fair Trading (OFT), which conducts a form of fit and proper test using publicly-available or commercial databases. - OFT does not conduct off-site or on-site AML/CFT reviews as category not considered material ML/FT risk but confirmed commitment to supporting wider AML/CFT program. - MVT supervision activity: - 50 percent of registered MVT service providers (10 from a total of 19) were visited by Custom and Excise over the last five years; all visited businesses aware of responsibilities under AML/CFT regulations, including staff training and STR filing procedures. - All businesses had CDD procedures in place and reported compliance; no irregularities noted. - FSC visits for AML/CFT compliance under FSA 2008 were planned but had yet to commence at time of on-site visit. ### Guidance for Financial Institutions and DNFBPs (c. 25.1) - FSC Handbook 2008 provides extensive guidance to licenseholders and DNFBPs subject to FCU regulation covering CDD, AML/CFT internal controls, and identification/reporting of suspicious transactions. - IPA’s IGN 2008 provides guidance on AML/CFT measures for long-term insurance business. - Additional guidance issued to DNFBPs by IOM Law Society; DHA; and FSC pertinent to implementing AML Code 2007 and AML Code 2008. - GSC developed draft guidance notes to support Criminal Justice (Money Laundering–Online Gambling) Code 2008; guidance notes issued by GSC subsequent to the assessment in April 2009. - DNFBPs interviewed reported guidance documents were well received. ### Supervisory Powers and Inspection Authority (c. 29.1 & c. 29.2) - Analysis of Recommendation 23: appropriately empowered supervisory authorities exist for all financial institution categories. - FSC supervises banks/deposit takers and investment businesses. - IPA is supervisory authority for insurance business. - FSC supervisory and enforcement powers provided under FSA 2008 and detailed in FSC Rule Book 2008 Part 9 for AML/CFT. - FSC supervisory powers sufficient to monitor and enforce Rule Book requirements, including application to foreign branches and subsidiaries (FSC Rule Book Rule 9.14). - IPA powers: - Section 50 and Schedule 7 of IA 2008 give IPA power to make regulations relating to prevention and detection of money laundering in insurance business. - Schedule 5 of IA 2008 provides IPA powers for obtaining information/documentation and inspections. - Similar powers under Sections 25 to 28 of Retirement Benefits Schemes Act 2000. - FSC statutory inspection and information powers (FSA 2008 Schedule 2 and Section 23): - Paragraph 1 Inspection: power to inspect books, accounts and documents and investigate transactions during reasonable hours. - Paragraph 2 Request information: power to call for information reasonably required for Commission’s functions; can be enforced by a Direction. - Paragraph 3 Require information: power to require persons to attend interview or produce documents during investigation; exercisable upon FSC application to a Justice of the Peace. - Paragraph 4 Search warrant: power to enter property and take possession of documents during investigation; exercisable on application on oath by FSC to a Deemster. - Paragraph 5 External inspector: FSC may authorize any person to exercise on its behalf powers conferred by Schedule (2.1 to 2.4 inclusive). - FSA 2008 Section 23 Reporting Accountants etc: FSC may require a licenseholder to provide a report by an accountant etc. on any matter relating to the affairs of the licenseholder. ### FSC Supervisory Practice and AML/CFT Coverage - FSC Supervisory Approach (updated January 2007) calls for on-site visit cycle of between one and three years depending on impact and risk rating. - Reported supervisory activity (periods March 1, 2007 to February 28, 2008 and planned March 1, 2008 to February 28, 2009) included activity across Banking, Fiduciary, Funds, Investment Services with aggregated totals shown in FSC table. - FSC indicated that in 2007/08 the supervisory visits and bulk of focus visits by fiduciary team would have featured AML procedure checks, giving a total in the region of 120–130 onsite visits directly relevant to this assessment. - Clarification required on table indication of no supervisory visits recorded for banking area in 07/08 and none planned for 08/09; FSC informed assessors that: - A full set of thorough AML/CFT inspections of banks was conducted following the last IMF assessment report. - Focus visits shown were “risk-assessment focus visits”, many including AML as part of inspection with specific focus on assessing higher-risk business, file sampling of CDD quality, and testing arrangements such as reliance on introducers. - Focus visits for 2009/10 planned to include detailed coverage of AML/CFT matters and sample testing of files and procedures. - FSC rationale: AML/CFT requirements were being redrafted with consultations over at least past 18 months and only recently finalized; FSC allowed banks time to implement updated requirements before commencing AML/CFT-themed focus visits early in 2009/10. *Source: _cr09278 - 704. The above table indicates that all IOM financial institutions have a designated regulatory authority for AML/CFT purposes.* ### 729. The FSC’s off-site supervision includes an Annual Desk-Based Review which considers ### _cr09278 - 729. The FSC’s off-site supervision includes an Annual Desk-Based Review which considers ### Off-site and on-site supervision practices - The FSC’s off-site supervision includes an Annual Desk-Based Review which considers audited accounts, and information supplied by the licenseholder. - The FSC reviews the risk assessment of the licenseholder at the Annual Desk-Based Review and may update it more frequently to reflect information from visits or complaints. - Any concerns regarding AML/CFT compliance can be raised in the context of the annual reviews. - The IPA (Insurance and Pensions Authority) operates a program of rolling on-site inspections for authorized insurers, including: - reviewing documented policies and procedures, books and records; - sample testing; - issuing a comprehensive on-site inspection visit report after each visit. - Coverage of AML/CFT has been included within IPA on-site visits, but the number of inspections conducted in recent years was constrained by limited resources caused by staffing changes; resource levels are currently higher and additional on-site work, including in relation to AML/CFT, is envisaged. ### Powers to compel production of records - Both the FSC and IPA have statutory powers to compel production of and obtain access to all records, documents, or information relevant to monitoring AML/CFT compliance of the financial institutions they authorize. - Neither supervisory authority requires a court order to exercise these powers; however, if required information is not provided by the financial institution, the authorities can have recourse to legal process, including seeking a court order. - Neither supervisory authority could recall ever needing to take such steps to obtain information from IOM financial institutions. ### Powers of enforcement and sanction (c. 29.4) — availability and use - Both the FSC and IPA have adequate powers of enforcement and sanction in relation to breaches by financial institutions of AML/CFT requirements. - Criminal and administrative sanctions are available for noncompliance with AML/CFT requirements: - AML Code 2008, paragraph 4(2) provides that it is a criminal offense to contravene its general requirements. - Pursuant to paragraph 4(2), any person who contravenes the obligation to establish, maintain, and operate AML/CFT procedures is liable to: - custody for a period not exceeding six months or to a fine not exceeding GBP5000, or to both, on summary conviction; and - custody not exceeding two years or to a fine, or to both, on information. - Criminal prosecutions for breaches of the Code are the responsibility of the AG; no referrals were made to the AG in 2007 or 2008 and no such prosecutions have been brought. - FSC administrative sanctions and related powers include (pursuant to FSA 2008, Section 48(3) and related provisions): - revocation or suspension of a license; - issue of a direction as to fitness or propriety (FSA 2008 Section 10); - service of a warning notice (Section 11); - issue of a public statement (Section 13); - issue of a direction (Section 14); - imposition of a penalty (Section 16); - application for an injunction or for restitution (Section 20); - appointment of a receiver (Section 21); - appointment of a business manager (Section 22); - withdrawal of an exemption in accordance with regulations; - exercise of powers in relation to a permitted person under Schedule 2. - Additional FSC powers: power of direction (FSA 2008, Section 14), restriction of nature of licenseholder’s business (Section 8), public statement (Section 13), injunction (Section 20), appointment of receiver (Section 21) or manager (Section 22), suspend or revoke license (Section 9). Some sanctions are exercisable by the High Court on application of the FSC. - FSC organizational handling of noncompliance: - Supervision Division handles administrative matters and initially identifies breaches through on-site and off-site supervision; issues a visit report outlining areas covered and any action required. - Enforcement Division handles legal sanction and examines fitness and propriety of directors or key persons, which could result in a ‘not fit and proper’ direction. - Figures concerning restrictions imposed by the FSC: - Banks — Licenses with conditions attached: 11 - Fiduciaries — Licenses with conditions attached: 21 - Funds and investment services — Licenses with conditions attached: 11 - Banks — Licenses with directions attached: 21 - Fiduciaries — Licenses with directions attached: 5 - Funds and investment services — Licenses with directions attached: 10 - Source: FSC, September 16, 2008 - Observations on use and timeliness of sanctions: - Some sanctioning powers (e.g., appointment of a manager) are too recent for effectiveness to be assessed. - Between June 2007 and June 2008, 202 breach letters were issued by the FSC but few disciplinary actions resulted. - FSC had used its power to revoke a license once prior to the assessment and on a further occasion shortly after the onsite visit; failing institutions usually opt to surrender their license. - Since 1999 the FSC took successful action against 36 individual company officers leading to disqualification under Section 26 of the Companies Act 1992. - The FSC sanctioning procedure may take a long time; an example cited where almost a two year period elapsed between the first on-site visit identifying issues and a direction being attached to the license. This delay is related to prioritizing remediation through engagement over resorting quickly to sanctions. ### IPA sanctioning powers and scope - IA 2008 and related instruments provide penalties for offenses applicable to breaches including AML/CFT matters. - IPA powers include: - withdraw authorization (Section 10); - impose conditions or restrictions; - direct that an individual shall not continue to act in specified capacities without written consent of the IPA (Section 29(3)); - require an insurer to take action to reduce the risk of use for financial crime (Section 33(1)); - apply to the High Court for an injunction. - Section 37 of IA 2008: IPA may impose civil penalties of such amount as the IPA considers appropriate, assessed with regard to the significance of the breach and circumstances; civil penalties may be imposed against the authorized insurer and/or designated officers. - For registered schemes administrators and relevant trustees, IPA powers include directing that specified persons shall not continue to act in capacity without written consent (Section 19 of the Retirement Benefits Schemes Act 2000) and revoking recognized status of any scheme (Section 22(1)). ### Ability to sanction directors & senior management (c. 17.3) - AML Code 2008 paragraph 4 provides that criminal sanctions may be applied to directors and senior management as it refers to the ‘officers’ of a legal person. - FSC may issue ‘not fit and proper directions’ preventing appointment or continuation in roles as controller, director, or ‘key person’ (FSA 2008, Section 10). - Under Section 26 of the Companies Act 1992 the FSC may seek disqualification of persons unfit to be director or secretary of a company, liquidator, receiver, or manager of a company’s property. The process: - begins with a ‘letter before action’ sent to the concerned person; - if the person continues to operate while considered not fit and proper, the High Court may issue a disqualification order operating for a period between three and 15 years (Section 27). - The IPA may put persons forward to the FSC for action under Section 26 of the Companies Act 1992. - For IPA-regulated entities, Section 37(2) of IA 2008 allows the IPA to impose a civil penalty on a controller, director, chief executive, or senior manager of the institution concerned, in addition to penalties applied to the institution itself. ### Range, scope and proportionality of sanctions (c. 17.4) - The range of sanctions available to the FSC and IPA is broad and complemented by criminalization under AML Code 2008. - When serious breaches are identified, action on the licenseholder would usually be accompanied by ‘fit and proper’ directions. - Limitation: under FSA 2008 the FSC’s ability to impose administrative penalties depends on regulations made by the FSC. As of the assessment: - the FSC had issued a regulation allowing it to impose penalties for late returns only (Financial Services (Civil Penalties) Regulations 2008). - in the absence of further FSC regulations, the scope for administrative penalties remains overly narrow. - combined with low number of administrative actions and absence of criminal action to date for AML/CFT breaches, this materially reduces the range of sanctions available in practice to the FSC. ### Analysis — Recommendation 29 (R.29) - Assessors’ view: - The IOM supervisory authorities have necessary powers to comply with Recommendation 29. - Level of implementation and use of those powers by the FSC (banks) and the IPA (insurance business) needs to be developed further. - Both the FSC and IPA indicated they are implementing additional on-site programs to test AML/CFT compliance. - Assessors consider additional on-site inspections of banks and insurance businesses warranted for effective implementation of Recommendation 29. - FSC recent focus: - In recent years the FSC conducted frequent and detailed on-site work with particular focus on AML/CFT including file sampling; this work informed assessment under Recommendation 12. - FSC prioritized fiduciaries to improve AML/CFT implementation in some fiduciaries on a risk-sensitive basis. ### Resources — applying Recommendation 30 (R.30) - FSC governance and funding: - The FSC is an independent statutory board established under the Financial Supervision Commission Order 1983; revised by the FSA 2008 effective on August 1, 2008. - Operates under the Statutory Boards Act 1987 as amended. - FSC Board Members (“Commissioners”) are appointed by the Treasury, subject to approval of Tynwald. - Legislation prohibits members of Tynwald, civil servants, and employees of a government department or a statutory board (except the Chief Executive of the FSC) from becoming a Commissioner. - At present there are seven Board Members, including the Chairman and the Chief Executive of the FSC. - FSC objectives and potential conflict: - Statutory objectives include ‘supporting the IOM’s economy and its development as an international financial centre.’ - The FSC interprets this as measures to protect and enhance the reputation of the IOM as a financial center, which it says requires effective implementation of AML/CFT measures. - FSC financing and budget: - The FSC is funded from general revenue of the IOM Government; costs are offset by license fees and revenue from Companies Registry. - There was a surplus of GBP8.7 million in the financial year 2007/08. - Annual budget prepared within parameters set by the IOM Government; requests for increases are considered alongside other departments. - IPA mission and funding: - IPA mission includes to ‘ensure a flourishing environment for IOM business’ balanced with objective to ‘safeguard the IPA’s and the IOM’s image’ without compromising regulatory impartiality. - IPA Board must include individuals with relevant expertise and experience. - IPA funded from general revenue, offset partly by fees from licensed institutions; budget prepared annually for discussion with Treasury and Council of Ministers. - FSC staffing and structure: - Official headcount: 66.5 plus two ‘contract staff’ giving a total of 68.5. - FSC structured into five divisions: Supervision, Enforcement & Authorizations, Policy and Legal, Companies Registry and Operations. - Supervision Division allocation: 29.5 full time equivalent staff responsible for on-site and off-site supervision of licenseholders and most powers to intervene in a licenseholder’s affairs. *Source: Excerpt from _cr09278 (IMF assessment text).* ### 758. The FSC policy is to hire professional staff of high integrity. In its recruitment, it seeks to ### _cr09278 - 758. The FSC policy is to hire professional staff of high integrity. In its recruitment, it seeks to ### Staff recruitment, integrity and conflict of interest controls - FSC policy: hire professional staff of high integrity; balance industry experience with professional qualifications. - Vetting and appointment requirements: - Police checks for criminal convictions undertaken on all FSC staff where possible. - References obtained from previous employers and professional bodies. - Upon appointment all officers are required to sign the Official Secrets Act 1989. - All information received and discussed by officers is confidential and may not be communicated to third parties either while in office or following resignation, pursuant to the provisions of the FSA 2008. - Conflicts of interest: - FSC staff are not permitted to hold shares and related investments in FSC-regulated entities. - FSC has a Code of Conduct on Conflicts of Interest, reviewed annually. ### IPA staffing and confidentiality - IPA staffing: - IPA currently has a full-time staff of 12 people (including its chief executive). - Detailed recruitment practice to ensure requisite skills and high integrity. - All regulatory staff have previous experience in relevant areas of the insurance and pensions sector and many have a relevant professional qualification. - Confidentiality and checks: - All staff required to sign a declaration under the Official Secrets Act upon commencement. - It is an offense under the IA 2008 to disclose any information to third parties except in specified circumstances. - Recruitment procedures include appropriate police checks. ### Supervisory resources, on-site supervision and assessors’ findings - Assessors’ observations: - Two areas of particular AML/CFT significance planned for additional on-site supervision in 2009/10: FSC-regulated banks and IPA-regulated insurance businesses. - Meetings with financial institutions did not identify deficiencies warranting urgent on-site inspections. - Inherent risks identified: non face-to-face business for non-residents, often based on introduced business, and reliance on third parties to conduct CDD. - A robust on-site inspection program is warranted. - FSC planned a further round of AML/CFT focus visits for banks in 2009/10 after banks implement latest revisions. - IPA plans to increase on-site checking. - Assessors saw a need for some increase in supervisory resources. ### Training and awareness - FSC training for new staff: - All new FSC staff receive training from the MLRO regarding obligations on reporting suspicious activity/transactions upon commencement, with annual updates. - Recent training events (FSC): - Regular in-house AML/CFT training by Head of Enforcement and staff. - Recent training took place on June 23, 2008 (total attendees 38). - Further sessions by FSC’s MLRO to all FSC staff on STR reporting responsibilities on July 16, August 6, and October 20, 2008. - Four sessions in 2007: August 13, September 21, September 28 and October 5 (total attendees 51). - E-testing and remedial training: - FSC introduced a customized e-testing facility operated by KPMG for all supervision staff to provide refresher training and identify knowledge gaps; gaps addressed via one-to-one or group training. - IPA staff AML experience: - IPA’s staff includes individuals who held senior positions within compliance departments and acting as MLRO; they participate in courses and seminars and monitor developments through publications. - Joint forum: - IPA and FSC are members of the IOM’s Joint Anti-Money Laundering Advisory Group (JAMLAG); Chief Executives of the IPA and FSC (and Chief Executive of the DHA) are co-chairs. - Assessors’ conclusion: satisfied with high levels of awareness of AML/CFT issues among supervisory staff and related training programs. ### Statistics, review of effectiveness and supervisory data - Authorities have placed increasing emphasis on implementation of AML/CFT measures since at least 2002. - Structures established for review: official AML/CFT committee chaired by the Chief Secretary and the joint committee JAMLAG. - Assessors satisfied authorities are reviewing on an ongoing basis the effectiveness of AML/CFT measures; ongoing reassessment advised after new provisions bed in. - Supervisory statistics: - Authorities maintain reasonably complete statistics on supervisory measures, including on-site inspections that included some coverage of AML/CFT. - Need for refinement of statistics to better indicate extent of AML/CFT work in on-site examinations and application of some administrative sanctions by the FSC. - FSC maintains detailed records and statistics on its requests to and responses from other supervisory authorities, particularly regarding the IOSCO Multilateral MOU. ### Recommendations (R.17, R.23, R.29, R.30) - R.17 - The FSC should consider issuing further regulations to allow it to impose additional administrative sanctions, where warranted. - R.23 - Authorities should apply AML and CFT requirements directly to any category of financial institutions not currently covered, having regard to underlying ML and FT risks. - Authorities should consider reducing significantly the current EUR15,000 threshold for the application of CDD measures to one-off transactions by MVT service providers. - FSC should proceed as planned to implement a supervisory regime for money-services businesses, including bureaux de change, as soon as possible. - R.29 - FSC and IPA should make more frequent and extensive use of their powers to conduct AML/CFT on-site inspections of banks and insurance businesses, respectively. - R.30 - Consideration should be given to assigning some additional resources to AML/CFT supervision of banks and insurance businesses, particularly to allow for an increase in on-site inspections. ### Compliance ratings and factors underlying ratings - R.17 — LC - Limitation in current scope of available administrative sanctions. - Effectiveness reduced by low incidence of disciplinary measures by the FSC and absence of criminal prosecutions against persons contravening AML/CFT requirements. - R.23 — LC - Coverage broad but not fully comprehensive. - No effective system yet for monitoring and ensuring compliance with AML/CFT requirements for money and value transfer service providers. - R.25 — LC (Section-specific rating would be: C) - R.29 — LC - Supervisory authorities should avail of powers to conduct additional on-site inspections of banks and insurance businesses. ### Money or Value Transfer Services (SR.VI) — description and analysis (summary) - Pre-August 30, 2008 framework: - Under Anti-Money Laundering (Money Service Businesses) Regulations 2002, MVT providers obliged to register with the Treasury (Regulation 4); Treasury had power of entry and inspection (Regulation 8). - Custom and Excise maintained the register. - At assessment time there were19 MVT businesses registered with IOM Customs, including bureaux de change. - Post-reform regulatory assignment: - Following public consultation, regulatory responsibility for MVT services assigned to the FSC pursuant to the FSA 2008 (includes “any service involving money transmission” (FSA 2008, Section 3(2)f)). - MVT providers subject to all requirements in FSA 2008, secondary legislation, Part 9 of the FSC’s Rule Book 2008 and Handbook 2008. - Licensing and exemptions: - MVT services qualify as licensable activities unless conditions in Financial Services (Exemptions) Regulations 2008 create an exemption for annual turnover related to activity of no more than GBP50,000 (notification required). - MVT services defined as relevant business in AML Code 2008, Schedule 1, Paragraphs 20 and 22; required to comply with Code whether or not they benefit from exemption. - Industry practices: - MVT providers met by assessors appeared aware of AML/CFT risks and implemented detailed CDD measures beyond current IOM legislative requirements. - Licensing timeline: - Licensing process commenced for new applicants from August 1, 2008; existing companies had until November 1, 2008 to submit application. - FSC supervision scheduled to commence on January 1, 2009. - Existing MSBs wishing the GBP50,000 exemption had to notify FSC by January 1, 2009. - CDD threshold concern: - AML Code 2008 one-off transaction identification threshold is EUR15,000; assessors consider this excessive in practice for MVT services in the IOM and are not aware of any proposal to apply a lower threshold. - Monitoring and sanctions: - 50 percent of registered MVT providers were visited by Custom and Excise over the last five years; no compliance issues noted. - Agents lists were declared in the past to Custom and Excise and will be made available to the FSC. - Criminal offenses in AML Code 2008 paragraph 4(2) apply to contraventions of AML/CFT requirements; Regulation 13 of the 2002 Regulations allowed Treasury civil penalty up to GBP5,000 for registration/inspection failures (not directly related to CDD). - From August 1, 2008, MVT providers subject to full range of sanctioning powers under FSA 2008. - Informal transmission services: - Authorities did not identify providers of informal money transmission services operating in or from the IOM since registration introduction. - Recommendation to implement awareness-raising and occasional testing to detect informal systems. ### SR.VI Recommendations and compliance - Recommendations: - FSC should proceed at an early date to conduct AML/CFT supervision of MVT service providers. - Authorities should implement ongoing measures to identify any informal MVT service providers in the IOM. - Authorities should consider reducing significantly the current EUR15,000 threshold for the application of CDD measures to one-off transactions by MVT service providers. - SR.VI Compliance - SR.VI — LC - Active supervision for AML/CFT purposes of MVT providers had not commenced at the time of the assessment. ### DNFBPs — CDD and sector notes (overview) - CDD obligations for DNFBPs largely same as for financial institutions; subject to same strengths and weaknesses noted elsewhere. - Particular vulnerabilities: - Cross-border non face-to-face business and challenge of identifying ultimate beneficial owners and controllers, particularly where reliance on third parties for CDD. - Trust Service Providers (TSPs) and Corporate Service Providers (CSPs) considered particularly vulnerable. - On-line gaming sector inherently vulnerable due to wholly non face-to-face business and electronic identification/verification. - TSPs and CSPs: - Sector includes legal professionals and accountants providing TCSP services; all company formation agents; trust service providers who are not legal professionals; business address and service providers; professional interim managers. - Authorities advised approximately 22,000 trusts and 42,000 companies managed or administered in or from the IOM by TSPs and CSPs, respectively. - Pursuant to FSA 2008 Section 3 and the Regulated Activities Order 2008, TSP and CSP activities constitute ‘regulated activities’ and are authorized and supervised by the FSC. - TSPs and CSPs subject to AML Code 2008 when undertaking activities listed in Schedule 1 and to Part 9 of FSC’s Rule Book 2008 and FSC AML/CFT Hand Book 2008. - Many TSPs are CSPs or part of groups containing CSP license holders; accounting and law firms have associate companies with TSP/CSP licenses. - Legal services: - Legal profession comprises advocates and registered legal practitioners. - Advocates are licensed under Advocates Act 1995. - Persons licensed in prescribed jurisdictions may register under Legal Practitioners Registration Act 1986 as legal practitioners; they may provide legal services in the IOM other than excluded activities under Advocates Act 1976. - Both advocates and legal practitioners are subject to AML Code 2008 obligations when undertaking activities listed in Schedule 1 of the Code. - Only advocates are under the ambit of the IOM Law Society; legal practitioners are not subject to any supervision with respect to compliance with IOM law (authorities are addressing this). - Schedule 1 relevant business activities include holding/managing client assets and provision of legal services involving participation in or planning/execution of financial or real property transactions and related activities. * _cr09278 - 758._ ### 789. The assessors were advised that the larger law firms in the IOM have associate companies ### _cr09278 - 789. The assessors were advised that the larger law firms in the IOM have associate companies ### Law firms, accountants, and trust/company service providers (TSPs/CSPs) - Larger law firms in the IOM have associate companies incorporated that are licenseholders regulated by the FSC; all trust and company service related business is conducted through these associated companies and is therefore regulated and supervised by the FSC. (para. 789) - Accountants: - The IOM accounting profession is subject to the provisions of the AML Code 2008 pursuant to Schedule 1 Section 6 (d) ‘An accountant or a person who, in the course of business, provides accounting services’. (para. 790) - Accountants currently number 89 and are registered by the DHA. (para. 790) - Accountancy practices undertaking trust or company services typically establish associated companies that obtain licenses from the FSC pursuant to the FSA 2008. (para. 790) ### Casinos and online gambling - The IOM has authorized one terrestrial casino and 11 on-line casinos offering sports book betting, peer-to-peer betting, poker and other card related on-line games. Casinos are licensed and supervised by the Gambling Supervision Commission (GSC) pursuant to the Casino Act 1986 and Online Gambling Regulation Act 2001. (para. 791) - Terrestrial casino: - Is a ‘relevant business’ under the AML Code 2008 Schedule 1(9) and must comply with the same standard as any other regulated business activity. (para. 792) - Applies identification and verification procedures for any person wishing to access gambling-related goods or services; every person entering the gaming and casino areas must provide original valid government-issued documentation which includes a photograph and signature; information is validated and recorded electronically to permit membership access. The terrestrial casino applies designated thresholds at a level lower than the statutory level of GBP2,000/EUR2,500 as set out in its operating procedures. (paras. 798) - On-line casinos: - Bound by the Online Gambling (Registration and Accounts) Regulations 2008 (OGR 2008) and the Criminal Justice (Money Laundering) Online Gambling Code 2008 (OG Code 2008) effective September 1, 2008. (para. 793) - Required to identify prospective customers before account opening and before transactions where a single transaction exceeds EUR3,000 or aggregate transactions over 30 days amount to EUR3,000. (para. 799) - Obtain identification documentation electronically (e.g., scanned IDs) and verify identity using electronic data such as electoral rolls. (para. 799) - OG Code 2008 is secondary legislation made under DHA powers (CJA 1990 Section 17F); doubt exists whether the DHA is empowered to issue secondary legislation in relation to FT matters. OG Code’s ML and FT definitions refer directly to the DTA 1996; CJA 1990; and ATCA 2003. (para. 793) - On-line casinos must maintain records for six years from the last transaction or termination pursuant to Section 13 of OG Code 2008. (para. 800) ### Real estate and dealers in precious stones and metals - Real Estate Agents and Dealers in precious stones and precious metals are subject to AML Code 2008 Schedule 1 (4) and (24), respectively. Item (24) extends coverage to cash transactions of EUR15,000 or more. Responsibility for licensing and supervision is assigned to the DHA. (para. 794) - Assessors met one high-value goods dealer (a jeweler) who reported never undertaking a cash transaction over EUR15,000. (para. 794) ### General coverage and compliance behavior of DNFBPs - DNFBPs interviewed appeared well informed about CDD and record-keeping obligations under AML Code 2007 (in force at time of on-site visit) and OG Code 2008. (para. 795) - Beneficial ownership collection: - Some advocates stated beneficial owners would be identified in all cases; others would try but would not always succeed. (para. 796) - Several practitioners allowed a grace period for clients to provide CDD; in some cases matters concluded before CDD was provided and no STR was filed with the FCU. (para. 796) - Third-party introductions: - For the majority of new business introduced by third parties, some DNFBPs conduct their own CDD while others rely on information provided under the Eligible Introducer regime by a foreign referrer. (para. 797) - Record retention: - All DNFBPs interviewed kept records for five years or longer from termination of a business relationship (per AML Code 2007). (para. 800) - On-line casinos retain records for six years from last transaction or termination (OG Code 2008 Section 13). (para. 800) ### CDD measures for DNFBPs — summary of requirements, practice, and issues (applying c. 5.1–5.18 in R.5 to DNFBP) - Scope and prohibition of anonymous accounts: - All DNFBPs, excluding on-line casinos, fall under ‘relevant business’ in AML Code 2008 Schedule 1 and must follow the Code; the Code does not explicitly prohibit anonymous accounts but paragraph 5(2) requires identification and verification on all applicants. (para. 801) - OG Code 2008 (applicable to on-line casinos) explicitly prohibits anonymous accounts or accounts in fictitious names. (para. 802) - Timing and threshold of CDD: - AML Code 2008 paragraph 6 requires relevant persons (including DNFBPs excluding on-line casinos) to identify the applicant for business before or during formation of the relationship “but in any event as soon as reasonably practicable (taking into account the need not to interrupt the normal conduct of business where there is little risk of money laundering or terrorist financing occurring) after contact is first made”. (para. 803) - OG Code 2008 requires identification prior to account opening or transactions where a single payment or aggregate over 30 days exceeds EUR3,000 (7(3)); Section 7 of OG Code 2008 requires verification using reliable, independent source documents when EUR3,000 threshold is reached. (paras. 804, 805) - Verification and beneficial ownership: - AML Code 2008 paragraphs 5(2) and (3) require verification of persons acting on behalf of customers and identification/verification of those persons. (para. 806) - OG Code 2008 requires on-line casinos to identify the ultimate beneficial owner, verify authorization of persons acting on behalf of participants, and take reasonable steps to obtain satisfactory evidence to identify and verify both authorized persons and ultimate beneficial owners. (para. 806) - DNFBPs must: (a) identify the applicant for business; (b) verify identity using reliable, independent source documents, data, or information; (c) obtain information on purpose and intended nature of business relationship; (d) take reasonable steps to establish source of funds. (para. 807) - In practice, some advocates commence/complete work before receiving verification documentation; this was justified as a risk-based approach to avoid interrupting normal business where perceived risk is low. As a result, beneficial owner verification may not be undertaken and no immediate STR may be filed absent suspicion. (paras. 808–809) - Ongoing monitoring and risk assessment: - Paragraph 15 of AML Code 2008 requires detailed procedures for ongoing monitoring; OG Code 2008 (10) requires ongoing monitoring regardless of activation of threshold; OG Code 2008 (5) requires risk profiling and monitoring for variations in transaction patterns. DNFBPs reported they monitor ongoing business relationships. CSPs/TSPs monitor transactions on financial institution accounts for entities where they provide directorship services. (para. 811) - From December 18, 2008, AML Code 2008 required relevant persons to carry out a risk assessment per Paragraph 3 considering nature/scale/complexity, products/services, customer base, and reliance on third parties; requirement to be undertaken as soon as possible after coming into force. FSC’s Rule Book 2008 imposed a parallel requirement for CSPs/TSPs effective August 1, 2008. Assessors could not yet judge effectiveness; early FSC indications pointed to a need for additional risk analysis by some regulated entities. (para. 812) - For on-line casinos, OG Code 2008 (5) requires risk assessment of potential/existing customers including enhanced due diligence for PEPs, jurisdictions not sufficiently applying FATF Recommendations, or subjects of GSC notices/warnings; further detail in OG Code 2008 (9). (para. 812) - Timing flexibilities and concessions: - AML Code 2008 paragraph 6 permits delaying CDD “as soon as reasonably practicable” where doing CDD immediately would interrupt normal business and risk is low; some advocates apply this provision regularly. OG Code 2008 (6) requires CDD “as soon as reasonably practicable” for on-line casinos and if information is not satisfactory the license holder cannot open an account, accept money, or permit participation. (paras. 813, 818) - Concessions and Eligible Introducer arrangements for DNFBPs (excluding on-line casinos) are restricted to countries listed in Schedule 2 of AML Code 2008; concessions cannot be applied if the licenseholder has reason to believe the jurisdiction does not apply or insufficiently applies the FATF Recommendations (paragraph 11(6)). (para. 814) - For on-line casinos, OG Code 2008 (5)(2b) requires inclusion in risk assessment of funds deposited, customer jurisdiction/location, and source of funds; no concessions are granted in relation to identification except for qualifying payout threshold payments or aggregate over 30 days of EUR3,000, but enhanced due diligence is required if there is reason to believe the jurisdiction does not apply or insufficiently applies FATF Recommendations. (para. 814) - Concessions and high-risk scenarios: - DNFBPs subject to AML Code 2008 cannot apply concessions where there is any knowledge or suspicion of ML (paragraph 11(11)). The Code does not reference disapplying concessions where specific high-risk scenarios apply. OG Code 2008 does not directly reference treatment of qualifying thresholds where there is knowledge/suspicion of ML nor in the risk assessment process. (para. 815) - Guidance and application: - Review of Recommendation 5 applies to DNFBPs under AML Code 2008. For on-line casinos, OG Code 2008 Section 5 requires a risk-sensitive basis and guidance is contained in the Online Gambling Guidance Notes for the Prevention of Money Laundering and Countering of Terrorist Financing, which were being finalized at the time of the assessment (published subsequent to the assessment in April 2009). (para. 816; footnote) - AML Code 2008 paragraph 6(2) requires identification and verification of identity before or during formation of new business relationships (or “as soon as reasonably practicable”); criticism in section 3 about discretion on timing of identification/verification applies to DNFBPs as well. TSPs/CSPs stated no new entity was formed before completing CDD. OG Code 2008 Paragraph 6(1) requires on-line casinos to obtain satisfactory information to identify the customer as soon as reasonably practical; if not satisfactory the license holder cannot open an account, accept money, or permit participation. (paras. 817) - Conditional delays and STR obligation: - AML Code 2008 permits conditional delay of CDD in low-risk cases to avoid interrupting normal business; on-line casinos cannot proceed if identification is not evident or satisfactory (OG Code 2008 (6)(2)). (paras. 818) - AML Code 2008 paragraphs 6(9) and 7(6) require relevant persons, including DNFBPs, to consider filing an STR where unable to comply with fundamental CDD requirements for an existing or prospective customer. OG Code 2008 contains no equivalent STR-filing measure for casinos. Some advocates advised that failure to complete CDD when work was already completed did not automatically lead to reporting to the FCU, though suspicions were reported. (para. 819) *Source: _cr09278 - 789. The assessors were advised that the larger law firms in the IOM have associate companies* ### 820. In the context of continuing business relationships, AML Code 2008 paragraph 7(6) requires ### _cr09278 - 820. In the context of continuing business relationships, AML Code 2008 paragraph 7(6) requires ### Continuing CDD and triggers - AML Code 2008 paragraph 7(6) requires that the business relationship shall not proceed any further in the event that satisfactory CDD information and verification documentation (referred to in the Code as evidence of identity) is not obtained or produced; the relevant person shall consider terminating the relationship, and consider whether an STR should be filed. (para. 820) - Interviews with DNFBPs reported business declined and existing relationships terminated when existing clients refused to provide customer and beneficial owner information as required by the relevant Codes. (para. 820) - DNFBPs subject to AML Code 2008 must apply CDD requirements to existing business relationships, including upon occurrence of defined “triggers” relating to perceived changes in circumstances, including where anything arises to cause doubt as to the adequacy of CDD information already held pursuant to paragraph 7(2). (para. 821) - OG Code 2008 requires on-line casinos to have procedures for ongoing and effective monitoring of transactions and to review customer identity and verification information; trigger events such as transactions significantly different in number or value to the normal pattern require confirmation and verification of identity pursuant to (10)(3). Where satisfactory identification/verification is not provided, no further participation in online gambling by the customer is permitted. (para. 822) - OG Code 2008 Paragraph 4 (1a) explicitly prohibits anonymous accounts; AML Code 2008 paragraph 7 requires steps to obtain adequate information where CDD held is inadequate. (para. 823) ### PEP definition, enhanced measures, and senior management approval - AML Code 2008 introduced: a detailed definition of a politically-exposed person (PEP); Paragraph 10 requirements for senior management-approved acceptance procedures for PEPs; and paragraph 8 requirement to apply enhanced CDD measures to customers identified as PEPs — representing a significant strengthening versus pre-onsite arrangements. (para. 824) - Guidance notes issued (not binding) on identification and recommended treatment of PEPs; CSPs and TSPs subject to FSC Handbook 2008; IOM Law Society issued guidance; DHA guidance on ML and FT for DNFBPs addresses PEPs and other high risk situations in sections 5.9 and 5.10. (para. 825) - OG Code 2008 paragraph 2 contains a detailed definition of a PEP and obligations under (9) for enhanced due diligence, including PEPs. (para. 826) - DNFBPs reported using commercially available database services and internet search engines to check PEP status and applying higher due diligence. (para. 827) - With effect from December 18,2008, AML Code 2008 introduced a mandatory requirement for senior management approval for a range of actions in relation to PEPs. FSC Rule Book Rule 9.11(2) requires FSC-regulated CSPs and TSPs to maintain procedures requiring senior management approval before establishing or continuing a business relationship with a PEP. (para. 828) - OG Code 2008 requires identification and higher-risk treatment of PEPs but does not mandate senior management approval; DNFBPs nevertheless advised they require senior management approval under internal procedures for establishing relationships with any PEP. (paras. 829–830) ### Source of funds/wealth and enhanced due diligence for PEPs - No explicit requirement for most DNFBPs to take reasonable measures to establish source of funds of PEPs, though AML Code 2008 paragraph 6(3) requires taking reasonable steps to establish the source of funds for all new business relationships (which would include PEPs). (para. 831) - Paragraph 8(3)(c) of AML Code 2008 requires reasonable measures to establish source of wealth of the customer and any beneficial owner in context of enhanced CDD on PEPs. FSC Rule Book Rule 9.7 requires reasonable steps to establish source of funds for all customers (applicable to licensed CSPs and TSPs). FSC Rule Book Rule 9.9 requires reasonable measures to establish source of wealth when a PEP is involved. (para. 831) - OG Code 2008 (9)(1) requires licenseholders to apply enhanced due diligence to higher-risk customers including PEPs; (9)(3) includes taking reasonable measures to establish the source of funds and of the wealth of the customer and beneficial owner and underlying principal. (para. 832) - Enhanced ongoing monitoring of PEP accounts is within obligations to monitor ongoing relationships; assessors were told senior management is involved in ongoing transaction monitoring of PEP clients in practice. (para. 833) ### Technology risks and non-face-to-face business - AML Code 2008 paragraph 23 (effective December 18, 2008) requires relevant persons to maintain appropriate procedures and controls to address the risk of abuse of new technologies for ML or FT purposes; FSC Rule Book Rule 9.13 requires similar controls for FSC-regulated CSPs and TSPs. Authorities have not further specified expected issues to be addressed in these procedures. (para. 834) - Non face-to-face business is prevalent for CSPs, TSPs, lawyers, accountants and inherent for on-line casinos. AML Code 2008 introduced requirements in paragraphs 5(5), 6(6), 7(5), 9(5), and 15(3) that adequate measures must be taken to compensate for risks arising from non-face-to-face dealings. (para. 835) - FSC Rule Book Rules 9.6(4) and 9.15(3) require CSPs and TSPs to take adequate measures where customer is not met face-to-face. Additional guidance exists in DHA and IOM Law Society materials. Other than OG Code requirements to identify beneficial owner and FSC Rulebook provisions for TSPs and CSPs, no additional requirements concerning non-face-to-face relationships are present. (para. 836) ### Introduced business, record-keeping, and monitoring - AML Code 2008 paragraph 11 sets out CDD application for business introduced by a third party and defines “eligible introducer” and eligibility criteria for DNFBPs; these provisions are analyzed under Recommendation 9 in section 3 and apply equally to DNFBPs. (para. 837) - DNFBPs must keep records for five years as prescribed in AML Code 2008 paragraph 17; on-line casinos must keep records for six years pursuant to OG Code 2008. DNFBPs confirmed implementation at a minimum. (para. 838) - DNFBPs subject to AML Code 2008 are required under paragraph 15 to establish, maintain, and operate procedures to monitor ongoing business relationships as detailed in Section 3.2; OG Code 2008 is explicit for on-line casinos regarding ongoing and effective monitoring and review of identity and verification information on trigger events and in normal course. (para. 839) ### Recommendations (section 4.1.2) - The authorities should keep under review the list of categories of higher-risk customers and consider including additional categories on a risk-related basis. - The authorities should conduct a risk-based review of the current scope of the Acceptable Applicant facility and, if warranted, limit its availability for consistency with the FATF Recommendations. - In the case of CSPs and TSPs, if the exceptions to the CDD requirements of secondary legislation as currently set out in the FSC Handbook are to be retained, the authorities should amend the secondary legislation as necessary to provide for them. - The authorities should review on a risk basis the implementation of the concession allowing operations to commence prior to completion of full CDD procedures to ensure it is not being misused, particularly in the case of advocates. - The DHA should proceed as quickly as possible with the planned arrangements to ensure that effective AML/CFT arrangements are place for accountancy professionals, including on a risk-sensitive basis those that are not members of either of the two main bodies. - The DHA should proceed as soon as possible with the planned implementation on a risk-sensitive basis of AML/CFT measures for dealers in high-value goods engaged in cash transactions. - The requirement to consider filing an STR if unable to adequately complete CDD measures should be extended to casinos. ### Compliance with Recommendation 12 — Summary (section 4.1.3) - R.12 PC - Implementation arrangements for AML/CFT requirements were not yet in place for the accountancy profession. - In the case of CSPs and TSPs, the exceptions to the CDD requirements currently in the FSC Handbook lack a firm legal basis. - Effectiveness of implementation of the supplemental provisions of the AML Code 2008, other than for CSPs and TSPs, could not be assessed as they were adopted subsequent to the on-site visit. ### Suspicious Transaction Reporting (R.16) — description and analysis - All DNFBPs are subject to STR reporting requirements under the CJA 1990, ATCA 2003, and DTA 1996 as outlined in section 3. DNFBPs (other than on-line casinos) are subject to Section 20 of AML Code 2008; on-line casinos are subject to Section 16 of OG Code 2008 for STR reporting. (para. 840) - CSPs and TSPs fall within FSC supervisory mandate and are subject to FSA 2008, FSC Rule Book 2008 and FSC Handbook 2008. (para. 841) - Legal profession: Section 17K of CJA 1990 allows exemption from reporting for “legal advisers” in privileged circumstances; information communicated to further a criminal purpose is not privileged. IOM Law Society has drafted legislation to allow onsite audits of law firms for AML/CFT while respecting legal privilege. Practitioners determine privilege by matter, not client. (para. 842) - Casinos (on-line and terrestrial) indicated awareness of obligations under CJA 1990 Section 17F, OG Code 2008 Section 16, and AML Code 2008 Section 20 for recognition/reporting of suspicious transactions. (para. 843) - All DNFBPs interviewed appointed a designated MLRO at senior management level to receive, review and, if applicable, forward STRs to the FCU directly; MLROs review reports to substantiate grounds for suspicion but do not analyze STRs. (para. 844) ### STR statistics for DNFBPs (extracted; relative levels) - Accountants: - 2004–05: 21 0.91% - 2005–06: 18 0.79% - 2006–07: 9 0.54% - 2007–08: 20 1.25% - Lawyers: - 2004–05: 20 0.86% - 2005–06: 15 0.66% - 2006–07: 17 1.03% - 2007–08: 15 0.96% - TSP: - 2004–05: 28 1.21% - 2005–06: 108 4.77% - 2006–07: 33 2.00% - 2007–08: 46 2.95% - CSP: - 2004–05: 64 - 2005–06: 164 7.08% - 2006–07: 144 6.36% - 2007–08: 153 9.26% - 2007–08 (alternate row): 94 6.03% - Online Gambling: - 2004–05: 1 0.04% - 2005–06: 7 0.31% - 2006–07: 5 0.30% - 2007–08: 47 3.01% - Other: - 2004–05: 47 2.03% - 2005–06: 23 1.02% - 2006–07: 19 1.15% - 2007–08: 7 0.45% - Note: The data for CSPs include cases in which CSPs and TSPs are the same or a closely-related business. (footnote) (para. 845 and table) ### STR legal and operational issues - All DNFBPs are required by law to file STRs when suspicion arises; DNFBPs other than online casinos are bound by AML Code 2008 provisions; on-line casinos must disclose information to the FCU where the MLRO knows or suspects ML or FT per OG Code 2008 Section 16(f). (para. 846) - The STR reporting requirements apply to terrorism and its financing as analyzed in section 3.7. (para. 847) - There is no specific requirement to report attempted transactions, but DNFBPs stated in practice they would report suspicious attempted transactions to the FCU. (para. 848) - Reporting requirements do not exclude tax-related matters; tax-related matters are within scope of STR offenses under CJA 1990, DTA 1996, and ATCA 2003. (para. 849) - Protections for reporting include broadly-worded legal protections (Sections 17A(3)(a), 17B(5)(a), 17K(4)(6), and 21 CJA 1990; Sections 46(3)(a), 47(5)(a), (48)(4) and (6) DTA, 1996; and Sections 12 and 15 ATCA), but provisions are not sufficiently explicit to comply with the international standard. (para. 850) - Provisions addressing tipping-off discussed in section 3 apply equally to DNFBPs; specification of circumstances where tipping-off is an offense applies equally to DNFBPs. (para. 851) - All DNFBPs interviewed stated they could produce written internal AML/CFT guidelines. (para. 852) - Dealers in precious metals, dealers in precious stones, and real estate agents advised they do not routinely have an independent audit function for testing ML/FT systems and controls; advocates have a self-audit system per IOM Law Society Guidance Notes, with the report signed off by an independent auditor without on-site assessment. (para. 853) - DNFBPs advised of some level of initial and ongoing staff training as required under paragraph 22 of AML Code 2008. (para. 854) - DNFBPs apply some level of employee screening under paragraph 21 of AML Code 2008; CSPs and TSPs are subject to fit and proper requirements under FSC provisions; terrestrial and on-line casinos advised that employees undergo rigorous fitness and propriety screening by licenseholder. (para. 855) *Source: _cr09278 - 820. In the context of continuing business relationships, AML Code 2008 paragraph 7(6) requires* ### 856. The discussion in section 3.7 of this report applies equally to DNFBPs pursuant to Paragraph ### _cr09278 - 856. The discussion in section 3.7 of this report applies equally to DNFBPs pursuant to Paragraph ### Special attention to DNFBPs and countries not sufficiently applying FATF recommendations - The discussion in section 3.7 of this report applies equally to DNFBPs pursuant to Paragraph 20 of the Code 2008 and Section 16 of OG Code 2008. - The critique in section 3.6 of this report applies equally to DNFBPs. - Assessors were advised that in practice CSPs, TSP, lawyers, accountants, and casinos took into account the country of origin when assigning and profiling risk and did not limit their analysis to Schedule 2 of the AML Code 2008 and Schedule 1 of the OG Code 2008. - DNFBPs, other than on-line casinos, are subject to the provisions of the AML Code 2008 as discussed in Section 3.7. - No provision to pay special attention to transactions which appear to have no economic purpose is contained in OG Code 2008. - Licenseholders subject to the provisions of OG Code 2008 are required pursuant to Section 5 to carry out a risk assessment and records are to be kept for a minimum of six years in line with Section 13. - The discussion in Section 3.7 applies equally to all DNFBPs. ### Recommendations and comments (Section 4.2.2) - Clarify the position of legal privilege in relation to ML and FT issues and STR reporting in a manner supportive of the AML/CFT system. - The authorities should continue their efforts, through awareness raising and otherwise, to increase the effectiveness of STR reporting by DNFBPs, particularly for those categories that rarely report suspicions. - The authorities should amend the law to extend the protection for persons reporting suspicions to the FIU to cover all aspects in the international standard and limit the protection to reporting in good faith. - The authorities should consider introducing measures to ensure the confidentiality, including in Court proceedings, of persons reporting suspicions to the FIU. - The authorities should introduce a requirement in law, regulation, or other enforceable means to maintain an adequately resourced and independent audit function to test compliance with AML/CFT procedures in line with the nature, size and activity of the DNFBP. - The authorities should amend the law to require the reporting of suspicious attempted transactions. ### Compliance with Recommendation 16 (Section 4.2.3) — Rating: R.16 PC Summary of factors relevant to s.4.2 underlying overall rating: - No requirement to report attempted suspicious transactions. - Requirement for an independent audit function does not explicitly include AML/CFT within its scope. - Low levels of STR reporting by some categories of DNFBPs. - Protection for those reporting suspicions not fully in line with international standard. - Effectiveness of implementation of the supplemental provisions of the AML Code 2008 could not be assessed as they were adopted subsequent to the on-site visit (other than CSPs and TSPs which were already subject to Part 9 of the FSC Rule Book from August 2008). --- ### Regulation, supervision, and monitoring (R.24-25) — Description and analysis (Section 4.3.1) Introduction — CSPs and TSPs - CSPs and TSPs are authorized and supervised by the FSC pursuant to the FSA 2008 and are relevant businesses under Schedule 1 of the AML Code 2008. - For AML/CFT purposes, they are also subject to the FSC Rule Book 2008 and the guidance contained in the Handbook 2008. - All CSPs and TSPs interviewed reported having had on-site inspections from the FSC within the past 18 months and indicated full awareness of their obligations in relation to suspicious transaction reporting and CDD obligations. Lawyers and legal professionals - Section 3(2)(c) Advocates Act 1995 gives the IOM Law Society power to ‘initiate prosecutions against advocates or other persons for the breach of any enactment relating to the practice of law’. - Section 16 of the Advocates Act 1976 gives the Law Society power to make practice rules “regulating the professional practice, conduct, and discipline of advocates”. - The Society is the supervisory body for the legal profession with respect to AML/CFT matters and works in close collaboration with the DHA, with which it is currently formalizing an MOU. - The Society issued guidance notes for its members with respect to the AML Code 2007 and a typologies report. The Society organized a number of AML/CFT seminars. - The IOM Law Society, Criminal Justice (Money Laundering) Code 2007 Guidance Notes were issued on August 1, 2008. - Disciplinary procedures before an independent Advocates Disciplinary Tribunal may be instituted; sanctions may include a reprimand, a fine and, in serious cases, suspension or revocation of the advocate’s admission. - The Society conducts supervisory functions through ‘advocate’s certificates’ filed annually, endorsed by a partner and the accounting firm appointed to audit the law firm; the accountant’s endorsement is not based on an onsite examination. - The Society plans to revise the accountant’s statement to be more explicit but has not yet conducted full on-site audits of lawyers for AML/CFT purposes. - Draft legislation allowing for onsite audits of law firms for AML/CFT purposes was being discussed before Tynwald at the time of the assessment. The Advocates (Amendment) Bill completed passage through Tynwald in May 2009 and is awaiting Royal Assent. - Registered legal practitioners are obliged under the Legal Practitioners Registration Act 1986 to register with the Chief Registrar for a 12 month period; supervisory responsibility for registered legal practitioners rests with the DHA. Accountants - At the time of the on-site visit, the DHA had been in dialogue with the professional accounting bodies regarding the application of AML/CFT requirements to the accounting profession. - It is expected there will be a requirement for an annual AML/CFT compliance report from the accounting bodies to the DHA once finalized. - The UK-based Consultative Committee of Accounting Bodies (CCAB) issued AML/CFT guidance in December 2007 on behalf of its six professional accountancy member bodies. - Two of the six bodies, The Institute of Chartered Accountants in England and Wales and The Association of Chartered Certified Accountants, cover the majority of the accounting profession in the IOM. - The guidance is primarily UK-based and not IOM specific; authorities plan to adapt it for IOM purposes. - Assessors are not in a position to assess the effectiveness of measures taken subsequent to the on-site visit. Dealers in precious metals or stones - Dealers in precious metals and dealers in precious stones are required to register with the DHA. - All IOM dealers in high-value goods and other local businesses with a turnover in excess of GBP64,000 per annum have to register for Value Added Tax (VAT) with IOM Customs and Excise, which conducts visits to ascertain compliance with laws and regulations including AML/CFT. - An active awareness-raising campaign in relation to obligations pursuant to the AML Code 2007 had been underway, specifically aimed at businesses dealing in goods and accepting large cash payments. - Awareness activities included mailshots and leaflets, press releases and adverts, posters at the airport and port, free seminars hosted by the FSC and media interviews. - Customs and Excise conducted visits in July and August 2008 to all the IOM’s HVDs, numbering around 70 premises, carrying out face-to-face consultations about risks associated with accepting large cash payments and responsibilities under the AML Code where cash exceeds EUR15,000. Casinos - The Gambling Supervision Commission (GSC) conducted two on-site assessments (with a further 10 scheduled) and 11 desk top reviews in 2008 for online casino operations. - The GSC undertakes weekly on-site checks covering a range of aspects of the business of the one terrestrial casino. - External independent audits of the casino are also conducted. - Training has been outsourced to a competent service provider. - At the time of the assessment, the GSC was in the process of issuing guidance notes in relation to the Criminal Justice (Money Laundering-Online Gambling) (No.2) Code 2008 to replace the 2002 Guidance Notes. Guidance Notes published subsequent to the assessment in April 2009. - Given growth in the sector, consideration is needed of staffing levels and capacity of the GSC to deal with increased workload. Monitoring systems for other DNFBPs - Powers to monitor and sanction for financial institutions discussed in section 3.10 apply also to DNFBPs. - CSPs and TSPs are required to implement effective systems for monitoring and ensuring compliance with AML/CFT requirements. FSC staffing resources appear generally adequate for supervision of CSPs and TSPs. - Advocates are part of a self-certification system within the mandate of the IOM Law Society; registered legal practitioners do not fall within the mandate and a void exists regarding their monitoring. - The DHA supervises other DNFBPs, including dealers in precious metals, dealers in precious stones, and real estate agents, and is in discussion with two accounting bodies for AML/CFT supervision of the accounting profession. - The DHA is proposing amendments to the CJA 1990 to provide specific powers: a compulsory register; power to fine for non-compliance with registering; providing false information; accepting cash transactions over EUR15,000 without registering for that purpose; and the right of direct access to records and procedures. - Relevant provisions of the POCA 2008, in effect from August 1, 2009, provide for powers to issue rules legally binding on accounting and legal firms and empower specific regulation of DNFBPs. Guidelines for DNFBPs (applying c. 25.1) - A number of categories of DNFBPs have been issued with guidance on implementing and complying with AML/CFT requirements: IOM Law Society; DHA; and FSC issued guidance pertaining to AML Code 2008. - The GSC has developed guidance notes to support the Criminal Justice (Money Laundering–Online Gambling) (No.2) Code 2008. - DNFBPs interviewed reported the guidance documents have been well received. - The GSC needs to assess the adequacy of staffing capacity and specialist skills, including in information technology, to deal with expansion of the gambling sector. - Depending on outcomes of current DHA initiatives, there might be a need to assign additional resources to ongoing AML/CFT supervision and liaison with SROs for legal and accountancy professions. ### Recommendations and comments (Section 4.3.2) The authorities should: - Provide for and implement a system of regular and full audits for advocates based on onsite visits to monitor more closely compliance with AML/CFT obligations. - Ensure that registered legal practitioners are supervised to ensure their compliance with the provisions of the AML Code 2008. - Finalize the agreement between the DHA and the professional accounting bodies, issue guidance adapted to the IOM’s AML/CFT requirements, and implement an AML/CFT on-site supervisory regime for the industry. - Formalize the basis for on-site assessments for DNFBPs that do not fall within the mandate of the FSC, GSC, or the IOM Law Society. - Proceed with planned legislative amendments to provide the DHA with adequate powers in undertaking registration and regulation for AML/CFT purposes of DNFBPs within its mandate and provide the DHA with resources consistent with that mandate. - Assess the adequacy of the GSC’s staffing capacity and specialist skills base to ensure it is well positioned from an AML/CFT perspective to deal with the expected growth in on-line and terrestrial casino business. ### Compliance with Recommendations 24 & 25 (Section 4.3.3) Ratings and relevant factors: - R.24 PC - Implementation of AML/CFT measures for DNFBPs, other than CSPs, TSPs, and most lawyers, is still being developed. - Registered legal practitioners are not adequately covered by the AML/CFT requirements. - The powers of the DHA to perform an AML/CFT supervisory role had not come into legal affect. - Additional supervisory resources needed for the DHA and GSC, including for the latter additional specialist skills to deal with on-line casino systems. - R.25 LC (Section-specific rating would be: LC) - Up-to-date guidance had not yet been issued by the GSC at the time of the assessment. - Guidance for accounting professionals has not been adapted to the IOM requirements. --- ### Other non-financial businesses and professions — Modern-secure transaction techniques (R.20) (Section 4.4) Introduction - FATF Recommendations and Methodology list examples of businesses or professions to which countries ‘should consider’ applying AML/CFT requirements: dealers in high value and luxury goods, pawnshops, gambling, auction houses, and investment advisers. - The IOM authorities, and the DHA in particular, have been giving consideration to this area based on analysis of the vulnerability of such businesses to abuse for ML or FT purposes. Other vulnerable DNFBPs (applying R. 5, 6, 8-11, 13-15, 17 & 21 c. 20.1) - Pursuant to Schedule 1, Section 24 of the AML Code 2008 applies its provisions to businesses dealing in goods of any description including: - dealing as an auctioneer; and - whenever a transaction involves accepting cash payment of EUR15,000 or more. - The DHA has engaged with relevant sectors other than DNFBPs to develop a methodology and approach to ensure compliance with AML Code 2008. - The DHA has issued relevant guidance and undertaken a concentrated awareness campaign with the FSC and Customs and Excise. - All local high value dealers (HVD) and other local businesses with a turnover in excess of GBP64,000 per annum have to register for VAT with IOM Customs and Excise who then visit these businesses to ascertain compliance with laws and regulations including AML/CFT. - During July and August 2008 IOM Customs and Excise conducted visits to all the IOM’s HVDs, numbering around 70 premises, carrying out face-to-face consultations about risks associated with accepting large cash payments and responsibilities under the AML Code if cash exceeds EUR15,000. - Customs and Excise staff advised assessors that in inspecting traders’ books and records they can identify transactions that exceed the EUR15,000 threshold and would report failures to comply with AML Code 2008 to the FCU for appropriate action. *Italicized source attribution: Extract from the provided IMF assessment content unit _cr09278 - 856.* ### 880. The AML Code 2008 applies to all business dealing in goods that accept cash payments over ### The AML Code 2008 applies to all business dealing in goods that accept cash payments over EUR15,000 and, as of June 1, 2008, the carriage of cash to the equivalent of EUR10,000 or more into or from the IOM requires the completion of a cash declaration form. Failure to declare cash above the threshold is subject to financial penalties by Customs and Excise. ### Scope and cash declaration requirements - The AML Code 2008 applies to all business dealing in goods that accept cash payments over EUR15,000. - As of June 1, 2008, carriage of cash to the equivalent of EUR10,000 or more into or from the IOM requires completion of a cash declaration form. - Failure to declare cash above the EUR10,000 threshold is subject to financial penalties by Customs and Excise. ### Financial system characteristics - The IOM has a highly-developed financial system, with modern and secure techniques for conducting financial transactions and a low dependence on cash usage. - A full range of payment systems is available, tied closely to those of the UK. ### Recommendations and supervisory coverage (NFBPs) - The authorities should proceed with their program of awareness-raising to determine what categories of NFBP should be within the scope of the AML/CFT requirements. ### Compliance with FATF Recommendation 20 - Rating: R.20 — LC - Summary factor underlying rating: - Consideration not yet concluded on the application of AML/CFT requirements to other NFBPs. ### Legal persons — legal framework and registration regimes - Three sets of laws govern legal persons: Companies Act 1931–2004, Companies Act 2006, and the Limited Liabilities Act 1996. - 2006 Act entities: requirement for a registered agent licensed pursuant to the FSA 2008; agent name and address filed with the Companies Registry. - 1931 Companies and LLCs: no general requirement to utilize licensed corporate service providers; persons not conducting activities “by way of business” fall outside FSA 2008 licensing and FSC supervision. ### Definitions, exclusions, and practical determinations - The term “by way of business” is not defined in the FSA 2008; interpretation relies on common usage and past court determinations. - Factors used by the FSC to determine “by way of business” include: whether activity is part of individual’s core business; whether the individual “held itself out”; commercial intention; conduct through a company; number of appointments; receipt and amount of remuneration. - Regulated Activities Order 2008 (August 2008) introduced exclusions from licensing for certain providers (e.g., landlords providing registered office premises; advocates/accountants providing services incidental to professional activity; individuals acting for companies wholly owned by them or close relatives). - Excluded or exempted providers remain covered by the AML Code 2008 but are not subject to FSC supervision or monitoring for compliance with AML Code obligations. ### Coverage by AML Code and verification obligations - Licensed corporate service providers must “identify who is the beneficial owner of the applicant” and “take reasonable steps to verify the identity of those persons, using relevant information or data obtained from a reliable source” (AML Code 2008 paragraph 5). - The Code defines ‘beneficial owner’ as “the natural person who ultimately owns or controls the applicant for business or on whose behalf a transaction or activity is being conducted.” - For legal persons, requirement extends to any natural person who ultimately owns or controls, whether through direct or indirect ownership or control, more than 25 percent of the shares or voting rights, or who otherwise exercises control over management. - Part 9 of the FSC Rule Book 2008 (effective August 1, 2008) requires licenseholders to identify and take reasonable measures to verify the identity of the beneficial owner in all cases. ### Public registry information and access - The Companies Registry does not record beneficial ownership information. - Registry contains names and addresses of registered agents, address of registered IOM offices, and for 1931 Companies and LLCs the names of directors, secretaries, and shareholders. - All information and documentation held at the Companies Registry is freely accessible to the public, including online. - Filing obligations: - 2006 Companies: file amendments to articles of agreement within one month (change of registered office or agent deemed a change of articles). - 1931 Companies and LLCs: notify the Companies Registry within one month of any changes to registered information. - All companies must file an annual return. ### FSC powers and limitations - FSA 2008 Schedule grants FSC powers to inspect books, accounts, and documents; request information; and, subject to a court order, issue subpoenas, production orders, and seize and copy documents. - These powers do not extend to corporate service providers excluded from FSA 2008 or who do not conduct activities “by way of business.” - For such persons, general law enforcement powers may be used to obtain beneficial ownership information. ### Bearer shares - Companies Act 2006: expressly prohibits issuance of bearer shares and makes it an offense to do so. - Companies Act 1931–2004 Section 71: voids provisions allowing issuance of bearer shares but validates bearer shares issued before enforcement; since 2004 no rights attached to such bearer shares may be exercised without conversion to registered shares. - At time of assessment: about 1.3 million bearer shares issued through 109 companies representing a nominal share value of GBP 940,904 were still outstanding. - All IOM companies required to keep a register at the company’s registered IOM office stating full names and addresses of all shareholders and members; the register is prima facie evidence that legal title vests in the registered person. ### Access to beneficial ownership information by financial institutions - Financial institutions have full access to all information and documentation held at the Companies Registry, but the Registry does not maintain beneficial ownership information. - No specific measures are in place to facilitate access by financial institutions to beneficial ownership and control information to ease verification of customer identification data. - Financial institutions are required to identify beneficial owners and take reasonable steps to verify their identity. ### Analysis — gaps and practical implications - Licensed corporate service providers are required to identify and verify natural persons ultimately owning or controlling a customer in all cases (AML Code 2008 paragraph 5) and Part 9 of FSC Rule Book reinforces identification in all cases; practitioners indicated they always identify beneficial owners in practice. - About 30 percent of 1931 Companies and LLCs (about 9,300 companies) are administered without licensed corporate service providers and therefore may not be subject to requirements to identify, verify, and maintain beneficial ownership information. - Companies Register does not maintain beneficial ownership information for those companies. - Reliance on law enforcement powers to obtain beneficial ownership information for such companies raises questions about whether information would be adequate, accurate, and current. - Implementation of AML Code 2008 by exempted and excluded corporate service providers could not be demonstrated due to lack of FSC monitoring for those persons. ### Recommendations for legal persons - The authorities should put in place measures to ensure that accurate, complete, and current beneficial ownership information is available for all 1931 Companies and LLCs. - One suggested approach: require filing of beneficial ownership information with the Company Registry where a licensed corporate service provider is not utilized. - The authorities should consider extending formal monitoring of corporate service providers for compliance with AML Code 2008 to include those “exempted” or “excluded” from FSA 2008 licensing. ### Compliance with FATF Recommendation 33 - Rating: R.33 — LC - Summary factor underlying rating: - For about 30 percent of the 1931 Companies and LLCs, it could not be determined that accurate, complete, and current beneficial ownership information is available. ### Legal arrangements (trusts) — recognition and regulatory coverage - Trusts recognized under IOM law: Trustee Act 1961 and subsequent amendments; common law principles of trust law and equity applied where not contrary to statute or precedent. - Types recognized: express trusts, implied trusts, resulting trusts, constructive trusts; since 1996, purpose trusts allowed if purpose is certain, reasonably enforceable, and not contrary to law. ### Measures to prevent unlawful use of legal arrangements - Regulated Activities Order 2008: persons who, “by way of business,” act as sole/other trustee in relation to an express trust, provide trust administration services, act as trust corporation, protector, or enforcer in relation to a purpose trust fall under FSA 2008 licensing. - “Protector” defined as a person other than a trustee who, holding an office created by or under the trust terms, is authorized or required to participate in trust administration. - Persons providing such services other than “by way of business” are not required to obtain a license; “by way of business” remains undefined. - Exclusions from licensing analogous to corporate service provider exclusions: advocates, registered legal practitioners, accountants performing activities wholly incidental to giving legal advice or professional activity are excluded. - Financial Services (Exemptions) Regulations 2008: certain activities are regulated but exempted from licensing (e.g., acting, by way of business, as a trustee for less than 10 legal arrangements — de minimis exemption; private trust companies for a single trust; certain testamentary and small domestic trusts). - Exempted/excluded persons are covered by AML Code 2008 but are not subject to monitoring for compliance by FSC since December 2008. ### AML Code and trustees’ obligations - AML Code 2008 paragraph 5: covered entities must “identify who is the beneficial owner of the applicant” and “take reasonable steps to verify the identity of those persons, using relevant information or data obtained from a reliable source.” - For legal arrangements, the provision requires identification of the trustees or any other persons controlling the client. - Part 9 of the FSC Rule Book requires identification of the beneficial owner and taking reasonable measures to verify identity in all cases. *Source: IMF country report content unit _cr09278 (excerpts).* ### 906. As the exclusions or exemptions under the FSA 2008 do not require permission by or ### _cr09278 - 906. As the exclusions or exemptions under the FSA 2008 do not require permission by or ### Access to Information on Beneficial Owners of Legal Arrangements (c. 34.2 and c. 34.3) - Exclusions or exemptions under the FSA 2008 do not require permission by or notification to the FSC; authorities do not maintain statistics or estimates of trustees operating in the IOM that are not covered by the FSA 2008. - Licensed trust service providers must file an annual return with the FSC indicating the number of trusts administered, but the return does not typically contain information pertaining to individual trusts or trust accounts. - FSA 2008 Schedule 2 grants the FSC inspection and investigation powers, including: - Inspect books, accounts, and documents; - Request any information required to perform its function under FSA 2008; - Subject to a court order, issue subpoenas and production orders and seize and copy documents. - Those FSC powers do not extend to trust service providers excluded from the FSA 2008 or to persons not conducting trust activity “by way of business”; for such persons general law enforcement powers apply. - As of December 2007, 22,785 trusts were administered by licensed IOM trust service providers; authorities could not provide information or an estimate on the number of trusts outside the scope of or excluded from FSA 2008. - No specific measures exist to facilitate access by financial institutions to beneficial ownership and control information to allow easier verification of customer identification data. ### Analysis — Beneficial Ownership Identification and Supervision - For legal arrangements administered by licensed trust service providers: - AML Code 2008 paragraph 5 requires identification in all cases of the natural person ultimately owning or controlling a customer or a person on whose behalf a transaction is being conducted, and any person who exercises ultimate effective control over a legal person; reasonable steps must be taken to verify identity based on reliable information. - As of August 1, 2008, licensed trust service providers are subject to Part 9 of the FSC Rule Book, requiring identification of the beneficial owner in all cases. - Practitioners interviewed indicated they always identify the beneficial owner. - For legal arrangements administered by trustees not covered by FSA 2008: - AML Code 2008 provisions do not apply. - FSC enforcement and investigative powers do not apply to activities excluded from licensing requirements or to persons providing trust services other than “by way of business.” - The completeness, accuracy, and currency of beneficial ownership information held by unregulated and unsupervised trustees is questionable. - For legal arrangements administered by trustees exempted or excluded from FSA 2008 licensing: - Effective implementation of AML Code 2008 measures could not be demonstrated because those persons are not subject to FSC supervision. - Trustee Act 1961 obligations: - General obligation for trustee to ensure distributions are made properly and according to trust requirements (ensuring distributions are made to the right beneficiary). - No obligation to maintain records of the identity of the beneficiary or to verify identity. - The identification obligation prior to making distributions extends only to beneficiaries, not to other beneficial owners (e.g., protectors or persons exercising ultimate effective control). ### Key Statistics and Exact Figures - 22,785 trusts administered by licensed IOM trust service providers (as of December 2007). - As of September 2008, approximately 675 charities were registered with the Chief Registrar. - Over 75 percent have income below GBP25,000. - Over 50 percent have income below GBP5,000. - Audit requirements for registered charities (Section 5 CRA 1989, substituted by Audit Act 2006): - less than GBP5,000: no audit required; - GBP5,000 to GBP100,000: an external independent examination is required; - GBP100,000 or above: an independent external audit is required. ### Recommendations and Comments (Trusts and Beneficial Ownership) - The authorities should seek to put in place measures to ensure that accurate, complete and current beneficial ownership information is available for legal arrangements administered by a trustee who is not covered by the licensing requirements of FSA 2008. - The authorities should consider extending the formal monitoring of trust service providers for compliance with the requirements of the AML Code 2008 to include those “exempted” or “excluded” from the licensing requirements of the FSA 2008. ### Compliance Assessment (Recommendation 34) - R.34 Rating: LC - Summary of factors underlying rating: - For legal arrangements administered by trustees who are not covered by, or who are excluded or exempted from the licensing requirements of FSA 2008, it could not be determined that accurate, complete, and current beneficial ownership information is available. ### Non-Profit Organizations — Description, Analysis, and Recommendations (SR.VIII) - Registration and exemptions: - IOM charitable bodies are registered with the General Registry under the Charities Registration Act 1989. - Chief Registrar can refuse registration if institution is not established for charitable purposes or lacks a substantial and genuine connection with the IOM. - Exemptions from registration can be made pursuant to Section 2(3) of the Act by regulation of the Deemsters requiring Tynwald approval. - Religious Charities Regulations 1999 and The Charities (Exemption) Regulations 2008 provide specified exemptions. - Sector profile: - Approximately 675 charities registered as of September 2008; income distribution statistics noted above. - NPOs not falling within definition of charities (e.g., sports clubs, hobby clubs, youth clubs) are not subject to specific legislation and have no registration requirements. - Review and outreach: - Authorities are reviewing adequacy of legal framework relating to NPOs; public consultation paper issued on options for registration, regulation, and monitoring to prevent financing of terrorism. - General Registry undertook a desk-top review of registered charities’ objectives and mandates within twelve months prior to the assessment visit with follow-up outreach to identified charities to raise awareness of Terrorist Financing risks. - Supervision, information, and investigative powers: - No onsite monitoring of NPOs by the General Registry; desk-top review performed as noted. - Registered charities must register specified documents in the General Registry (instrument of establishment; memorandum and articles of association for bodies corporate). - Regulation 5(1) C (G) Regulations 1990 requires names and addresses of trustees or persons in whom the charity is vested to be included on the register. - No registration or documentation requirements for NPOs that are not charities. - CRA 1989 provides criminal penalties for trustees, directors, managers, or similar officers who breach statutory obligations (use of the word ‘charity’; registration requirement; preparation of accounts; use of misleading names; provision of information to the Attorney General; filing of documents in the General Registry). - Charities suspected of being involved in money laundering, fraud or other serious criminal activity are subject to sanctions and remedies available pursuant to the CJA1990. - The AG has wide powers to require information and institute inquiries into institutions established for charitable purposes; AG can apply to the High Court for relief in cases of suspected misconduct or mismanagement. - Sections IV and V of ATCA 2003 may be used to institute a terrorist investigation against NPOs, including registered charities. - Section 56 of ATCA 2003 permits disclosure of information by any public authority for purposes of a criminal investigation in the IOM or elsewhere or for criminal proceedings instigated in the IOM or elsewhere. - Recommendations for NPOs: - The authorities should complete the current review of the NPO laws and regulations and consider, based on an FT risk assessment, the merits of expanding the current coverage of charities to include other NPOs. - The authorities should conduct periodic vulnerability reviews and outreach to the NPO sector regarding the risk of abuse for FT purposes. - Compliance with Special Recommendation VIII: - SR.VIII Rating: LC - Summary of factors underlying rating: - Review of NPO laws and regulations not yet complete. - Current coverage excludes NPOs that are outside the definition of charities. ### National Cooperation and Coordination (R.31 & R.32) - Mechanisms and coordination structures: - Legal provisions formalize information sharing between law enforcement and other stakeholders, supported by MOUs (e.g., between FSC and FCU). - Operational level: FCU’s Strategic Board (Chief Constable, Collector of Customs and Excise, and the AG) sets law enforcement strategy and directs coordination with input from police, customs, and judiciary on prevention, intelligence, and enforcement; Strategic Board advises the DHA. - Policy level: Joint Anti-Money Laundering Advisory Group (JAMLAG) comprises representatives of DHA, FSC, IPA, GSC, AG, FCU, Customs and Excise, and Treasury; JAMLAG provides policy advice and is a consultative body involving main stakeholders in determining legislative framework. - Administrative/legislative level: Chief Secretary’s Office ensures coordination between government departments and authorities; together with AG and DHA, Chief Secretary coordinates development of primary and secondary AML/CFT legislation. - Consultation mechanisms with regulated institutions: - IPA and FSC hold regular meetings with industry representative organizations; both are accessible to licenseholders to discuss matters including AML/CFT. - IPA and FSC co-chair JAMLAG, which meets regularly; industry bodies such as the Compliance Institute and Securities Institute provide additional fora. - Section 50(3) of IA 2008 requires draft regulations to be issued for consultation with organizations and persons likely to be affected. - Section 51(6) requires issuance of guidance notes for consultation. - FSA 2008 Section 44 requires FSC and Treasury to consult each other and persons likely to be affected before issuing delegated legislation. - Chief Secretary’s Office issued a Code of Practice on Consultation; FSC publishes consultations and consultation feedback summaries on its website. - Observations: - Cooperation and coordination between domestic authorities is well organized and effective. - The relatively small size of the Island’s community facilitates coordination but may increase vulnerability to regulatory capture; authorities emphasize inclusion of the financial sector in developing pragmatic AML/CFT requirements and must balance this with avoiding compromise of effective implementation (e.g., identification and verification of beneficial owner information). ### Compliance with Recommendation 31 - R.31 Rating: C *Source: IMF staff assessment text as provided in the content unit.* ### 942. As mentioned in section 1 of this report, the IOM is a British Crown Dependency and as such ### _cr09278 - 942. As mentioned in section 1 of this report, the IOM is a British Crown Dependency and as such ### International convention ratifications and extensions - The IOM is a British Crown Dependency and is not empowered to sign or ratify international conventions on its own behalf; the UK is responsible for the IOM’s international affairs and, following a request by the IOM Government, may extend the ratification of any convention to the IOM (942). - The UK extended ratification of the Vienna Convention to the IOM on December 2, 1993 (944). - The UK extended ratification of the UN Convention for the Suppression of the Financing of Terrorism to the IOM on September 25, 2008 (945). - Ten out of the other 15 international conventions and protocols relating to the fight against terrorism have been extended to the IOM: Diplomatic Agents Convention; Civil Aviation Convention; Maritime Convention; Fixed Platforms Protocol; Convention on the Making of Plastic Explosives for the Purpose of Detection; Hostage Taking Convention; Unlawful Seizure Convention; Aircraft Convention; Airport Protocol; Nuclear Material Convention (946). - The UK’s ratification of the 1990 Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime has been extended to the IOM (951). - An extension of the UK’s ratification of the Palermo Convention to the IOM has not yet been requested because IOM law does not yet comply with all its provisions; at the time of assessment there was no concrete timeframe for a request for extension (944). ### Implementation assessments (Vienna, SFT, Palermo, UNSCRs, Merida) - Implementation of Vienna Convention (Articles 3-11, 15, 17 & 19, c. 35.1): - The IOM has implemented most provisions relevant to the FATF Recommendations. - Due to the common law principle of territoriality, the IOM appears unable to take jurisdiction over drug offenses or drug-based money laundering based only on offenders’ nationality or residency. - Confiscation provisions relating to proceeds derived from and instrumentalities of drug offenses fall short of the international standard as outlined in section 2 of the report (947). - Implementation of SFT Convention (Articles 2-18, c. 35.1 & c. I.1): - IOM legislation meets many requirements of the Suppression of the Financing of Terrorism Convention. - The terrorist financing offense does not fully meet the requirements of the international standard and shortcomings exist with respect to confiscation provisions relating to terrorist assets (948). - Implementation of Palermo Convention (Articles 5-7, 10-16, 18-20, 24-27, 29-31 & 34, c. 35.1): - IOM has implemented some parts of the Palermo Convention’s provisions relevant to the FATF Recommendations. - Self-laundering was not an offense at the time of the assessment for the acts of acquiring, possessing, or using criminal proceeds. - Measures to confiscate proceeds of crime and instrumentalities used/intended for use in the crime are not fully in line with the international standard, as outlined under section 2 (949). - Implementation of UNSCRs relating to Prevention and Suppression of FT (c. I.2): - Implementation of UNSCRs 1267 and 1373 seems to be largely sufficient, as discussed under Special Recommendation III (950). - Merida Convention: - Measures have been taken to bring IOM law in line with the provisions of the Merida Convention, but at the time of the assessment an extension of the UK’s ratification to the IOM had not yet been requested (951). ### Recommendations and ratings (6.2.2 and 6.2.3) - Recommendations and comments (6.2.2): - IOM should request extension to it of the Palermo Convention. - The authorities should ensure that all provisions of the Palermo and Vienna Conventions are fully implemented. - The authorities should ensure that all provisions of the United Nations International Convention for the Suppression of Financing of Terrorism are implemented. - Compliance with Recommendation 35 and Special Recommendation I (6.2.3): - R.35 rating: PC - Ratification of the Palermo Convention has not yet been extended to the IOM. - Not all provisions of the Palermo and Vienna Conventions are fully implemented. - SR.I rating: PC - Not all provisions of the United Nations International Convention for the Suppression of Financing of Terrorism are implemented. ### Mutual Legal Assistance (R.36-38, SR.V) — description and analysis - Legal framework and domestic legislation: - There is no overarching legislation regulating MLA practice in the IOM; judicial authorities use domestic provisions in CJA 1990, CJA 1991, DTA 1996, and ATCA 2003 as appropriate (952). - In principle, provisions apply to criminal activity both in and outside the IOM, except when expressly restricted to the IOM (952). - Few provisions relating to production of documents, searches, restraint, and confiscation are limited to criminal conduct or proceeds in the IOM, allowing direct application to international requests (952). - Bilateral treaties extended to the IOM (953): - Spain – Agreement between the UK and Spain concerning the prevention and suppression of drug trafficking and the misuse of drugs. - Bahamas – Agreement between the UK and the Bahamas concerning the investigation of drug trafficking and confiscation of the proceeds of drug trafficking. - Saudi Arabia – Agreement between the UK and Saudi Arabia concerning the investigation of drug trafficking and confiscation of the proceeds of drug trafficking. - Sweden – Agreement between the UK and Sweden concerning the restraint and confiscation of proceeds of crime. - USA – Treaty between the UK and USA on Mutual Legal Assistance in Criminal Matters Treaty Series No.14 (1997); also Agreement between the UK and the USA on Investigation of Drug Trafficking Offenses and the Seizure and Forfeiture of the Proceeds of Drug Trafficking. - Mexico – Agreement between the UK and Mexico concerning mutual assistance in relation to drug trafficking; also Agreement between the UK and Mexico on Mutual Assistance in the Investigation, Restraint and Confiscation of the Proceeds of Crime other than Drugs Trafficking. - Ukraine – Agreement between the UK and the Ukraine concerning the Restraint and Confiscation of Proceeds and Instrumentalities of Criminal Activity other than Drug Trafficking Treaty Series No.47 (1997); also Agreement between the UK and the Ukraine on Mutual Assistance in Relation to Drug Trafficking. - Thailand – Treaty between the UK and Thailand on Mutual Assistance in Criminal Matters. - Hong Kong – Agreement between the UK and Hong Kong concerning mutual assistance in criminal matters. - The 1959 European Convention on Mutual Legal Assistance also applies to the IOM under the umbrella of the UK (954). - Widest possible range of assistance (c. 36.1): - The Acts allow a broad range of MLA measures including collection, production, search, and seizure of information and documents (955). - CJA 1990 Section 24: used frequently by the AG for suspected money laundering activity; provides investigatory powers for suspected offenses involving ‘serious or complex fraud’ including production of specified documents, explanations, warrants to enter and search premises and seize documents; decisions may be subject to judicial review (956). - CJA 1991 Section 21: AG may apply to the High Bailiff to receive evidence; requires reasonable grounds to suspect an offense and that an investigation or proceedings are in progress; used for witness statements under oath and orders to produce documents; subject to judicial review (957). - CJA 1991 Section 22: coercive measures of search and seizure by application to a Deemster; Deemster must be satisfied that proceedings have been instituted or an arrest made, that the offense in the requesting country would constitute an ‘arrestable’ offense as defined and listed in Section 27 of the PPPA 1998 (including ML and FT), and that there are reasonable grounds for suspecting evidence is on premises in the IOM occupied or controlled by the suspect (958). - DTA 1996 Sections 52–54: applications for production of material and authority to search premises for drug trafficking investigations; Section 54 extends ‘premises’ to vehicles, vessels, aircraft, offshore installations, tents or movable structures; CJA 1990 Section 17J extends these provisions to any criminal proceeds investigation (959). - PPPA 1998 Sections 11 and 12 and Schedule 1: empower Justice of the Peace to authorize entry and search of premises where satisfied serious ‘arrestable’ offense likely and allow application to a Deemster for access to excluded material or special procedure material under conditions (960). - CJA 1990 Section 30: adequately addresses effecting service of judicial documents (961). - Facilitation of voluntary appearance of persons for testimony is a normal form of assistance based on goodwill of the AG and police (961). - Confiscation of ML related assets and instrumentalities: see comments under Recommendation 38 (962). - Provision of assistance in timely, constructive and effective manner (c. 36.1.1): - MLA is a substantial part of the workload due to developed offshore financial services industry; rogatory commissions handled by two full-time Legal Officers (Financial Crime) in the AG’s Chambers (963). - Implementation practice: - acknowledgment of receipt of the request in two working days; - a copy of the letter relating to financial offenses is immediately sent to the FCU for preliminary investigations; - except for very complex requests, aim is to execute the request and respond with documents within three months (963). - No unreasonable or unduly restrictive conditions on mutual assistance (c. 36.2): - Policy is flexible; grounds for refusal are few. Reciprocity is not a precondition; no dual criminality reservation (964). - Requests can be refused if politically motivated or if doubts on due process or basic human rights exist (964). - Section 21 of the 1991 Act requires reasonable grounds to suspect that an offense under the law of the requesting country has been committed; it is not necessary that the conduct constitutes an offense under IOM law. Criminal proceedings must have been instituted or an investigation is ongoing in the requesting State (964). - CJA 1990 Section 24 requirements are similar: grounds to suspect serious or complex fraud and that the request is made in the context of an investigation that has been initiated (965). - Efficiency of processes (c. 36.3): - Legal Officers at the AG’s Chambers review requests, decide appropriate execution method, acknowledge requests, and provide copies to the appropriate law enforcement unit (often the FCU) (966). - A team of three officers in the FCU deals with international assistance; compliance or money laundering reporting officers at institutions are contacted to comply under appropriate procedure (966). - If no court order is required (CJA 1990 Section 24), a period of two or three weeks is the norm for compliance. For requests requiring witness statements (Section 21), execution takes longer; authorities endeavor to respond within a maximum of three months (966). - Provision of assistance regardless of possible involvement of fiscal matters (c. 36.4): - Fiscal aspects are not grounds for refusal. Requests related to fiscal offenses are complied with under Section 21 (3) of the 1991 Act when: - (a) the request emanates from a member of the Commonwealth or is made pursuant to a treaty to which the UK is a party and which extends to the IOM, or - (b) the dual criminality criterion is fulfilled (mostly but not exclusively VAT and income tax) (967). - Provision of assistance regardless of secrecy/confidentiality laws (c. 36.5): - If requirements of Section 21 of the 1991 CJA or Section 24 of CJA 1990 are met, the AG does not consider himself constrained by secrecy or confidentiality in meeting requests; a court order can overrule such obstacles (968). - Banker’s Books Evidence Act 1935 provides for banking records to be produced when ordered by a judge, confidentiality notwithstanding (968). - Availability of powers of competent authorities (applying R.28, c. 36.6): - All domestic law enforcement powers can be used in international cooperation; production orders and search warrants can be obtained pursuant to DTA 1996 Sections 52–54 or CJA 1990 Section 17J (969). - There is no legal requirement that offenses must have taken place in the IOM (969). - Proceeds of Crime Act 2008: - Part 4 duplicates and extends provisions in DTA 1996 and CJA 1990 regarding production orders in criminal confiscation investigations and contains additional powers for search and seizure warrants, disclosure orders, customer information orders, and account monitoring orders. - POCA 2008 introduced a civil recovery procedure providing for production orders and search warrants. CJA 1990 Section 24 and PPPA 1998 provisions remain intact (970). - Avoiding conflicts of jurisdiction (c. 36.7): - No specific provisions exist and no such difficulty presented itself in practice; issues are dealt with case by case depending on circumstances and where prosecution is most likely to succeed (971). - Additional element—Availability of powers required under R28 (c. 36.8): - No legislative provisions specifically prevent use of powers when a direct request is made by a foreign authority; in practice powers require application to court and such applications are made by advocates from the AG’s Chambers on behalf of the police (972). - The AG is the central authority for the IOM and acts as the IOM counterpart for foreign judicial authorities (972). *cr09278 - 942 (excerpt of the IMF assessment chapter).* ### 973. The specific provisions referred to above in the DTA 1996 and CJA 1990 do not apply to ### _cr09278 - 973. The specific provisions referred to above in the DTA 1996 and CJA 1990 do not apply to ### Scope of application and powers for terrorism and terrorist financing (TF) - The specific provisions in the DTA 1996 and CJA 1990 do not apply to terrorist offenses; equivalent provisions exist in the ATCA 2003 (Sections 18, 24, and 25, and Schedules 4, 5, and 6). - Law enforcement authorities can obtain documents and information for terrorist and terrorist financing investigations and prosecutions, including: - compulsory measures for the production of records held by financial institutions and other persons; - powers for search of persons and premises; and - powers for seizure and obtaining of evidence. - Section 21 and Schedule 2 of the Criminal Justice Act 1991 do not exclude terrorist offenses and can be used to obtain depositions and evidence in respect of these offenses, including FT. ### Dual criminality and mutual legal assistance (MLA) (c. 37.1 & 37.2) - MLA for evidence gathering and witness statements does not require dual criminality. - Exception: fiscal offenses that could have ML aspects (where proceedings have not been instituted) require special treatment if the request is from a Commonwealth member or pursuant to a treaty to which the UK is party and which extends to the IOM. - For restraint and confiscation orders, dual criminality is normally required. - CJA 1990 Section 19 implements external confiscation orders for recovering proceeds of criminal conduct “corresponding to an offense to which this Part applies”, meaning ML as criminalized in Sections 17A, 17B, and 17C. - IOM authorities consider correspondence of criminal conduct rather than identical formal qualification; difficulties can arise if the foreign request is based on laundering of proceeds from a predicate offense not covered under IOM law. ### International cooperation under SR V (c. 37.1-37.2 in R.37, c. V.2) - Requests related to terrorism where ATCA 2003 applies must meet a dual criminality standard to the extent that the purported criminal action corresponds with the definition of terrorism in Section 29. - Deficiencies in the criminalization of FT may impact the IOM’s ability to provide assistance if the request is based on activity not covered in IOM law. ### Timeliness and restrictions on requests for provisional measures including confiscation (c. 38.1) - Assistance for restraint, freezing, seizure, or confiscation is more rigid: can only be granted if requesting country or territory is either the UK or a “designated country or territory” as set out in secondary legislation. - Footnote: arrangement due to change with POCA 2008 introducing provisions that do not require “designation” (note: POCA 2008 referenced; effective dates discussed elsewhere in the text). ### General regime for foreign confiscation orders (c. 38.1–38.3) - Non-drug and non-terrorism foreign confiscation orders are dealt with under CJA 1990 Sections 18–22. - Section 18: enforcement of UK confiscation orders. - Section 19: enforcement for other “designated” countries and jurisdictions. - Designations listed in Schedule 1 of the Criminal Justice Act 1990 (Designated Countries and Territories) Order 1996, and amended by Orders in 1999, 2002, and 2003. - Foreign confiscation orders executed as if domestic orders, with appointment of a receiver and realization of realizable property. ### Drug trafficking confiscation (c. 38.1) - UK confiscation orders enforceable in the IOM on basis of DTA 1996 Section 35, with Drug Trafficking (Enforcement of United Kingdom Confiscation Orders) (Consolidation) Order 2004. - Requests from other countries governed by DTA 1996 Section 36 together with Drug Trafficking (Designated Countries and Territories) Order 1999 (Schedule 1 listings amended by 2002 and 2003 Orders). - Receiver appointment and property realization powers analogous to domestic trafficking cases. ### Procedure and limitations for confiscation and restraint - Once approved by the AG, standard procedure mirrors domestic confiscation: public prosecutor files to High Court to issue order and appoint receiver if necessary. Restraint orders can target any realizable property held by a specified person. - Lacuna for confiscation of instrumentalities in external requests: Section 16 of the CLA 1981 (domestic deprivation of property used or intended for crime) lacks provision for external requests. CJA 1990 Section 19(2)(a)(i) restricts application to “property obtained as a result of or in connection with” criminal conduct, excluding pure instrumentalities. ### Property of corresponding value (c. 38.2) - Implementation of foreign confiscation orders relating to corresponding value aligns with domestic proceeds confiscation: DTA 1996 and CJA 1990 require court to determine extent of benefit to issue a confiscation order for a specific sum. - If no voluntary payment, court may appoint a receiver to realize realizable property to satisfy the confiscation order. ### Coordination of seizure and confiscation actions (c. 38.3) - No formal arrangements for coordination with other countries; coordination occurs on a case-by-case basis through liaison among advocates of the AG’s Chambers, FCU officers, and the requesting jurisdiction. ### International cooperation on TF confiscation and restraint (SR V, c. 38.1–38.3 in R.38, c. V.3) - Anti-Terrorism (Enforcement of External Orders) Order 2004 enables enforcement in the IOM of external forfeiture orders made by courts in designated countries or territories, treating them as if made by the IOM High Court (cf. ATCA 2003 Section 16). - Schedule 2 of ATCA 2003 details implementation of forfeiture orders and provides for appointment of a receiver to possess and realize forfeited property. - Requests to forfeit instrumentalities of TF face same lacuna as general instrumentalities issue. - External restraint orders: Order 2004 allows registration if proceedings are instituted (or application made) in designated country and High Court satisfied order is in force and enforcement would not be contrary to interests of justice. - ATCA 2003 Section 16 does not provide for equivalent value confiscation — only forfeiture of money or property with direct or indirect link to terrorism funding offenses under Sections 7–10; this creates a legal gap for equivalent value approaches in TF cases. ### Asset forfeiture fund and sharing (c. 38.4–38.5) - IOM has an asset forfeiture fund for drug trafficking: confiscated proceeds of drug trafficking are deposited and used for law enforcement, health, education, and other appropriate purposes. - Confiscated proceeds of other crimes currently paid to the Treasury; envisaged that a similar proceeds of crime fund will be established for non-drug proceeds. - At time of on-site visit, no specific legislative provisions for sharing confiscated assets with other jurisdictions; asset sharing negotiated case-by-case. - POCA 2008 (from October 22, 2008) expressly provides for asset sharing (Section 222(4)). - A draft asset-sharing agreement between the IOM and the US is being negotiated; further agreements envisaged once POCA 2008 fully in force from August 1, 2009. ### Recognition of foreign non-criminal confiscation orders and civil recovery (c. 38.6) - Current legislation does not allow confiscation without conviction (civil forfeiture). - Civil recovery provisions in Part 1 of POCA 2008 will permit confiscation without conviction once necessary secondary legislation is prepared; enforcement of foreign non-criminal confiscation orders will become effective thereafter. ### Analysis — operational and legal observations - MLA requests are frequent; form a substantial part of AG’s office and FCU workload; AG’s office and FCU are appropriately organized and resourced. - No refusals recorded since 2004. - Legal capability for coercive conservatory or recovery measures is seriously restricted by rule limiting assistance to “designated countries.” Each Act (CJA 1990, DTA 1996, ATCA 2003) has its own list; no consolidated list; last update occurred in 2003. - This restriction is inconsistent with international standards and lacks an alternative ad hoc mechanism. - POCA 2008 (Sections 215 and 216, in force from August 1, 2009) should remedy this. - Technical/juridical deficiencies may affect ability to assist: - strict dual criminality interpretation may hamper execution of foreign confiscation orders when predicates to ML or FT are not covered in IOM law; - equivalent value confiscation in TF cases and forfeiture of instrumentalities face legal challenges. ### Statistics and operational data (R.32) - AG’s Chambers keeps statistics on: - number of cases where confiscated or restrained assets were repatriated (and at whose request); - number of confiscation orders made (all under DTA 1996); - number of restraint orders and the requesting country; - number of rogatory letters received and originating country; - legal grounds for actions taken. - No statistical information was available on amounts involved or duration of implementation processes. - No information on total number of requests made. - No requests related to FT had been received as of the on-site visit. ### Conclusions and key risks - IOM authorities generally take international cooperation seriously and adopt a constructive approach to MLA requests. - Rigid restriction to “designated countries” for coercive measures is not acceptable under international standards and should be abolished. - ML and TF criminalization deficiencies spill over into MLA where dual criminality is required and impede assistance. - Equivalent value confiscation in FT matters and forfeiture of instrumentalities are outstanding issues for international cooperation. ### Recommendations and comments (6.3.2) - Amend the law to correct deficiencies affecting the criminalization of ML and FT offenses, to facilitate full compliance with MLA requests related to seizure and confiscation where dual criminality applies. - Remove the current restriction limiting MLA involving coercive conservatory and recovery matters to “designated countries.” - When amending law on equivalent value confiscation and seizure in FT matters, remove obstacles to related international mutual assistance. ### Compliance summary (6.3.3) - R.36: C - R.37: C - R.38: PC - Deficiencies in ML criminalization affect MLA capacity where dual criminality applies. - Availability of MLA related to seizure and confiscation limited at time of assessment to “designated” countries. - SR.V: PC - Deficiencies in FT criminalization affect MLA capacity where dual criminality applies. - Availability of MLA related to seizure and confiscation limited at time of assessment to “designated” countries. - Equivalent value confiscation not provided for in FT matters (also relevant in international cooperation context). ### Extradition (R.37, 39, SR.V) — legal framework and extraditable offenses - Extradition regime governed primarily by the UK Extradition Act of July 27, 1989; Section 29 extends Parts I to V to the IOM as if part of the United Kingdom. - Council of Europe Convention on Extradition 1957 applicability extended to the IOM as of May 14, 1991 (Article 27(2)); Second Additional Protocol (1978) extended as of April 25, 2003. - European Arrest Warrant regime does not apply to the IOM. - No extradition procedures have ever been initiated according to IOM authorities. - Dual criminality is required for extradition, assessed on substance of facts rather than formal qualification (Section 2 of the Extradition Act: underlying conduct must be an offense in the UK punishable with imprisonment of 12 months or more). - Extraditable offenses: - DTA 1996 Sections 45–47 (drug trafficking related concealing/transferring/assisting in proceeds) punishable on conviction by imprisonment not exceeding 14 years (or unlimited fine or both) — extraditable. - CJA 1990 Section 17A (assisting another to retain benefit of criminal conduct) punishable by custody up to 14 years (and/or unlimited fine) — extraditable. Sections 17B and 17C have same penalties — extraditable. - ATCA 2003 Section 10 (terrorism-related ML offense) qualifies as extraditable (punishable by custody of 14 years or more). - POCA 2008 will remove differentiation between drug-related and other ML facts; all could incur custody more than 12 months if tried on information, and thus remain extraditable. *Content derived from the supplied IMF assessment text.* ### 1007. As in other common law jurisdictions, there is no legal obstacle to the IOM extraditing its ### _cr09278 - 1007. As in other common law jurisdictions, there is no legal obstacle to the IOM extraditing its ### Extradition of Nationals and Cooperation for Prosecution - As in other common law jurisdictions, there is no legal obstacle to the IOM extraditing its own nationals. - Cooperation for Prosecution of Nationals (applying c. 39.2(b), c. 39.3): - If the IOM refuses to extradite, authorities would resort to Article 6(2) of the European Convention on Extradition and endeavor to take over the prosecution from the requesting State. - Coordination with the requesting jurisdiction would be undertaken to ensure efficiency of the prosecution (Article 12 of the Convention). ### Efficiency of Extradition Process (c. 39.4) - Incoming extradition requests follow procedures in Part III of the Extradition Act 1989 concerning provisional arrest, habeas corpus, return, simplified procedures, etc. - No practical examples exist in the IOM to assess efficiency and speed due to lack of experience. - In principle, procedural provisions do not appear to contain unreasonable delay elements. ### Extradition under SR V and Criminalization of FT - FT is criminalized by ATCA Sections 7–10. - Penalties on conviction on information: custody for a term not exceeding 14 years (or an unlimited fine or both). - Such FT offenses are extraditable within the scope of the Extradition Act 1989 and the Convention. - Extradition for FT follows the same principles and procedures as for ML-related conduct. - Additional element: Section 14 of the Extradition Act provides for simplified extradition procedures when the subject waives rights. ### Analysis of Extradition Regime and Dual Criminality - Formal provisions of the extradition regime are comprehensive and compliant with international standards in the absence of precedents. - Dual criminality requirement may create problems for extradition requests related to ML or FT activity not formally covered under IOM criminal legislation. - No case law is available to clarify dual criminality issues in practice. - Statistics: there are no available statistics, in the absence of extraditions on record. ### Recommendations (Section 6.4.2) - Amend the law to correct deficiencies affecting the criminalization of ML and FT offenses, and thus remove possible obstacles to complying with extradition requests where the dual criminality principle applies. ### Compliance Ratings (Section 6.4.3) - R.39: LC - Deficiencies in the ML criminalization affect the extradition capacity where the dual criminality principle applies. - R.37: C - SR.V: PC - Deficiencies in the FT criminalization affect the extradition capacity where the dual criminality principle applies. ### Other Forms of International Co-Operation (R.40 & SR.V) — Overview - FIU, Customs, Police, and Supervisory Authorities all engage in international cooperation across intelligence and investigative functions. - FIU: - FCU/FIU is active in the Egmont network over the Egmont Secure Web. - Cooperation sometimes underpinned by bilateral MOUs; governed by Egmont principles; FCU normally grants consent for intelligence purposes. - Customs: - IOM Customs and Excise exchange information with counterparts practically on a daily basis. - Operational cooperation with the UK is well developed under the Customs and Excise Agreement with the UK and the Isle of Man Act 1979 and the Customs and Excise (Implementation of 1979 Agreement) Order 1980. - Being part of the customs territory of the EU, Customs and Excise can cooperate under mutual assistance agreements between those countries and the EU. - Police: - Use Interpol network; routinely grant assistance where not coercive; intelligence-level cooperation cannot be used in evidence without MLA confirmation. - Supervisory Authorities (FSC and IPA): - Schedule 5 to the FSA 2008 provides gateways allowing restricted disclosure in circumstances including: - (a) disclosure with a view to institution of or for criminal proceedings in the IOM or elsewhere; - (b) disclosure to a regulated authority as defined in FSA 2008 Section 48(1); - (c) to assist any authority in respect of law corresponding to Insider Dealing Act 1998 provisions. - FSC must consider factors (purpose, appropriateness, likely value, alternative means, confidentiality, reciprocal arrangements) when deciding disclosures under (b) and (c); consideration not required for (a). - IPA has wide ranging powers to share information under Schedule 5 of the Insurance Act 2008 (previously 22D of the Insurance Act 2004 as amended). - Both FSC and IPA empowered to enter into MOUs; FSC is a full signatory to the IOSCO MMOU; IPA is signatory to MOUs including Hong Kong, Qatar and United Kingdom, and intends to enter IAIS draft multilateral memorandum. ### Provision and Timeliness of Assistance (c. 40.1–40.9) - Provision of Assistance in Timely, Constructive and Effective Manner (c. 40.1.1): - FCU international cooperation team handles police and FIU ML/FT-related requests; requests are dealt with promptly in practice; no undue delays signaled. - Spontaneous Exchange of Information (c. 40.3): - FCU policy: inform FIUs of jurisdictions involved in an STR whether requested or not. - Frequency: 635 cases in 2006, representing 38 percent of total disclosures received by the FCU; 343 cases in 2007 (22 percent of total). - Customs legal framework provides for spontaneous and upon-request information exchange on ML and predicate offenses. - FSC and IPA empowered to provide information spontaneously and on request, including all relevant information held. - Making Inquiries and Conducting Investigations on Behalf of Foreign Counterparts (c. 40.4–40.5): - Police and Customs officers can use domestic enquiry powers at foreign request; FCU/FIU likewise when collecting ML/FT intelligence. - Under FSA 2008 Schedule 2, FSA may use powers on behalf of a regulatory authority with an MOU (powers include inspection, request/require information, apply for search warrant). - FSC empowered under Schedule 3 of the Insider Dealing Act 1998; IPA has similar powers under Insurance Act 2008, Schedule 5. - Interpol requests complied with where no invasive measures required; Customs routinely conduct cross-border investigations (e.g., VAT carousels, smuggling). - Conditions, Fiscal Matters, Secrecy and Safeguards (c. 40.6–40.9): - If information is meant to be used as evidence, confirmation via formal mutual legal assistance request required. - Otherwise normal confidentiality and data protection rules apply. - FCU/FIU observes Egmont rules; information of protected nature (financial and beneficial ownership data) can be shared on intelligence basis with foreign FIUs under Egmont rules. - Requests with fiscal ramifications are not automatic grounds for refusal; pure tax offenses approached cautiously; police require alleged facts to translate into criminal behavior recognized in IOM law. - No secrecy provisions restrict supervisory authorities from sharing confidential information with foreign counterparts where warranted. - Safeguards: central secured police database; access restricted; use purpose-bound under Data Protection rules; Egmont confidentiality guarantees observed; FSC/IPA statutory consideration process provides safeguards and typically prohibits passing information to third parties without express approval. ### International Cooperation under SR V - Direct cooperation regime between law enforcement authorities and FIUs equally applies in FT-related matters. ### Analysis and Statistics on International Cooperation - FCU maintains cooperative relationships; information exchanges frequent, ranging between 89 and 149 per year in the last four years. - No refusals on record with other Egmont Group FIUs for intelligence exchanges. - FCU policy flexible at intelligence stage; consent to use supplied information for intelligence purposes is not refused; evidence-aimed requests require MLA procedures. - Customs and Excise show similarly constructive and effective international cooperation. - Statistics: - FCU keeps detailed statistics on international requests including spontaneous referrals but does not distinguish police vs FIU origin. - Supervisory authorities maintain statistics; many exchanges arise under IOSCO MMOU and fit-and-proper information requests. ### Compliance Ratings (Section 6.5.3) - R.40: C - SR.V: PC - Deficiencies in the FT criminalization affect the extradition capacity where the dual criminality principle applies. ### Resources, Statistics, and Other Issues (Section 7) - Rating Summary of factors underlying rating: - R.30: LC - The regulatory authorities may require additional resources to sustain an appropriate level of AML/CFT onsite inspection work, particularly for banks and insurance businesses. - Some additional resources needed by the GSC and DHA. - R.32: LC - Comprehensive statistics not maintained on seizures and confiscations. - Other relevant AML/CFT Measures or Issues: - There are no additional matters to raise. - General Framework for AML/CFT System: - Addressed in section 1 of the report; no further issues identified. *Source: _cr09278 - excerpt provided* ### 1. ML offense ### 1. ML offense ### ML offense (PC) - Articles 17C CJA 1990 and 45 DTA 1996 are not sufficiently wide to fully meet the international standard due to the requirement that acts of “concealing or disguising” and “converting or transferring” are carried out with the purpose of avoiding prosecution for a predicate offense. - The defenses (payment of adequate consideration) provided for in Sections 17B (3) CJA 1990 and 47 (3) DTA 1996 are not provided for in the Vienna and Palermo Conventions and may allow money launderers to abuse the provision to avoid criminal liability for the acquisition, possession, or use of criminal proceeds. - Section 10 ATCA 2003 does not cover all material elements of the money laundering provisions of the Palermo and Vienna Conventions. - The offenses of acquisition, possession, or use in the CJA 1990 and the DTA 1996 as well as the money laundering offense contained in the ATCA 2003 do not extend to self-laundering. - The low level of relevant domestic investigations and prosecutions calls into question the effectiveness of the ML offense. ### ML offense—mental element and corporate liability (LC) - While statutory sanctions for money laundering are comprehensive, dissuasive and proportional, the number of convictions obtained and the sentences actually imposed by the courts appear rather low. - It is difficult to assess the effectiveness of the stand-alone money laundering offense given that the provision has not yet been tested before the courts. The low number of investigations and prosecutions further supports the conclusion that money laundering is not yet dealt with as a stand-alone offense. ### Confiscation and provisional measures (PC) - Deficiencies in ML and FT criminalization impact on the scope of criminal confiscation. - Confiscation of laundered assets might not succeed in stand-alone ML cases. - At the time of the assessment, no equivalent value seizure possible before start of the proceedings. - For FT, barriers to application of equivalent value confiscation and seizure. - Overall effectiveness of confiscation measures needs to be improved. ### Recommended legal and procedural actions (from Action Plan) - Amend Articles 17C CJA 1990 and 45 DTA 1996 to: - provide for two alternative purposes for the acts of converting and transferring proceeds, namely to avoid prosecution for the predicate offense or to conceal the illicit origin of the funds, and; - eliminate the purpose requirement for the acts of converting and transferring proceeds of crime. - Eliminate the defense (payment of adequate consideration) provided for in Sections 17B(3) CJA 1990 and 47(3) DTA 1996. - Amend Section 10 ATCA 2003 to cover all material elements of the money laundering provisions of the Palermo and Vienna Conventions. - Amend the offenses of acquisition, possession, or use in the CJA 1990 and the DTA 1996 as well as the money laundering offense in ATCA 2003 to include criminal proceeds obtained through the commission of a predicate offense by the self launderer. - Authorities should: - (i) address any barriers to stand-alone ML prosecutions, including the level of proof needed to determine that property stems from the commission of a specific predicate offense; and - (ii) take steps to develop jurisprudence on autonomous money laundering to establish that ML is a stand-alone offense. - The law should be amended to address deficiencies affecting the scope of the ML and FT offenses and thereby improve the quality of the criminal confiscation regime. - The law should be amended to: - allow equivalent value seizure at any stage of the investigation; and - address in ATCA 2003 the issue of equivalent value confiscation in the context of FT-related assets. - Case law should be developed on stand-alone money laundering confiscations. - Authorities should address the low effectiveness of current asset recovery measures, particularly by focusing on timely tracing and immobilization of recoverable or realizable assets. --- ### Preventive measures — selected findings ### Secrecy laws consistent with the Recommendations (LC) - Explicit exclusion from common law duty of client confidentiality not yet brought into force to permit financial institutions to exchange information. ### Customer due diligence (PC) - Available concessions from conducting full CDD represent an overly-generous implementation of the FATF’s facility to apply reduced or simplified measures for certain low-risk scenarios, including where the customer is acting on behalf of another person. Financial institutions not required in all cases to determine whether a customer is acting on behalf of another person and take reasonable steps to obtain sufficient identification data to verify the identity of that other person. - Current list of suggested high-risk customers omits some significant high risk business categories relevant in the IOM. - Some residual inconsistencies and potential overlap/conflict between pieces of AML/CFT secondary legislation. - Some exceptions to CDD requirements provided for only in guidance. - As they were recently introduced at the time of the on-site visit, the effectiveness of implementation of some CDD requirements, and of the supplementary provisions of the AML Code 2008, could be fully assessed. ### Politically exposed persons (C) - none ### Correspondent banking (C) - none ### New technologies & non face-to-face business (LC) - Limited evidence of special attention to specific ML and FT risks of new technologies, including in relation to e-money and e-commerce and no evidence of testing by the FSC of implementation by financial institutions of appropriate measures. - As they were recently introduced at the time of the on-site visit, the effectiveness of implementation of the requirements regarding the risk of misuse of technologies and the risk resulting from non face-to-face business relationships could not be fully assessed. ### Third parties and introducers (LC) - Not all permitted categories of introducer were subject to full AML/CFT requirements. - Indications of inconsistent implementation by financial institutions in relation to requirements in place at the time of on-site visit in applying due diligence relating to their reliance on Eligible Introducers, introducers, or Introducer’s Certificates, as applicable. ### Record-keeping (C) - none ### Unusual transactions (C) - none ### DNFBP–R.5, 6, 8–11 (PC) - Implementation arrangements for AML/CFT requirements were not yet in place for the accountancy profession. - In the case of CSPs and TSPs, the exceptions to the CDD requirements currently in the FSC Handbook lack a firm legal basis. - Effectiveness of implementation of the supplemental provisions of the AML Code 2008, other than for CSPs and TSPs, could not be assessed as they were adopted subsequent to the on-site visit. ### Suspicious transaction reporting (LC) - Scope to improve timeliness of reporting of STRs to the FCU. - Comprehensive requirement needed to report attempted transactions that raise suspicions. ### Protection & no tipping-off (PC) - The scope of the protection for STR reporting is not sufficient to include all categories of person or circumstances in the international standard and is not limited to good faith reporting. ### Internal controls, compliance & audit (LC) - There is no requirement in law, regulation, or other enforceable means expressly covering AML/CFT to maintain an adequately resourced and independent audit function (having regard to the size and nature of the business). ### DNFBP–R.13–15 & 21 (PC) - No requirement to report attempted suspicious transactions. - Requirement for an independent audit function does not explicitly include AML/CFT within its scope. - Low levels of STR reporting by some categories of DNFBP. - Protection for those reporting suspicions not fully in line with international standard. - Effectiveness of implementation of the supplemental provisions of the AML Code 2008 could not be assessed as they were adopted subsequent to the on-site visit (other than CSPs and TSPs which were already subject to Part 9 of the FSC Rule Book from August 2008). ### Sanctions (LC) - Limitation in the current scope of available administrative sanctions. - The effectiveness of the sanctions system is reduced by the low incidence of disciplinary measures applied by the FSC and the absence of any criminal prosecutions against persons contravening the AML/CFT requirements. ### Shell banks (C) - none ### Other forms of reporting (C) - none ### Other NFBP & secure transaction techniques (LC) - Consideration not yet concluded on the application of AML/CFT requirements to other NFBPs ### Special attention for higher risk countries (LC) - The process in place to ensure that financial institutions are advised of concerns about weaknesses in the AML/CFT systems of other countries had not been formalized at the time of the assessment. ### Foreign branches & subsidiaries (C) - none ### Regulation, supervision and monitoring (LC) - Coverage of the AML/CFT requirements for financial institutions, though broad, is not fully comprehensive. - There is not yet in place an effective system of monitoring and ensuring compliance with AML/CFT requirements for money and value transfer service providers. ### DNFBP—regulation, supervision and monitoring (PC) - Implementation of AML/CFT measures for DNFBPs, other than CSPs, TSPs, and most lawyers, is still being developed. - Registered legal practitioners are not adequately covered by the AML/CFT requirements. - The powers of the DHA to perform an AML/CFT supervisory role had not come into legal effect. - Additional supervisory resources needed for the DHA and GSC, including for the latter additional specialist skills to deal with on-line casino systems. ### Guidelines & Feedback (LC) - Up-to-date guidance had not been issued by the GSC at the time of the assessment. - Guidance for accounting professionals not been adapted to the IOM requirements. --- ### Institutional and other measures — selected findings ### The FIU (LC) - No formal power of access to additional information for FIU analytical purposes. - Limited effectiveness of the overall reporting system, as reflected in low numbers of domestic FCU investigations. ### Law enforcement authorities (LC) - Limited effectiveness of the system as reflected in low numbers of domestic investigations and prosecutions. ### Powers of competent authorities (C) - none ### Supervisors (LC) - The supervisory authorities should, as planned, avail of their powers to conduct additional on-site inspections of banks and insurance businesses. ### Resources, integrity, and training (LC) - The regulatory authorities may require additional resources to sustain an appropriate level of AML/CFT onsite inspection work, particularly for banks and insurance businesses. - Some additional resources needed by the GSC and DHA. ### National co-operation (C) - none ### Statistics (LC) - Comprehensive statistics not maintained on seizures and confiscations. ### Legal persons–beneficial owners (LC) - For about 30 percent of the 1931 Companies and LLCs, it could not be determined that accurate, complete, and current beneficial ownership information is available. ### Legal arrangements – beneficial owners (LC) - For legal arrangements administered by trustees who are not covered by, or who are excluded or exempted from the licensing requirements of FSA 2008, it could not be determined that accurate, complete, and current beneficial ownership information is available. --- ### International Cooperation — selected findings ### Conventions (PC) - Ratification of the Palermo Convention has not yet been extended to the IOM. - Not all provisions of the Palermo and Vienna Conventions are fully implemented. ### Mutual legal assistance (MLA) (C) - none ### Dual criminality (C) - none ### MLA on confiscation and freezing (PC) - Deficiencies in the ML criminalization affect the MLA capacity where the dual criminality principle applies. - Availability of MLA related to seizure and confiscation limited at time of assessment to ‘designated’ countries. ### Extradition (LC) - Deficiencies in the ML criminalization affect the extradition capacity where the dual criminality principle applies. ### Other forms of co-operation (C) - none --- ### Nine Special Recommendations — selected findings ### SR.I Implement UN instruments (PC) - Not all provisions of the United Nations International Convention for the Suppression of Financing of Terrorism are implemented. ### SR.II Criminalize terrorist financing (LC) - Article 1 ATCA 2003 does not contain a reference to international organizations. - The definition of “terrorism” in Section 1 ATCA 2003 does not extend to all terrorism offenses as defined in the nine Conventions and Protocols listed in the Annex to the FT Convention. ### SR.III Freeze and confiscate terrorist assets (PC) - No procedure in place to respond to and examine foreign freezing requests. - Definition of “funds” does not cover the ‘jointly’ and ‘indirectly’. - No delisting or unfreezing procedure provided in the context of the EC Regulation lists. - No access provided to UNSCR 1267 frozen assets for humanitarian reasons and basic expenses. ### SR.IV Suspicious transaction reporting (PC) - The scope of the FT reporting requirement is limited by the incomplete coverage of ATCA 2003. - Scope to improve timeliness of reporting of STRs to the FCU. - Comprehensive requirement needed to report attempted transactions that raise suspicions. ### SR.V International cooperation (PC) - Deficiencies in the FT criminalization affect the capacity for MLA and extradition where the dual criminality principle applies. - Availability of MLA related to seizure and confiscation limited at time of assessment to ‘designated’ countries. - Equivalent value confiscation not provided for in FT matters (also relevant in international cooperation context). ### SR.VI AML/CFT requirements for money/value transfer services (LC) - Active supervision for AML/CFT purposes of MVT providers had not commenced at the time of the assessment. ### SR.VII Wire transfer rules (LC) - Tighter implementation may be needed in applying the risk-based approach when dealing with wire transfers that lack full originator information. - Need for additional FSC monitoring of ongoing compliance with wire-transfer requirements. ### SR.VIII Nonprofit organizations (LC) - Review of NPO laws and regulations not yet complete. - Current coverage excludes NPOs that are outside the definition of charities. ### SR.IX Cross-Border Declaration & Disclosure (LC) - The cross-border control regime does not cover cash transportation by mail between the UK and the IOM. --- ### Additional prioritized Recommendations (selected from Action Plan) - Put in place a formal procedure governing the receipt and assessment of requests based on foreign freezing lists, as required by UNSCR 1373. - Amend the legal framework implementing the UN Resolutions and EC Regulations to expressly extend the definition of ‘funds’ subject to freezing to cover assets ‘jointly’ or ‘indirectly’ owned or controlled by the relevant persons. - Amend the legal framework for the implementation of the EC Regulations to provide a procedure for considering requests for delisting or unfreezing. - Provide for and publicize a clear procedure enabling access to UNSCR 1267 frozen funds for humanitarian purposes and to cover basic expenses. - Supplement the current informal arrangement by providing formally for access by the FIU to additional information held by covered entities, for use in its analytical work. - The FCU and other authorities should implement steps to improve the effectiveness of the reporting system to support an increase in the number of investigations and (potentially) prosecutions and in funds and other assets frozen. - Authorities should implement steps to improve effectiveness by seeking to increase the number of investigations and prosecutions pursued domestically. - The cross-border control requirements should be extended to cover cash transportation by mail between the UK and the IOM. - The authorities should take steps to eliminate any residual inconsistencies in AML/CFT legal requirements and terminology. - The authorities should expand the current list of categories of higher-risk customers and consider including, for example, private banking and business involving trusts or other legal arrangements. - The authorities should conduct a risk-based review of the current scope of the Acceptable Applicant facility and, if warranted, limit its availability for consistency with the FATF Recommendations. Financial institutions should be required in all cases to determine whether a customer is acting on behalf of another person and should take reasonable steps to obtain sufficient identification data to verify the identity of that other person. - If the exceptions to the CDD requirements of secondary legislation as currently set out in the FSC Handbook are to be retained, the authorities should amend the secondary legislation as necessary to provide for them. - Should the authorities decide to continue allowing source of funds to be used as principal evidence of identity in certain low-risk circumstances, the requirements should be tightened further to eliminate any remaining risk of abuse for ML or FT purposes. - The authorities should review on a risk basis the implementation of the concession allowing operations to commence prior to completion of full CDD procedures to ensure it is not being misused. - The authorities should ensure that insurance managers and insurance intermediaries are included within the scope of all relevant AML/CFT requirements. - The authorities should consider reducing significantly the current EUR15,000 threshold for the application of CDD measures to one-off transactions by MVT service providers. - To support the implementation of the basic requirement in this area, the authorities should issue more detailed guidance on the specific ML and FT risks of new technologies, for example in relation to e-money and e-commerce. *Source: _cr09278 - 1. ML offense* ### 3.3 Third parties and ### _cr09278 - 3.3 Third parties and ### 3.3 Third parties and introduced business (R.9) - The authorities should review the range of business introducers in respect of which concessions are applied to ensure that all categories are subject to equivalent AML/CFT requirements. - By means of on-site supervision or otherwise, the regulatory authorities should assess the effectiveness of CDD being obtained from Eligible Introducers or Introducers including, in the case of insurers, the use and effectiveness of Introducer’s Certificates. - The authorities should remove any residual inconsistencies in secondary legislation following the coming into force of the AML Code 2008. ### 3.4 Financial institution secrecy or confidentiality (R.4) - The authorities should bring into force the provision that financial institutions do not breach their confidentiality duty in exchanging customer information between themselves for AML/CFT purposes. ### 3.5 Record keeping and wire transfer rules (R.10 & SR.VII) - SR.VII - The FSC should reconsider whether the current implementation of the risk-based approach for incoming wire transfers lacking full originator information accurately reflect the level of underlying risk. - The FSC should continue to include wire transfers within its program of on-site supervision. ### 3.6 Monitoring of transactions and relationships (R.11 & 21) - The authorities should formalize appropriate means of applying counter-measures to countries that do not or insufficiently apply the FATF Recommendations. ### 3.7 Suspicious transaction reports and other reporting (R.13, 14, 19, 25, & SR.IV) - R.13 - The FCU and supervisory authorities should take steps to enhance the timeliness of reporting of suspicious transactions to the FCU. - The law should be amended to provide comprehensively that suspicious attempted transactions must be reported promptly to the FCU. - R.14 - The authorities should amend the law to extend the protection for persons reporting suspicions to the FIU to cover all aspects in the international standard and limit the protection to reporting in good faith. - The authorities should consider introducing measures to ensure the confidentiality, including in Court proceedings, of persons reporting suspicions to the FIU. - SR.IV - The authorities should amend the law as needed to address the deficiencies in the scope of ATCA 2003 and thereby provide the required scope of coverage for STR reporting. - The FCU and supervisory authorities should take steps to enhance the timeliness of reporting of suspicious transactions to the FCU, including for suspicions of FT. - The law should be amended to provide comprehensively that suspicious attempted transactions must be reported promptly to the FCU. ### 3.8 Internal controls, compliance, audit and foreign branches (R.15 & 22) - The authorities should supplement current provisions by introducing in law, regulation, or other enforceable means a requirement that, having regard to the size and nature of the business, financial institutions maintain an adequately resourced and independent audit function to test compliance with AML/CFT procedures. ### 3.9 Shell banks (R.18) - none ### 3.10 The supervisory and oversight system–competent authorities and SROs (Role, functions, duties and powers (including sanctions)) (R.23, 29, 17 & 25) - R.17 - The FSC should consider issuing further regulations to allow it to impose additional administrative sanctions, where warranted. - R.23 - The authorities should apply AML and CFT requirements directly to any category of financial institutions not currently covered, having regard to such underlying ML and FT risks as may arise. - The FSC should proceed as planned to implement a supervisory regime for money-services businesses, including bureaux de change, as soon as possible. - R.29 - The FSC and IPA should make more frequent and extensive use of their powers to conduct AML/CFT on-site inspections of banks and insurance businesses, respectively. ### 3.11 Money value transfer services (SR.VI) - The FSC should proceed at an early date to conduct AML/CFT supervision of MVT service providers. - The authorities should implement ongoing measures to identify any informal MVT service providers in the IOM. - The authorities should consider reducing significantly the current EUR15,000 threshold for the application of CDD measures to one-off transactions by MVT service providers. ### 4. Preventive Measures–Nonfinancial Businesses and Professions #### 4.1 Customer due diligence and record-keeping (R.12) - The authorities should keep under review the list of categories of higher-risk customers and consider including additional categories on a risk-related basis. - The authorities should conduct a risk-based review of the current scope of the Acceptable Applicant facility and, if warranted, limit its availability for consistency with the FATF Recommendations. - In the case of CSPs and TSPs, if the exceptions to the CDD requirements of secondary legislation as currently set out in the FSC Handbook are to be retained, the authorities should amend the secondary legislation as necessary to provide for them. - The authorities should review on a risk basis the implementation of the concession allowing operations to commence prior to completion of full CDD procedures to ensure it is not being misused, particularly in the case of advocates. - The DHA should proceed as quickly as possible with the planned arrangements to ensure that effective AML/CFT arrangements are place for accountancy professionals, including on a risk-sensitive basis those that are not members of either of the two main bodies. - The DHA should proceed as soon as possible with the planned implementation on a risk-sensitive basis of AML/CFT measures for dealers in high-value goods engaged in cash transactions. - The requirement to consider filing an STR if unable to adequately complete CDD measures should be extended to casinos. #### 4.2 Suspicious transaction reporting (R.16) - Clarify the position of legal privilege in relation to ML and FT issues and STR reporting in a manner supportive of the AML/CFT system. - The authorities should continue their efforts, through awareness raising and otherwise, to increase the effectiveness of STR reporting by DNFBPs, particularly for those categories that rarely report suspicions. - The authorities should amend the law to extend the protection for persons reporting suspicions to the FIU to cover all aspects in the international standard and limit the protection to reporting in good faith. - The authorities should consider introducing measures to ensure the confidentiality, including in Court proceedings, of persons reporting suspicions to the FIU. - The authorities should introduce a requirement in law, regulation, or other enforceable means to maintain an adequately resourced and independent audit function to test compliance with AML/CFT procedures in line with the nature, size and activity of the DNFBP. - The authorities should amend the law to require the reporting of suspicious attempted transactions. #### 4.3 Regulation, supervision, monitoring, and sanctions (R.17, 24, & 25) The authorities should: - Provide for and implement a system of regular and full audits for advocates based on onsite visits to monitor more closely the level of compliance with their AML/CFT obligations. - Ensure that registered legal practitioners are supervised to ensure their compliance with the provisions of the AML Code 2008. - Finalize the agreement between the DHA and the professional accounting bodies, issue guidance adapted to the IOM’s AML/CFT requirements, and implement an AML/CFT on-site supervisory regime for the industry. - Formalize the basis for on-site assessments for DNFBPs that do not fall within the mandate of the FSC, GSC, or the IOM Law Society. - Proceed with planned legislative amendments to provide the DHA with adequate powers in undertaking registration and regulation for AML/CFT purposes of DNFBPs within its mandate and provide the DHA with resources consistent with that mandate. - Assess the adequacy of the GSC’s staffing capacity and specialist skills base to ensure it is well positioned from an AML/CFT perspective to deal with the expected growth in on-line and terrestrial casino business. #### 4.4 Other designated non-financial businesses and professions (R.20) - The authorities should proceed with their program of awareness-raising to determine what categories of NFBP should be within the scope of the AML/CFT requirements. ### 5. Legal Persons and Arrangements & Nonprofit Organizations #### 5.1 Legal Persons–Access to beneficial ownership and control information (R.33) - The authorities should seek to put in place measures to ensure that accurate, complete, and current beneficial ownership information is available for all 1931 Companies and LLCs. - The authorities should consider extending the formal monitoring of all corporate service providers for compliance with the requirements of the AML Code 2008 to include those “exempted” or “excluded” from the licensing requirements of the FSA 2008. #### 5.2 Legal Arrangements–Access to beneficial ownership and control information (R.34) - The authorities should seek to put in place measures to ensure that accurate, complete and current beneficial ownership information is available for legal arrangements administered by a trustee who is not covered by the licensing requirements of FSA 2008. - The authorities should consider extending the formal monitoring of all trust service providers for compliance with the requirements of the AML Code 2008 to include those “exempted” or “excluded” from the licensing requirements of the FSA 2008. #### 5.3 Nonprofit organizations (SR.VIII) - The authorities should complete the current review of the NPO laws and regulations and consider, based on an FT risk assessment, the merits of expanding the current coverage of charities to include other NPOs. - The authorities should conduct periodic vulnerability reviews and outreach to the NPO sector regarding the risk of abuse for FT purposes. ### 6. National and International Cooperation #### 6.1 National cooperation and coordination (R.31) - none #### 6.2 The Conventions and UN Special Resolutions (R.35 & SR.I) - IOM should request extension to it of the Palermo Convention. - The authorities should ensure that all provisions of the Palermo and Vienna Conventions are fully implemented. - The authorities should ensure that all provisions of the United Nations International Convention for the Suppression of Financing of Terrorism are implemented. #### 6.3 Mutual Legal Assistance (R.36, 37, 38 & SR.V) - Amend the law to correct the deficiencies affecting the criminalization of ML and FT offenses, and thus facilitate full compliance with MLA requests related to seizure and confiscation where the dual criminality principle applies. - Remove the current restriction limiting MLA involving coercive conservatory and recovery matters to ‘designated countries’. - In amending the law in respect of the equivalent value confiscation and seizure in FT matters, remove also obstacles to related international mutual assistance. #### 6.4 Extradition (R. 39, 37 & SR.V) - Amend the law to correct the deficiencies affecting the criminalization of ML and FT offenses, and thus remove possible obstacles to complying with extradition requests where the dual criminality principle applies. #### 6.5 Other Forms of Cooperation (R. 40 & SR.V) - none ### 7. Other Issues #### 7.1 Resources and statistics (R.30 & 32) - R.30 - Consideration should be given to assigning some additional resources to AML/CFT supervision of banks and insurance businesses, particularly to allow for an increase in on-site inspections. - Some additional resources needed by the GSC and DHA. - The authorities should take steps to maintain comprehensive statistics on seizures and confiscations. ### Annexes (selected content) - Annex 1: Authorities’ Response to the Assessment — notes commitment to FATF Recommendations; POCA 2008 came into operation on October 22, 2008 with remainder of legislation coming fully into force on August 1, 2009; Terrorism (Finance) Act 2009 now in force; ongoing work on Anti-Terrorism and Crime (Amendment) Bill 2009; Criminal Justice (Money Laundering) Code 2008 will continue to be reviewed. - Annex 2: Details of All Bodies Met During the On-Site Visit — lists government bodies, regulators, industry associations, and private sector firms including “5 individual banks”, “3 individual insurers”, and other entities. - Annex 3: List of All Laws, Regulations, and Other Material Received — includes items such as Criminal Justice Act 1990; Drug Trafficking Act 1996; Anti-Terrorism and Crime Act 2003; Proceeds of Crime Act 2008 (POCA 2008); Criminal Justice (Money Laundering) Code 2008 (Code 2008); Financial Services Act 2008 (FSA 2008); FSC AML/CFT Handbook 2008; Insurance (Anti-Money Laundering) Regulations 2008 (IAMLR 2008); Charities Acts 1962-1989. - Annex 4: Copies of Key Laws, Regulations, and Other Measures — indicates relevant extracts and lists including POCA 2008 (index only) and Criminal Justice (Money Laundering) Code 2008 (Code 2008). *Source: _cr09278 - 3.3 Third parties and (extracted content).* ### 4. FSC Financial Services Rule Book 2008 (part 9). ### 4. FSC Financial Services Rule Book 2008 (part 9). ### Confiscation orders (Criminal Justice Act (CJA) 1990; Drug Trafficking Act (DTA) 1996) - Courts empowered to make an order requiring an offender to pay such sum as the court thinks fit (confiscation order). - Court of General Gaol Delivery may make an order where: - offender is found guilty of an offence to which this Part applies; and - it is satisfied that he has benefited from that offence or from that offence taken together with some other offence of which he is convicted in the same proceedings, or which the court takes into consideration in determining his sentence, and which is not a drug trafficking offence. - Court of summary jurisdiction may make an order where: - offender is convicted of a prescribed offence; and - it is satisfied that he has benefited from that offence or from that offence taken together with some other prescribed offence of which he is convicted in the same proceedings, or which the court takes into consideration in determining his sentence. - Definition and valuation: - A person benefits from an offence if he obtains property as a result of or in connection with its commission and his benefit is the value of the property so obtained. - Where a person derives a pecuniary advantage as a result of or in connection with the commission of an offence, he is to be treated as if he had obtained a sum of money equal to the value of the pecuniary advantage. - Amount required by a confiscation order shall be equal to: - (a) the benefit in respect of which it was made; or - (b) the amount appearing to the court to be the amount that might be realised at the time the order is made, whichever is the less. - Standard of proof for questions under this Part (including whether a person has benefited and the amount to be recovered under section 2) shall be that applicable in civil proceedings. - DTA 1996 specific provisions: - On sentencing for drug trafficking offences the court shall determine whether the defendant has benefited from drug trafficking. - For DTA purposes, a person has benefited from drug trafficking if he has at any time received any payment or other reward in connection with drug trafficking carried on by him or another person. - If the court determines benefit, before sentencing it must determine in accordance with section 5 the amount to be recovered and order the defendant to pay that amount and take account of the order in imposing fines or other payment orders. ### Restraint orders, receivers, and seizure - High Court may make a restraint order prohibiting any person from dealing with any realisable property, subject to conditions and exceptions. - Restraint orders may provide for living expenses and legal expenses. - Restraint orders may apply to: - all realisable property held by a specified person, whether described in the order or not; and - realisable property transferred to a specified person after the making of the order. - Restraint orders do not apply to property for the time being subject to a charge under section 8. - Procedural and notice features: - A restraint order may be made only on an application made by or with the consent of the Attorney General. - May be made on an ex parte application to a Deemster in chambers. - Shall provide for notice to be given to persons affected by the order. - Variation and discharge: - A restraint order may be discharged or varied in relation to any property. - Shall be discharged when proceedings for the offence are concluded. - Any person affected may apply for discharge or variation. - Receivers and enforcement: - Where a restraint order is made, the court may at any time appoint a receiver to take possession of any realisable property and, per court directions, manage or otherwise deal with it. - A receiver appointment may require any person having possession of property to give possession to the receiver. - Dealing with property includes making a payment in reduction of a debt and removing the property from the Island. - Where a restraint order exists, a constable may seize property to prevent removal from the Island; seized property to be dealt with per the court's directions. - Land Registration Act 1982 applies in relation to restraint orders and applications for restraint orders as it applies to orders affecting land and other pending actions relating to land. - The prosecutor is treated for the purposes of section 62 of the Land Registration Act 1982 (inhibitions) as a person interested in relation to any registered land to which the restraint order or application relates. ### Criminal offences concerning proceeds of criminal conduct (sections 17A, 17B, 17C) - 17A Assisting another to retain the benefit of criminal conduct - Offence established where a person enters into or is otherwise concerned in an arrangement facilitating retention or control by or on behalf of another ('A') of A's proceeds of criminal conduct (by concealment, removal from the jurisdiction, transfer to nominees or otherwise), or where A's proceeds are used to secure funds placed at A's disposal or used to acquire property by way of investment, knowing or suspecting A is engaged in or has benefited from criminal conduct. - References to proceeds of criminal conduct include property which directly or indirectly represented such proceeds in the person's hands. - Safe-harbour for disclosure: - Disclosure to a constable of suspicion or belief that funds or investments are derived from or used in connection with criminal conduct, or of matters on which such suspicion is based, is not a breach of statutory or other disclosure restrictions. - If a person does an act contravening subsection (1) but disclosed before the act and the act is done with the consent of the constable, or disclosed after the act on his initiative as soon as reasonable, he does not commit an offence. - Defences in proceedings: - That he did not know or suspect the arrangement related to proceeds of criminal conduct; or - That he did not know or suspect that by the arrangement retention/control or use as mentioned occurred; or - That he intended to disclose to a constable but there is reasonable excuse for failure. - Employer reporting procedures: - Subsections (3) and (4) operate in relation to disclosures to the appropriate person per employer procedure as they do to disclosures to a constable. - Penalties: - On summary conviction: custody for a term not exceeding 6 months or a fine not exceeding £5,000 or to both. - On conviction on information: custody for a term not exceeding 14 years or a fine or to both. - Definition: 'criminal conduct' means conduct which constitutes an offence to which this Part applies or would constitute such an offence if it had occurred in the Island. - 17B Acquisition, possession or use of proceeds of criminal conduct - Offence where, knowing that any property is, or represents in whole or in part another person's proceeds of criminal conduct, a person acquires or uses that property or has possession of it. - Defence: acquired or used the property or had possession for adequate consideration. - Acquires for inadequate consideration if the value of the consideration is significantly less than the value of the property. - Uses or has possession for inadequate consideration if the value of the consideration is significantly less than the value of his use or possession. - Provision of services or goods which assist in criminal conduct shall not be treated as consideration. - Disclosure safe-harbour similar to section 17A: disclosure to a constable is not a breach; doing an act contrary to subsection (1) is not an offence if disclosure was made before the act with constable consent or after the act on initiative as soon as reasonable. - Possession construed as doing an act in relation to the property. - Employer reporting procedures treated equivalently to disclosure to a constable. - Penalties: - On summary conviction: custody for a term not exceeding 6 months or a fine not exceeding £5,000 or to both. - On conviction on information: custody for a term not exceeding 14 years or a fine or to both. - No constable or other person shall be guilty of an offence under this section for acts done in connection with enforcement or intended enforcement of this Act or other enactment relating to criminal conduct or proceeds. - 17C Concealing or transferring proceeds of criminal conduct - Offence where a person conceals or disguises any property which is, or represents, his proceeds of criminal conduct, or converts/transfers/removes it from the jurisdiction, for the purpose of avoiding prosecution or making/enforcement of a confiscation order. - Offence where a person, knowing or having reasonable grounds to suspect property is another's proceeds of criminal conduct, conceals/disguises or converts/transfers/removes it to assist any person to avoid prosecution or enforcement of a confiscation order. - Concealing or disguising includes concealing or disguising nature, source, location, disposition, movement, ownership or any rights with respect to the property. - Penalties: - On summary conviction: custody for a term not exceeding 6 months or a fine not exceeding £5,000 or to both. - On conviction on information: custody for a term not exceeding 14 years or a fine or to both. ### Enforcement of external orders and cross-border measures (sections 18–20) - 18 Enforcement of United Kingdom orders - The Department may by order provide that, for purposes of sections 6 to 16, this Part shall have effect as if: - references to confiscation orders included orders made by courts in any part of the United Kingdom which appear to the Department to correspond to confiscation orders; - references to proceedings in the Island or to the institution or conclusion in the Island of proceedings included references to proceedings in any part of the United Kingdom or to the institution or conclusion in any part of the United Kingdom; - references to the making of a complaint in section 6(2) and (4) included references to laying of an information or making of a complaint under corresponding legislation in the relevant part of the United Kingdom. - Orders may provide for those sections to have effect in relation to anything done or to be done in any part of the United Kingdom subject to further modifications. - Orders may contain incidental, consequential and transitional provisions as considered expedient. - An order under this section shall not come into operation until it is approved by Tynwald. - 19 Enforcement of other external orders - The Department may by order direct that, in relation to a designated country outside the Island and the United Kingdom, subject to specified modifications, this Part shall apply to external confiscation orders and to proceedings instituted in the designated country that may result in an external confiscation order. - The Department may make provision in connection with taking action in the designated country with a view to satisfying a confiscation order, as to evidence or proof for purposes of this section and section 20, and incidental, consequential and transitional provision. - The Department may direct that proceeds which arise out of action taken in the designated country with a view to satisfying a confiscation order be treated as reducing the amount payable under the order to such extent as specified. - Definitions: - "external confiscation order" means an order made by a court in a designated country for recovering property obtained as a result of conduct corresponding to an offence to which this Part applies or the value of such property, or depriving a person of a pecuniary advantage so obtained. - "modifications" includes additions, alterations and omissions. - Power to make such orders includes power to modify this Part to confer discretionary powers on a person. - An order under this section shall not come into operation until it is approved by Tynwald. - 20 Registration of external confiscation orders - On application by or on behalf of the Government of a designated country, the High Court may register an external confiscation order where: - it is satisfied that at the time of registration the order is in force and not subject to appeal; - it is satisfied, where the person against whom the order is made did not appear in the proceedings, that he received notice of the proceedings in sufficient time to enable him to defend them; - it is of the opinion that enforcing the order in the Island would not be contrary to the interests of justice. - "Appeal" includes proceedings by way of discharging or setting aside a judgment and an application for a new trial or a stay of execution. - The High Court shall cancel registration if the order appears to have been satisfied by payment, by the person serving imprisonment in default, or by any other means. ### Disclosure of information protected by restriction - Disclosure to a constable of: - a suspicion or belief that any property has been obtained as a result of or in connection with an offence to which this Part applies or conduct corresponding to such an offence, or derives from property so obtained; or - any matter on which such a suspicion or belief is based, - shall not be treated as a breach of any restriction upon the disclosure of information imposed by statute or otherwise. _Extracted text from: _cr09278 - 4. FSC Financial Services Rule Book 2008 (part 9)._ ### section 16 of the Criminal Law Act 1981 (deprivation orders); and ### _cr09278 - section 16 of the Criminal Law Act 1981 (deprivation orders); and ### Confiscation orders and standard of proof - Confiscation order means an order under this section and includes, in particular, such an order made by virtue of section 13, 14 or 19. - The standard of proof to determine any question arising under this Act as to: - whether a person has benefited from drug trafficking, or - the amount to be recovered in his case by virtue of this section, shall be that applicable in civil proceedings. - Subject to paragraph (b), the court may leave the order out of account in determining the appropriate sentence or other manner of dealing with him. - No enactment restricting the power of a court dealing with an offender in a particular way from dealing with him also in any other way shall by reason only of the making of an order under this section restrict the Court of General Gaol Delivery from dealing with an offender in any way the court considers appropriate in respect of a drug trafficking offence. ### Cases in which restraint orders and charging orders may be made (section 25) - Powers conferred on the High Court by sections 26(1) and 27(1) are exercisable where: - proceedings have been instituted in the Island against the defendant for a drug trafficking offence or an application has been made by the prosecutor in respect of the defendant under section 13, 14, 15, 16 or 19; - the proceedings have not, or the application has not, been concluded; and - the court is satisfied that there is reasonable cause to believe: - in the case of an application under section 15 or 16, that the court will be satisfied as mentioned in section 15(4) or, as the case may be, 16(2); or - in any other case, that the defendant has benefited from drug trafficking. - The court shall not exercise those powers if it is satisfied: - that there has been undue delay in continuing the proceedings or application in question; or - that the prosecutor does not intend to proceed. - Powers are also exercisable where: - the court is satisfied that a person is to be charged with a drug trafficking offence or that an application of the kind mentioned is to be made; and - the court is also satisfied as mentioned above. - Where powers are exercisable before proceedings have been instituted: - references to the defendant shall be construed as references to the person referred to in subsection (3)(a); - references to the prosecutor shall be construed as references to the person who the High Court is satisfied is to have the conduct of the proposed proceedings; and - references to realisable property shall be construed as if, immediately before that time, proceedings had been instituted against the person for a drug trafficking offence. - If an order under section 26(1) or 27(1) was made by virtue of subsection (3), the court shall discharge the order if proceedings are not instituted or the application is not made within such time as the court considers reasonable. ### Restraint orders (section 26) - The High Court may by order ('restraint order') prohibit any person from dealing with any realisable property, subject to conditions and exceptions specified in the order. - A restraint order may apply: - to all realisable property held by a specified person, whether described in the order or not; and - to realisable property held by a specified person transferred to him after the making of the order. - This section does not apply to property for the time being subject to a charge under section 27 of this Act or section 9 of the Drug Trafficking Offences Act 1987. - A restraint order: - may be made only on an application by the prosecutor; - may be made on an ex parte application to a Deemster in chambers; and - shall provide for notice to be given to persons affected by the order. - A restraint order: - may be discharged or varied in relation to any property; and - shall be discharged on the conclusion of the proceedings or of the application in question. - Where the High Court has made a restraint order, the High Court: - may at any time appoint a receiver to: - take possession of any realisable property, and - in accordance with the court's directions, manage or otherwise deal with any property in respect of which he is appointed, subject to such exceptions and conditions as may be specified by the court; and - may require any person having possession of property in respect of which a receiver is appointed to give possession of it to the receiver. - For the purposes of this section, dealing with property held by any person includes: - where a debt is owed to that person, making a payment to any person in reduction of the amount of the debt; and - removing the property from the Island. - Where a restraint order has been made a constable may seize any realisable property for the purpose of preventing its removal from the Island; property so seized shall be dealt with in accordance with the directions of the court. - An application for the discharge or variation of a restraint order may be made by any person affected by it. - The Land Registration Act 1982 shall apply: - in relation to restraint orders, as it applies in relation to orders affecting land; and - in relation to applications for restraint orders, as it applies in relation to other pending actions relating to land. - The prosecutor shall be treated for the purposes of section 62 of the Land Registration Act 1982 (inhibitions) as a person interested in relation to any registered land to which a restraint order or an application for such an order relates. ### Enforcement of United Kingdom orders (section 35) - The Department may by order provide that, for the purposes of sections 17 and 25 to 34, this Act shall have effect as if: - references to confiscation orders included a reference to orders made by courts in any part of the United Kingdom which appear to the Department to correspond to confiscation orders; - references to drug trafficking offences included a reference to any offence under the law of any part of the United Kingdom which appears to the Department to correspond to a drug trafficking offence; - references to proceedings in the Island or to the institution or conclusion in the Island of proceedings included a reference to proceedings in any part of the United Kingdom or to the institution or conclusion in any part of the United Kingdom of proceedings; and - references to the making of a complaint in section 25(3) and (5) included references to laying an information or making a complaint under the corresponding law in the relevant part of the United Kingdom. - An order under this section may provide for those sections to have effect, in relation to anything done or to be done in any part of the United Kingdom, subject to such further modifications as may be specified. - An order under this section may contain such incidental, consequential and transitional provisions as the Department considers expedient. - An order under this section shall not come into operation unless it is approved by Tynwald. ### Enforcement and registration of external confiscation orders (sections 36–37) - Section 36: - The Department may by order direct that this Act shall apply to external confiscation orders and to proceedings in a designated country, subject to exceptions, adoptions and modifications specified. - The Department may make provision regarding: - action in the designated country with a view to satisfying a confiscation order; - evidence or proof of any matter for the purposes of this section and section 37; and - incidental, consequential and transitional provisions. - Proceeds arising out of action taken in the designated country with a view to satisfying a confiscation order may be treated as reducing the amount payable under the order to such extent as may be specified. - 'External confiscation order' means an order made by a court in a designated country for recovering, or recovering the value of, payments or other rewards received in connection with drug trafficking. - The power to make an order includes power to modify relevant provisions to confer power on a person to exercise a discretion. - An order under this section shall not come into operation unless it is approved by Tynwald. - An order may apply: - generally in respect of all countries and territories; - in respect of specified countries and territories; or - in respect of classes of countries and territories. - Section 37: - On an application made by or on behalf of the Government of a designated country, the High Court may register an external confiscation order if: - it is satisfied that at the time of registration the order is in force and not subject to appeal; - it is satisfied, where the person against whom the order is made did not appear in the proceedings, that he received notice of the proceedings in sufficient time to enable him to defend them; and - it is of the opinion that enforcing the order in the Island would not be contrary to the interests of justice. - 'Appeal' includes proceedings by way of discharging or setting aside a judgment and an application for a new trial or a stay of execution. - The High Court shall cancel the registration of an external confiscation order if it appears that the order has been satisfied by payment of the amount due under it. ### Offences: concealing, transferring, assisting retention, acquisition (sections 45–47) - Section 45 — Concealing or transferring proceeds of drug trafficking: - A person is guilty of an offence if he: - conceals or disguises any property which is, or in whole or in part directly or indirectly represents, his proceeds of drug trafficking, or - converts or transfers that property or removes it from the jurisdiction, for the purpose of avoiding prosecution for a drug trafficking offence or the making or enforcement in his case of a confiscation order. - A person is guilty of an offence if, knowing or having reasonable grounds to suspect that any property is another person's proceeds of drug trafficking, he: - conceals or disguises that property, or - converts or transfers that property or removes it from the jurisdiction, for the purpose of assisting any person to avoid prosecution or the making or enforcement of a confiscation order. - References to concealing or disguising any property include concealing or disguising its nature, source, location, disposition, movement or ownership or any rights with respect to it. - Section 46 — Assisting another person to retain the benefit of drug trafficking: - A person is guilty of an offence if he enters into or is otherwise concerned in an arrangement whereby: - the retention or control by or on behalf of another person ('A') of A's proceeds of drug trafficking is facilitated (whether by concealment, removal from the jurisdiction, transfer to nominees or otherwise), or - A's proceeds of drug trafficking are used to secure that funds are placed at A's disposal, or used for A's benefit to acquire property by way of investment, and he knows or suspects that A carries on or has carried on drug trafficking or has benefited from drug trafficking. - References to any person's proceeds include property which in whole or in part directly or indirectly represented in his hands his proceeds of drug trafficking. - Disclosure protections and defenses: - Disclosure to a constable of a suspicion or belief and the matters on which it is based shall not be treated as a breach of any restriction upon disclosure. - If a person makes such a disclosure, acts done with consent of the constable or acts followed by disclosure on his initiative as soon as reasonable do not constitute an offence under this section. - It is a defence in proceedings to prove lack of knowledge or suspicion, lack of facilitation by the arrangement, or intention to disclose with reasonable excuse for failure. - For employees, disclosures to the employer or specified internal procedure are treated equivalently to disclosures to a constable. - Section 47 — Acquisition, possession or use of proceeds of drug trafficking: - A person is guilty of an offence if, knowing that any property is another person's proceeds of drug trafficking, he acquires or uses that property or has possession of it. - Defence: acquired or used the property or had possession of it for adequate consideration. - Inadequate consideration defined: - acquires property for inadequate consideration if the value of the consideration is significantly less than the value of the property; - uses or has possession of property for inadequate consideration if the value of the consideration is significantly less than the value of his use or possession of the property. - Provision of services or goods which are of assistance to him in drug trafficking shall not be treated as consideration. - Disclosure protections and defenses mirror those in section 46, including employer/internal procedure equivalence for employees. - No constable or other person shall be guilty of an offence under this section in respect of anything done by him in the course of acting in connection with enforcement, or intended enforcement, of this Act or other enactment relating to drug trafficking or proceeds of drug trafficking. - Having possession of any property shall be taken to be doing an act in relation to it. ### Failure to disclose knowledge or suspicion of money laundering (section 48) - A person is guilty of an offence if: - he knows or suspects that another person is engaged in drug money laundering, - the information or other matter on which that knowledge or suspicion is based came to his attention in the course of his trade, profession, business or employment, and - he does not disclose the information or other matter to a constable as soon as is reasonably practicable after it comes to his attention. - Professional legal advisers: - Subsection (1) does not make it an offence for a professional legal adviser to fail to disclose information that has come to him in privileged circumstances. - 'Privileged circumstances' defined as communications: - by or by a representative of a client in connection with legal advice to the client; - by or by a representative of a person seeking legal advice; or - in contemplation of, or in connection with, legal proceedings and for the purpose of those proceedings. - No information is privileged if communicated or given with a view to furthering any criminal purpose. - Defences and protections: - It is a defence that the person had a reasonable excuse for not disclosing. - Disclosure to a constable of suspicion or of the matters on which it is based is not treated as a breach of any restriction. - For employees, disclosure to employer or designated internal procedure is a defence and not treated as a breach. - 'Drug money laundering' means doing any act which constitutes an offence under section 45, 46 or 47, or which would constitute such an offence if done in the Island. ### Penalties (section 51) - A person guilty of an offence under section 45, 46 or 47 shall be liable: - on summary conviction, to imprisonment for a term not exceeding 6 months or to a fine not exceeding £5,000 or to both; and - on conviction on information, to imprisonment for a term not exceeding 14 years or to a fine or to both. - A person guilty of an offence under section 48 or 49 shall be liable: - on summary conviction, to imprisonment for a term not exceeding 6 months or to a fine not exceeding £5,000 or to both; or - on conviction on information, to imprisonment for a term not exceeding 5 years or to a fine or to both. - A person guilty of an offence under section 50 shall be liable on summary conviction to imprisonment for a term not exceeding 6 months or to a fine not exceeding £5,000 or to both. *Source: _cr09278 - section 16 of the Criminal Law Act 1981 (deprivation orders); and* ### 4. Support ### 4. Support ### Offences: inviting or supporting proscribed organisations - A person commits an offence if: - he invites support for a proscribed organisation, and - the support is not, or is not restricted to, the provision of money or other property (within the meaning of section 6). - A person commits an offence if he arranges, manages or assists in arranging or managing a meeting which he knows is: - to support a proscribed organisation, or - to further the activities of a proscribed organisation, or - to be addressed by a person who belongs or professes to belong to a proscribed organisation. - A person commits an offence if he addresses a meeting and the purpose of his address is to encourage support for a proscribed organisation or to further its activities. - Defence for private meetings: where charged under subsection (2)(c) in respect of a private meeting it is a defence to prove that he had no reasonable cause to believe the address would support a proscribed organisation or further its activities. - Definitions and scope in subsections (2) to (4): - "meeting" means a meeting of 3 or more persons, whether or not the public are admitted. - a meeting is private if the public are not admitted. - Penalties for an offence under this section: - on conviction on information, to custody for a term not exceeding 10 years, to a fine or to both, or - on summary conviction, to custody for a term not exceeding 6 months, to a fine not exceeding £5,000 or to both. ### 6. Terrorist property - "terrorist property" means: - money or other property which is likely to be used for the purposes of terrorism (including any resources of a proscribed organisation), - proceeds of the commission of acts of terrorism, and - proceeds of acts carried out for the purposes of terrorism. - Inclusions: - "proceeds of an act" includes any property which wholly or partly, and directly or indirectly, represents the proceeds of the act (including payments or other rewards in connection with its commission). - reference to an organisation's resources includes any money or other property which is applied or made available, or is to be applied or made available, for use by the organisation. ### 7. Fund-raising - Offences: - invites another to provide money or other property, and intends that it should be used, or has reasonable cause to suspect that it may be used, for the purposes of terrorism. - receives money or other property, and intends that it should be used, or has reasonable cause to suspect that it may be used, for the purposes of terrorism. - provides money or other property, and knows or has reasonable cause to suspect that it will or may be used for the purposes of terrorism. - Provision of money or other property includes giving, lending or otherwise making available, whether or not for consideration. - Penalties for offences under this section: - on conviction on information, to custody for a term not exceeding 14 years, to a fine or to both, or - on summary conviction, to custody for a term not exceeding 6 months, to a fine not exceeding £5,000 or to both. ### 8. Use and possession - Offences: - uses money or other property for the purposes of terrorism. - possesses money or other property, and intends that it should be used, or has reasonable cause to suspect that it may be used, for the purposes of terrorism. - Penalties for offences under this section: - on conviction on information, to custody for a term not exceeding 14 years, to a fine or to both, or - on summary conviction, to custody for a term not exceeding 6 months, to a fine not exceeding £5,000 or to both. ### 9. Funding arrangements - Offence: enters into or becomes concerned in an arrangement as a result of which money or other property is made available or is to be made available to another, and he knows or has reasonable cause to suspect that it will or may be used for the purposes of terrorism. - Penalties for offences under this section: - on conviction on information, to custody for a term not exceeding 14 years, to a fine or to both, or - on summary conviction, to custody for a term not exceeding 6 months, to a fine not exceeding £5,000 or to both. ### 10. Money laundering - Offence: enters into or becomes concerned in an arrangement which facilitates the retention or control by or on behalf of another person of terrorist property by: - concealment, - removal from the jurisdiction, - transfer to nominees, or - in any other way. - Defence: to prove he did not know and had no reasonable cause to suspect that the arrangement related to terrorist property. - Penalties for offences under this section: - on conviction on information, to custody for a term not exceeding 14 years, to a fine or to both, or - on summary conviction, to custody for a term not exceeding 6 months, to a fine not exceeding £5,000 or to both. ### 11. Disclosure of information: duty - This section applies where a person: - believes or suspects that another person has committed an offence under any of sections 7 to 10, and - bases his belief or suspicion on information which comes to his attention in the course of a trade, profession, business or employment, - but does not apply if the information came to the person in the course of a business in the regulated sector. - Offence: failing to disclose to a constable as soon as is reasonably practicable: - his belief or suspicion, and - the information on which it is based. - Defences and exceptions: - reasonable excuse for not making the disclosure. - where employer has established a procedure for disclosures, disclosure in accordance with that procedure is a defence. - subsection (2) does not require disclosure by a professional legal adviser of information obtained in privileged circumstances or a belief/suspicion based on such information. - Privileged circumstances defined as information obtained: - from a client or client's representative in connection with legal advice, - from a person seeking legal advice or the person's representative, - from any person for the purpose of actual or contemplated legal proceedings. - Territorial application: treated as having committed an offence under sections 7 to 10 if he would have committed the offence had he been in the Island when the action was taken or possession held. - Regulated sector and constable: - "business in the regulated sector" construed in accordance with Schedule 1. - "constable" includes a person authorised for the purposes of this section by the Attorney General. - Penalties for offences under this section: - on conviction on information, to custody for a term not exceeding 5 years, to a fine or to both, or - on summary conviction, to custody for a term not exceeding 6 months, or to a fine not exceeding £5,000 or to both. ### 12. Disclosure of information: permission - Permitted disclosures to a constable: - a suspicion or belief that any money or other property is terrorist property or is derived from terrorist property, and - any matter on which the suspicion or belief is based. - A person may make a disclosure to a constable in the circumstances mentioned in section 11(1) and (2). - Effect: subsections (1) and (2) operate notwithstanding any restriction on the disclosure of information imposed by statute or otherwise. - Employer procedures: where employer has established a procedure for such disclosures, disclosure in accordance with that procedure has effect as a disclosure to a constable. - "constable" includes a person authorised for the purposes of this section by the Attorney General. ### 13. Co-operation with police - Defence: a person does not commit an offence under any of sections 7 to 10 if he is acting with the express consent of a constable. - Safe disclosure and continued involvement: - A person does not commit an offence under sections 7 to 10 by involvement in a transaction or arrangement if he discloses to a constable: - his suspicion or belief that the money or other property is terrorist property, and - the information on which his suspicion or belief is based. - Requirements for this protection: - disclosure must be made after he becomes concerned in the transaction, - on his own initiative, and - as soon as is reasonably practicable. - Protection does not apply if a constable forbids him to continue involvement and he continues. - Defence for failure to disclose where intended to make disclosure and there is reasonable excuse for failure. - Employer procedures: disclosure in accordance with employer's procedure treated as disclosure to a constable. - "transaction or arrangement relating to money or other property" includes a reference to use or possession. - It is a defence for persons charged with offences under sections 7(2) and (3) and 8 to 10 to prove intention to disclose and reasonable excuse for failure. ### 14. Failure to disclose: regulated sector - Offence elements (three conditions): 1. He knows or suspects, or has reasonable grounds for knowing or suspecting, that another person has committed an offence under any of sections 7 to 10. 2. The information or other matter on which his knowledge or suspicion is based, or which gives reasonable grounds for such knowledge or suspicion, came to him in the course of a business in the regulated sector. 3. He does not disclose the information or other matter to a constable or a nominated officer as soon as is practicable after it comes to him. - Exceptions and defences: - reasonable excuse for not disclosing; - professional legal adviser where information came in privileged circumstances (with exceptions where communicated to further a criminal purpose). - Court must consider whether person followed relevant guidance which was: - issued by a supervisory authority or any other appropriate body, - approved by the Treasury, and - published in a manner approved as appropriate to bring the guidance to the attention of persons likely to be affected. - "Nominated officer" defined as a person nominated by the employer to receive disclosures, made in the course of employment and in accordance with employer procedure. - Regulated sector and supervisory authority determined by Schedule 1. - Territorial application: same as section 11 (treated as having committed offence if would have done so had he been in the Island). - Penalties for offences under this section: - on conviction on information, to custody for a term not exceeding 5 years or to a fine or to both; - on summary conviction, to custody for a term not exceeding 6 months or to a fine not exceeding £5,000 or to both. - "Appropriate body" means any body which regulates or is representative of any trade, profession, business or employment carried on by the alleged offender. - "constable" includes a person authorised for the purposes of this section by the Attorney General. ### 16. Forfeiture - Court powers on conviction for offences under sections 7 to 10: - The court may make a forfeiture order in accordance with this section. - Forfeiture on conviction under specific sections: - Section 7(1) or (2) or 8: may order forfeiture of any money or other property which, at the time of the offence, he had in his possession or under his control, and which, at that time, he intended should be used, or had reasonable cause to suspect might be used, for the purposes of terrorism. - Section 7(3): may order forfeiture of any money or other property which, at the time of the offence, he had in his possession or under his control, and which, at that time, he knew or had reasonable cause to suspect would or might be used for the purposes of terrorism. - Section 9: may order forfeiture of the money or other property to which the arrangement related, and which, at the time of the offence, he knew or had reasonable cause to suspect would or might be used for the purposes of terrorism. - Section 10: may order forfeiture of the money or other property to which the arrangement in question related. - Additional forfeiture: - Court may order forfeiture of any money or other property which wholly or partly, and directly or indirectly, is received by any person as a payment or other reward in connection with the commission of the offence. - Rights of third-party claimants: - Where a person other than the convicted person claims to be the owner of or otherwise interested in anything which can be forfeited, the court shall give him an opportunity to be heard before making an order. - Further provisions: - Schedule 2 makes further provision in relation to forfeiture orders under this section. *Source: _cr09278 - 4. Support* ### 26. Information about acts of terrorism ### 26. Information about acts of terrorism ### Scope and mandatory disclosure - Applies where a person has information which he knows or believes might be of material assistance: - (a) in preventing the commission by another person of an act of terrorism, or - (b) in securing the apprehension, prosecution or conviction of another person, in the Island, for an offence involving the commission, preparation or instigation of an act of terrorism. - Offence triggered if the person does not disclose the information as soon as reasonably practicable in accordance with subsection (3). - Disclosure required to be made to a constable (subsection (3)). - Defence: reasonable excuse for not making the disclosure (subsection (4)). ### Penalties and jurisdiction for non-disclosure - Sentencing on conviction on information: custody for a term not exceeding 5 years, or a fine, or both (subsection (5)(a)). - Sentencing on summary conviction: custody for a term not exceeding 6 months, or a fine not exceeding £5,000, or both (subsection (5)(b)). - Proceedings may be taken, and the offence may be treated as having been committed, in any place where the person to be charged is or has at any time been since he first knew or believed that the information might be of material assistance (subsection (6)). ### Seizure and detention of cash (Schedule 3 Part 2) - Seizure: - An authorised officer may seize any cash if he has reasonable grounds for suspecting that it is terrorist cash (paragraph 2(1)). - May seize cash part of which is suspected to be terrorist cash if it is not reasonably practicable to seize only that part (paragraph 2(2)). - Initial detention: - Cash seized may be detained initially for a period of 48 hours while the authorised officer continues to have reasonable grounds for his suspicion (paragraph 3(1)). - Extensions by High Bailiff: - An order may extend detention but may not authorise detention beyond: - (a) the end of the period of 3 months beginning with the date of the order, and - (b) in the case of any further order under this paragraph, beyond the end of the period of 2 years beginning with the date of the first order (paragraph 3(2)). - Orders must provide for notice to be given to persons affected (paragraph 3(3)). - Applications for an order may be made by the Treasury or an authorised officer (paragraph 3(4)). ### Conditions permitting further detention of cash - First condition (paragraph 5): - Reasonable grounds for suspecting that: - (a) continued detention is justified while intended use is further investigated or consideration is given to bringing (in the Island or elsewhere) proceedings against any person for an offence with which the cash is connected, or - (b) proceedings against any person for an offence with which the cash is connected have been started and have not been concluded. - Second condition (paragraph 6): - Reasonable grounds for suspecting the cash consists of resources of a proscribed organisation and that either: - (a) continued detention is justified while investigation is made into whether or not it consists of such resources or consideration is given to bringing (in the Island or elsewhere) proceedings against any person for an offence with which the cash is connected, or - (b) proceedings against any person for an offence with which the cash is connected have been started and have not been concluded. - Third condition (paragraph 7): - Reasonable grounds for suspecting the cash is property earmarked as terrorist property and that either: - (a) continued detention is justified while its derivation is further investigated or consideration is given to bringing (in the Island or elsewhere) proceedings against any person for an offence with which the cash is connected, or - (b) proceedings against any person for an offence with which the cash is connected have been started and have not been concluded. ### Restraint orders, land registration, and handling of seized property - A constable may seize any property subject to a restraint order to prevent its removal from the Island; property dealt with in accordance with the High Court's directions (paragraph 7). - Land Registration Act 1982 applies to restraint orders and applications for restraint orders as it applies to orders affecting land for enforcing judgments or recognizances and pending land actions (paragraph 8(1)). - Prosecutor or person who will have conduct of proceedings for certain offences treated as a person interested for the purposes of section 62 of the Land Registration Act 1982 in respect of registered land related to restraint orders or applications (paragraphs 8(2)–8(3)). ### Registration and enforcement of external forfeiture and restraint orders - Registration of external forfeiture orders by High Court on application by or on behalf of the government of a designated country if: - (a) satisfied that at the time of registration the order is in force and not subject to appeal, - (b) satisfied that where the person did not appear in proceedings he received notice in sufficient time to defend them, and - (c) of the opinion that enforcing the order in the Island would not be contrary to the interests of justice (paragraph 9(1)). - "Appeal" includes proceedings to discharge or set aside a judgment and applications for a new trial or a stay of execution (paragraph 9(2)). - Registration of external restraint orders by High Court subject to conditions: - (a) satisfied that at the time of registration the order is in force, and - (b) of the opinion that enforcing the order in the Island would not be contrary to the interests of justice (paragraph 10(1)). - External restraint order may only be registered where: - (a) proceedings instituted in a designated country are not concluded and either an external forfeiture order has been made or reasonable grounds exist to think such an order may be made, or - (b) proceedings are to be instituted and reasonable grounds exist to think an external forfeiture order may be made in those proceedings (paragraph 10(2)). ### Criminal Law Act 1981 — deprivation of property used for crime - Court may order deprivation of property where convicted and the court is satisfied property: - has been used for committing or facilitating an offence, or - was intended to be used for that purpose; or where the offence consists of unlawful possession of such property (section 16(1)(a)–(b)). - In considering whether to make an order court shall have regard to: - (a) the value of the property; and - (b) the likely effects on the offender of making the order (section 16(1A)). - Order operates to deprive the offender of rights in the property and property to be taken into police possession (section 16(3)). - Time limits and conditions for applications by claimants under Summary Jurisdiction Act 1989 modified (section 16(4)–(5)). ### Misuse of Drugs Act 1976 — forfeiture - Court on conviction may order anything shown to relate to the offence to be forfeited and destroyed or otherwise dealt with (section 27(1)). - Section applies to: - (a) an offence under this Act, and/or - (b) a drug trafficking offence as defined in section 1(3) of the Drug Trafficking Act 1996 (section 27(1A)). - Court shall not order forfeiture where a claimant applies to be heard unless an opportunity has been given to show cause why the order should not be made (section 27(2)). ### United Nations and Treasury freezing powers - Al-Qa’ida and Taliban (United Nations Measures)(Isle of Man) Order 2002: - Treasury may direct that funds not be made available where there are reasonable grounds for suspecting the person by, for or on behalf of whom funds are held is or may be a listed person or acting on behalf of a listed person (article 8(1)). - Direction must specify period or that it remains until revoked; Treasury may revoke at any time; expiry or revocation does not affect application of article 7 (article 8(2)–(4)). - Notice must be given in writing to the recipient and require recipient to send copy without delay to the owner; failure to comply is an offence (article 8(5)–(6), (8)–(9)). - Right to apply for review in same manner as review under the Banking Act 1998; section 24 and regulations apply (article 8(7)). - Terrorism (United Nations Measures)(Isle of Man) Order 2001: - Treasury may direct funds not to be made available where reasonable grounds for suspecting the person by, for or on behalf of whom funds are held is or may be: - (a) a person who commits, attempts to commit, participates in, or facilitates the commission of terrorism, - (b) a person controlled or owned directly or indirectly by a person in (a), - (c) a person acting on behalf of, or at the direction of, a person in (a) (article 6(1)). - Directions, revocation, notice requirements, review rights, and offences for contravention mirror the structure in article 8 of the 2002 Order (article 6(2)–(9)). ### Customs and Excise Management Act 1986 — cash declarations and searches - Persons entering or leaving the Island carrying cash with a value in excess of the prescribed amount must declare that value to an officer (section 76C(1)). - Treasury must by order prescribe form and manner of declarations (section 76C(2)). - Officers may require disclosure of value of cash contained in baggage, carried with the person, or in any vehicle; may answer questions and require baggage production (section 76C(3)(a)–(c)). - Treasury may prescribe form and manner of disclosures under subsection (3)(a) (section 76C(4)). - Refusal or failure to produce baggage: offence punishable on summary conviction by custody for a term not exceeding 6 months, or fine not exceeding £5,000, or both; on conviction on information, custody for a term not exceeding 2 years, or a fine, or both (section 76C(5)(a)–(b)). - Where officer reasonably suspects person is carrying cash in excess of prescribed amount, officer may search the person (if same sex) or request same-sex officer to do so (section 76C(6)). - Person searched may require to be taken before a justice of the peace or superior officer to consider grounds for suspicion and direct whether search is to take place (section 76C(7)). - Section does not require submission to an intimate search or strip search within meaning of section 171 (section 76C(8)). ### Companies legislation — bearer shares and registered agents - Companies Act 2006: - Company has no power to issue, convert to, or exchange a share for a bearer share; any such purported action is void (section 30(1)(a)–(c)). - Attempt or purported contravention is an offence (section 30(2)). - Company must at all times have a registered agent in the Isle of Man (section 74(1)); registered agent must hold a licence under the Fiduciary Services Acts 2000 and 2005 which does not exclude acting as registered agent (section 74(3)). - Contravention by a person agreeing to be registered agent without licence is an offence; company without registered agent commits an offence (sections 74(4)–(5)). - Companies Act 1931–2004: - Prohibition of share warrants to bearer for companies registered on or after 1st April 2004; provisions authorising such issue are void (section 71(1)–(3)). - Share warrants lawfully issued on or before 1st April 2004 remain valid for rights and obligations, but rights attached to a share warrant may not be exercised after that date without conversion into a registered share (section 71(4)). ### Extradition Act 1989 — definition of extradition crime - "Extradition crime" means: - (a) conduct in the territory of a foreign state, a designated Commonwealth country or a colony which, if it occurred in the United Kingdom, would constitute an offence punishable with imprisonment for a term of 12 months, or any greater punishment, and which is punishable under that law (section 2(1)(a)); or - (b) an extra-territorial offence against the law of a foreign state, designated Commonwealth country or colony punishable with imprisonment for a term of 12 months, or any greater punishment, and which satisfies condition in subsection (2) or all conditions in subsection (3) (section 2(1)(b)). - Condition in subsection (2): equivalent conduct would constitute an extra-territorial offence against the law of the United Kingdom punishable with imprisonment for a term of 12 months, or any greater punishment (section 2(2)). - Conditions in subsection (3): - (a) foreign jurisdiction bases jurisdiction on nationality of the offender; - (b) conduct occurred outside the United Kingdom; - (c) if it occurred in the United Kingdom it would constitute an offence punishable with imprisonment for a term of 12 months, or any greater punishment (section 2(3)(a)–(c)). - Definitions include treatment of conduct in parts of foreign states, colonies, vessels, aircraft, or hovercraft as conduct in that territory (section 2(4)(a)–(c)). ### Reference to Proceeds of Crime Act 2008 - Document concludes with heading for CHAPTER No. 13c.13 2008 PROCEEDS OF CRIME ACT 2008 and arrangement heading for PART 1 CIVIL RECOVERY OF THE PROCEEDS ETC. OF UNLAWFUL CONDUCT. *Source: _cr09278 - 26. Information about acts of terrorism* ### Chapter 1 ### _cr09278 - Chapter 1 ### Overview - Document is a chaptered index and partial text for legislation and codes concerning civil recovery, confiscation, money laundering, investigations, bankruptcy and winding up, information sharing, cooperation, amendments, and miscellaneous provisions. - Statutory Document No. 935/08 is associated with the Criminal Justice (Money Laundering) Code 2008. - Laid before Tynwald: 16th December 2008. - Coming into operation: 18th December 2008. ### Structure of the Act and Major Parts (as listed) - Part 1: Civil recovery (Introductory; definitions including “Unlawful conduct”; “Property obtained through unlawful conduct”; chapters on High Court civil recovery proceedings; property freezing orders; interim receiving orders; vesting and realisation; exemptions; miscellaneous). - Part 2: Confiscation and restraint (Confiscation orders; procedural matters; reconsideration; enforcement; restraint orders; receivers; seized money; enforcement abroad; extensive interpretative provisions). - Part 3: Money laundering (Offences including concealing, arrangements, acquisition/use/possession; failure to disclose provisions; tipping off; protections and disclosures; threshold amounts; money laundering codes). - Part 4: Investigations (Production orders; search and seizure warrants; disclosure orders; customer information orders; account monitoring orders; evidence overseas; code of practice). - Part 5: Bankruptcy and winding up (Recovery orders: interaction with bankruptcy or winding up; restrictions and treatment of tainted gifts; insolvency practitioners). - Part 6: Information (Use and disclosure of information; onward and overseas disclosure restrictions). - Part 7: Co-operation (External requests and investigations). - Part 8: Amendments to Customs and Excise Management Act 1986. - Part 9: Amendments to criminal justice legislation. - Part 10: Miscellaneous and general (Offences by bodies corporate; financial provision; subordinate legislation; commencement; schedules). ### Money Laundering Code 2008 — Key procedural and definitional provisions - Title: Criminal Justice (Money Laundering) Code 2008. - Made by: The Department of Home Affairs under section 17F of the Criminal Justice Act 1990. - Sections and thematic headings included in the Code: Title and commencement; Interpretation and revocation; Risk assessment; General requirements; Identification Procedures (Beneficial ownership and control; New business relationships; Continuing business relationships; Enhanced customer due diligence; One-off transactions; Politically exposed persons; Introduced business; Exceptions; Correspondent banking services; Foreign branches and subsidiaries; Ongoing monitoring); Record Keeping (Records; Retention of records; Format and retrieval; Register of money laundering enquiries; Recognition and reporting of suspicious transactions); Staff, Training and Technological Developments (Staff screening; Staff training; Technological developments); Schedules (Schedule 1 — Relevant business; Schedule 2 — List of countries). - Definitions and specified terms (selection, preserved verbatim where numeric or precise): - “applicant for business” means a person seeking to form a business relationship or carry out a one‐off transaction with a relevant person who is carrying on relevant business in or from the Island; - “beneficial owner” means the natural person who ultimately owns or controls the applicant for business or on whose behalf a transaction or activity is being conducted; and in relation to a legal person or legal arrangement, includes (but is not restricted to) — - (a) in the case of a legal person other than a company whose securities are listed on a recognised stock exchange, a natural person who ultimately owns or controls (whether through direct or indirect ownership or control, including through bearer share holdings) more than 25% of the shares or voting rights in the legal person; or - (b) in the case of any legal person, a natural person who otherwise exercises control over the management of the legal person; - (c) in the case of a legal arrangement the trustees or other persons controlling the applicant; - “business relationship” means an arrangement between two or more persons where — - (a) at least one of those persons is acting in the course of a business; - (b) the purpose of the arrangement is to facilitate the carrying out of transactions between the persons concerned on a frequent, habitual or regular basis; and - (c) the total amount of any payment or payments to be made by any person to any other in the course of that arrangement is not known or capable of being ascertained at the time the arrangement is made; - “competent authority” means all Isle of Man administrative and law enforcement authorities concerned with combating money laundering and terrorist financing, including; the Financial Supervision Commission, the Insurance and Pensions Authority, the Isle of Man Gambling Supervision Commission, the Department of Home Affairs, the Financial Crime Unit of the Isle of Man Constabulary, the Office of Fair Trading, Customs and Excise; - “correspondent banking services” means banking services provided by a financial institution in one country (“the correspondent bank”) to a financial institution in another country (“the respondent bank”); - “customer due diligence” (except in the expression “enhanced customer due diligence”) means the measures specified in paragraphs 5 to 7 and 9 to 15 of the Code; - “exempted one‐off transaction” means a one‐off transaction (whether a single transaction or a series of linked transactions) where the amount of the transaction or, as the case may be, the aggregate in the case of a series of linked transactions, is less in value than — - (a) euro 3,000 in the case of a transaction or series of linked transactions entered into in the course of business of a class specified in entries 9 and 11 in Schedule 1; or - (b) euro 15,000 in any other case; - “FATF Recommendations” means the 40 Recommendations of the Financial Action Task Force on Money Laundering and the Task Force’s 9 Special Recommendations on Terrorist Financing; - “money laundering requirements” means the requirements of the following enactments — - (a) sections 45 to 49 of the Drug Trafficking Act 1996; - (b) sections 17A to 17D and 17K of the Criminal Justice Act 1990; - (c) section 9 of the Prevention of Terrorism Act 1990; - (d) sections 7 to 11 and section 14 of the Anti‐Terrorism and Crime Act 2003; - and includes, in the case of anything done otherwise than in the Island, anything which would constitute an offence under the provisions specified in paragraphs (a) to (d) if done in the Island; - “one‐off transaction” means any transaction other than a transaction carried out in the course of an established business relationship formed by a relevant person and, for the purposes of this definition, a business relationship is an established business relationship if it is formed by a relevant person where that person has obtained under procedures established, maintained and operated in accordance with this Code, satisfactory evidence of the identity of the person who, in relation to the formation of that business relationship, was the applicant for business; - “politically exposed person” definition includes detailed lists of offices and close family members and associates as enumerated in the Code. ### Operational and compliance requirements (high-level) - Customer due diligence requirements specified across paragraphs 5 to 7 and 9 to 15 of the Code (identification procedures for beneficial ownership, new and continuing business relationships, enhanced customer due diligence, one-off transactions, politically exposed persons, introduced business, exceptions). - Record keeping and retention obligations set out in paragraphs 16 to 19 (Records; Retention of records; Format and retrieval; Register of money laundering enquiries). - Suspicious transaction reporting and appointment of a money laundering reporting officer (MLRO) under paragraph 20. - Staff screening, staff training, and addressing technological developments under paragraphs 21 to 23. - Correspondent banking and payable-through account concepts included to address cross-border banking risk. ### Notable numeric and temporal details (preserved exactly) - Statutory Document No. 935/08. - Laid before Tynwald: 16th December 2008. - Coming into operation: 18th December 2008. - “more than 25%” (ownership threshold in beneficial owner definition). - Exempted one-off transaction thresholds: euro 3,000 and euro 15,000. - References to enactments and sections preserved: sections 45 to 49 of the Drug Trafficking Act 1996; sections 17A to 17D and 17K of the Criminal Justice Act 1990; section 9 of the Prevention of Terrorism Act 1990; sections 7 to 11 and section 14 of the Anti-Terrorism and Crime Act 2003. *Source: _cr09278 - Chapter 1 (partial index and Money Laundering Code 2008 text) — Statutory Document No. 935/08.* ### section 7 of the Financial Services Act 2008; ### section 7 of the Financial Services Act 2008 ### Definitions and scope - “relevant business” means engaging by way of business in one or more of the businesses, transactions or activities specified in Schedule 1. - “relevant person” means a person carrying on relevant business. - “risk” means a risk of money laundering or the financing of terrorism, or both. - “shell bank” means a bank which is — - (a) incorporated in a country or territory in which it has no physical presence; and - (b) not affiliated with a financial services group which is subject to effective consolidated supervision. - “consolidated supervision”, in relation to a financial services group, means supervision of the group by a regulatory body on the basis of the totality of its business, wherever conducted. - “financial services group” means a group of companies whose activities include to a significant extent activities which are, or if carried on in the Island would be, regulated activities. ### Risk assessment (paragraph 3) - A relevant person must carry out a risk assessment for determining measures when carrying out customer due diligence. - The assessment must estimate the risk of money laundering and terrorist financing having regard to: - (a) the nature, scale and complexity of its activities; - (b) the products and services provided; - (c) the persons to whom, and the manner in which they are provided; and - (d) reliance on third parties for elements of the customer due diligence process. - Timing and review: - (a) undertaken as soon as reasonably practicable — - (i) after this Code comes into force, in the case of an existing business; or - (ii) after the relevant person commences business, in any other case; and - (b) regularly reviewed and, where appropriate, amended so as to keep it up to date. - Customer due diligence must be: - (a) on the basis of materiality and risk; - (b) in accordance with its current risk assessment under this paragraph; and - (c) having regard to whether the applicant for business, an existing business relationship or a one‑off transaction poses a higher risk. ### General requirements, offences and penalties (paragraph 4) - Relevant persons shall not form or continue business relationships or carry out one‑off transactions unless they establish, maintain and operate: - identification procedures in accordance with paragraphs 5 to 15; - record keeping procedures in accordance with paragraphs 16 to 19; - internal reporting procedures in accordance with paragraph 20; - internal staff screening procedures in accordance with paragraph 21; - internal controls and communication procedures appropriate for forestalling and preventing money laundering; - procedures and controls in accordance with paragraph 23. - Must take measures to make employees aware of the procedures and the provisions of the money laundering requirements, and provide education and training in accordance with paragraph 22. - Offences and penalties for contravention of sub‑paragraph (1): - on summary conviction: custody for a term not exceeding 6 months or a fine not exceeding £5,000, or both; - on conviction on information: custody not exceeding 2 years or a fine, or both. - Defences and corporate/partnership liability: - defence to show that all reasonable steps and all due diligence were taken. - where offence committed by body corporate with consent/connivance or attributable to neglect of an officer, the officer as well as the body is guilty of the offence. - where committed by a partnership or association, partners or persons concerned in management are guilty. - “officer” includes a director, manager or secretary; a person purporting to act as a director, manager or secretary; a member if affairs are managed by members. ### Identification procedures — Beneficial ownership and control (paragraph 5) - For applicants for business a relevant person must: - (a) identify who is the beneficial owner of the applicant; - (b) take reasonable steps to verify the identity of those persons using relevant information or data obtained from a reliable source; - (c) determine whether the applicant is acting on behalf of another person and, if so, identify that other person and take reasonable steps to verify his identity using relevant information or data obtained from a reliable source. - For legal persons or legal arrangements the relevant person must: - verify that any person purporting to act on behalf of the applicant is authorised to do so; - identify that person and take reasonable steps to verify identity using reliable and independent source documents, data or information; - in the case of a legal arrangement, identify any known beneficiaries and the settlor or other person by whom the legal arrangement is made; - verify the legal status of the applicant using relevant information or data obtained from a reliable source; - obtain information on names and addresses of the applicant and any natural persons having power to direct its activities; - obtain information concerning the person by whom, and the method by which, binding obligations may be imposed on the applicant; - obtain information to understand the ownership and control structure of the applicant. - Prohibition on payments to beneficiaries of legal arrangements unless beneficiary identified and identity verified. - Where dealing otherwise than face‑to‑face, take adequate measures to compensate for any additional risk. ### New business relationships (paragraph 6) - Procedures (to be undertaken before or during formation of relationship as soon as reasonably practicable) must include: - (a) identification of the applicant for business; - (b) verification of identity using reliable, independent source documents, data or information; - (c) obtaining information on the purpose and intended nature of the business relationship; - (d) taking reasonable steps to establish the source of funds; - (e) ensure (a) to (d) are carried out in accordance with paragraph 5. - Verification need not be produced if: - identity of applicant is known; nature and intended purpose are known; and applicant is a person listed in sub‑paragraph (5) (regulated person; advocate/registered legal practitioner/accountant carrying out business in or from the Isle of Man where professional rules are at least equivalent; or a person acting in the course of external regulated business and regulated under law of a country included in the list in Schedule 2). - Exceptions do not apply where: - (a) transaction is or may be related to money laundering; - (b) suspicious pattern of behaviour indicating possible money laundering; - (c) doubt as to identity of applicant or beneficial owner; - (d) doubt as to bona fides of applicant or beneficial owner. - If evidence of identity not obtained procedures must require: - (a) business relationship and transactions shall not proceed further; - (b) relevant person shall terminate that relationship; - (c) relevant person must consider whether a suspicious transaction report should be made. ### Continuing business relationships (paragraph 7) - Procedures to be undertaken as soon as reasonably practicable after events such as: - (a) a transaction suspected to be related to money laundering; - (b) suspicious pattern of behaviour causing suspicion of money laundering; - (c) complex or unusually large transactions with no apparent economic or lawful purpose; - (d) unusual transaction patterns with no apparent economic or lawful purpose; - (e) awareness of anything causing doubt about identity of the original applicant for business; - (f) doubt as to veracity or adequacy of evidence of identity produced under paragraph 6(3). - Required procedures include: - (a) examination of background and purpose of transactions or circumstances; - (b) if no identity evidence produced at establishment, require production of information in accordance with paragraph 6(3); - (c) if identity evidence was produced, determine whether it is satisfactory; - (d) if unsatisfactory, require production of identity evidence or take measures to produce such evidence in accordance with paragraph 6(3). - Must keep written records of examinations, steps, measures or determinations and make findings available to competent authorities and auditors on request. - Face‑to‑face exception: adequate compensatory measures required where dealings are not face‑to‑face. - If identity evidence not obtained or produced, procedures must require consideration of termination and whether a suspicious transaction report should be made. ### Enhanced customer due diligence (paragraph 8) - Where, in accordance with the risk assessment, an applicant for business poses a higher risk, enhanced customer due diligence must be carried out. - Matters which may pose a higher risk include but are not restricted to: - (a) a business relationship or one‑off transaction with — - (i) a politically exposed person; or - (ii) a person or legal arrangement resident or located in a country which the relevant person has reason to believe does not apply, or insufficiently applies, the FATF Recommendations in respect of the business or transaction in question; - (b) a person or legal arrangement which is the subject of a warning issued by a competent authority; - (c) a company which has shares in bearer form. - “Enhanced customer due diligence” means steps additional to measures in paragraphs 5 to 7 and 9 to 11, namely: - (a) considering whether additional identification data needs to be obtained; - (b) considering whether additional aspects of the customer’s identity need to be verified; - (c) taking reasonable steps to establish the source of the wealth of the customer and any beneficial owner; - (d) considering what ongoing monitoring should be carried on in accordance with paragraph 15. ### One‑off transactions (paragraph 9) - Procedures (to be undertaken before a one‑off transaction) must include: - (a) production of identification of applicant for business; - (b) verification of identity using reliable, independent source documents, data or information; - (c) obtaining information on the purpose and intended nature of the one‑off transaction; - (d) taking reasonable steps to establish the source of funds; - (e) ensure (a) to (d) are carried out in accordance with paragraph 5. - Verification not required where identity is known, nature and purpose known, and the applicant is: - (i) a regulated person; - (ii) an advocate, registered legal practitioner or accountant carrying out business in or from the Isle of Man where professional rules are at least equivalent; or - (iii) a person acting in the course of external regulated business and regulated under the law and regulation of a country included in the list in Schedule 2; - or where the transaction is an exempted one‑off transaction. - Additional safeguards where transaction is complex or unusually large with no apparent economic or lawful purpose. - If evidence of identity not obtained or produced, no one‑off transactions shall be carried out and consider whether a suspicious transaction report should be made. ### Politically Exposed Persons (PEPs) (paragraph 10) - Relevant persons must maintain procedures and controls to determine whether any of the following is a politically exposed person: - (a) an applicant for business; - (b) a customer; - (c) any natural person having power to direct the activities of an applicant or customer; - (d) the beneficial owner of an applicant or customer; - (e) a known beneficiary of a legal arrangement mentioned in (a) or (b). - Procedures must require approval of senior management: - (a) before any business relationship is established with a politically exposed person; - (b) before any one‑off transaction is carried out with a politically exposed person; - (c) where it is discovered that an existing business relationship is with a politically exposed person, for the continuance of that relationship. ### Introduced business (paragraph 11) - A relevant person may choose to comply with paragraph 11 instead of paragraphs 6 or 9 when an applicant is introduced by a third party (“the introducer”). - Requirements include: - introducer to produce evidence of identity in accordance with paragraph 6(3) or take other measures to produce such evidence; - exceptions where relevant person has identified applicant and beneficial owner, knows nature and purpose, and satisfied itself that the introducer is: - (A) a regulated person; or - (B) an advocate, a registered legal practitioner within the meaning of the Legal Practitioners Registration Act 1986 or an accountant carrying out business in or from the Isle of Man where professional rules are at least equivalent; or - the relevant person and the applicant are bodies corporate in the same group; or - the transaction is an exempted one‑off transaction; or - the introducer acts in the course of external regulated business and is regulated under the law and regulations of a country included in the list in Schedule 2. - Written terms of business must be in place between relevant person and introducer and must require the introducer to: - verify identity of all applicants and beneficial owners to comply with the money laundering requirements; - establish and maintain a record of evidence of identity for at least 5 years calculated in accordance with paragraph 17(1); - establish and maintain records of transactions concerned with or arising out of the introduction for at least 5 years calculated in accordance with paragraph 17(1); - supply copies of evidence verifying identity and all other customer due diligence data forthwith upon request or in specified circumstances (e.g., introducer ceases trading); - inform relevant person where introducer is not required or unable to verify identity or is no longer able to comply because of a change of law; - do all things required by the relevant person to enable compliance with sub‑paragraph (9). - Relevant person must test procedures on a random and periodic basis and ensure introducer status and jurisdictional changes are monitored. - Exceptions to reliance on introducer do not apply where activities give rise to money laundering concerns or doubts about identity/bona fides. ### Exceptions from customer due diligence procedures (paragraph 12) - An insurer need not comply with paragraphs 5 to 11 where: - (a) a premium is an exempted one‑off transaction; or - (b) a policy has neither a surrender value nor a maturity value (for example, term insurance). - Insurer may consider: - (a) to comply immediately with the requirements of the Code referred to in those paragraphs; or - (b) to comply but defer compliance until a claim is made or the policy is cancelled, after having paid due regard to the money laundering risk. - Where a claim on a policy with neither surrender nor maturity value results in settlement greater than that set out in sub‑paragraph (1)(a), the insurer must satisfy itself as to the identity of the policyholder or claimant. - Where cancellation results in repayment of premium(s) greater than that set out in sub‑paragraph (1)(a), the insurer must satisfy itself as to the identity of the applicant or claimant and ensure satisfaction as to original source of wealth and source of funds. - Exceptions where settlement is to third parties for payment for services, suppliers, or policyholder where invoices provided and insurer believes services/goods supplied. ### Correspondent banking services (paragraph 13) - Applies to relationships or one‑off transactions involving correspondent banking or similar arrangements. - A relevant person must not enter into or continue a relationship to which this paragraph applies with a shell bank. - Must not enter into or continue such a relationship with a financial institution in a country or territory outside the Island unless satisfied the respondent bank does not permit its accounts to be used by shell banks. - Before entering such a relationship, relevant person must: - (a) obtain sufficient information about the respondent bank to understand fully the nature of its business; - (b) determine from publicly available information: - (i) the reputation of the respondent bank; - (ii) the quality of the supervision to which it is subject; - (iii) whether it has been subject to investigation or regulatory action with respect to money laundering or financing of terrorism; - (c) assess procedures and controls maintained by respondent bank for preventing money laundering or financing of terrorism and ascertain adequacy and effectiveness; - (d) ensure approval of senior management is obtained; - (e) document respective responsibilities with respect to measures to prevent money laundering and the financing of terrorism. - Where a payable‑through account is involved, relevant person must be satisfied that the respondent bank: - (a) has taken steps complying with Recommendation 5 (customer due diligence and record keeping) of the FATF Recommendations with respect to every customer having direct access to the account; and - (b) will provide the relevant person on request with relevant evidence of the identity of the customer. ### Foreign branches and subsidiaries (paragraph 14) - A relevant person must ensure any branch or subsidiary in a country outside the Island takes measures consistent with this Code and guidance issued by a competent authority for preventing money laundering and financing of terrorism, to the extent permitted by the laws and regulations of that country. - Where minimum measures in such a country differ from those required by the law of the Island, the relevant person must ensure the branch or subsidiary applies the higher standard, to the extent permitted by that country’s laws and regulations. - The relevant person must inform the competent authority when a branch or subsidiary is unable to take measures referred to because prohibited by the laws and regulations of the country concerned. - “subsidiary” in this paragraph means a legal person more than half of whose equity share capital is owned by the relevant person. ### Ongoing monitoring (paragraph 15) - A relevant person must perform ongoing and effective monitoring of any existing business relationship, including: - (a) review of information held for customer due diligence to ensure it is up to date and appropriate (particularly where relationship poses a higher risk); - (b) appropriate scrutiny of transactions and other activities, paying particular attention to transactions which are: - (i) complex; - (ii) both large and unusual; or - (iii) of an unusual pattern, and which have no apparent economic or lawful purpose; - (c) appropriate scrutiny of transactions to ensure consistency with the relevant person’s knowledge of the customer, its business and risk profile and, where necessary, the source of funds. - Extent and frequency of monitoring must be determined in accordance with paragraph 3(4). - Where dealings are otherwise than face‑to‑face, adequate compensatory measures must be taken. ### Record keeping (paragraphs 16–18) - Records to be kept: - (a) a copy of the evidence of identity obtained or information that enables a copy of such evidence to be obtained pursuant to paragraphs 5 to 14; - (b) a record of all transactions carried out in the course of relevant business, including identification data, account files and business correspondence records; - (c) such other records as are sufficient to permit reconstruction of individual transactions and compliance with this Code. - Retention of records (paragraph 17): - keep records for at least 5 years from — - (a) for records required by paragraph 16(b), the date of the completion of the transaction; - (b) in other cases, from the date when — - (i) all activities relating to a one‑off transaction or a series of linked transactions were completed; or - (ii) in respect of other activities — - (A) the business relationship was formally ended; or - (B) if the business relationship was not formally ended, when all activities relating to the transaction were completed. - where a report has been made to a constable in pursuance of paragraph 20(2)(f), or the person knows or believes a matter is under investigation, retain all relevant records for as long as required by the constable. - where a request or enquiry is underway by a competent authority, retain all relevant records for as long as required by the competent authority. - Format and retrieval (paragraph 18): - hard copies kept in the Island must be capable of retrieval without undue delay; - hard copies kept outside the Island must be capable of being sent to the Island and made available within 7 working days; - other records (e.g., computer copies) must be readily accessible in or from the Island and capable of retrieval without undue delay. - A relevant person may rely on third party records of details of payments and transactions provided: - (a) the third party is required upon request to produce copies of the records; and - (b) the third party must notify the relevant person if no longer able to comply with (a). ### Register of money laundering enquiries (paragraph 19) - Relevant person shall establish and maintain a register of all enquiries made by law enforcement or other authorities acting under powers provided by the money laundering requirements. - The register must be kept separate and contain as a minimum the date and nature of the enquiry, the name and agency of the inquiring officer, the powers being exercised, and details of the accounts or transactions involved. ### Recognition and reporting of suspicious transactions; MLRO (paragraph 20) - A relevant person shall appoint a Money Laundering Reporting Officer (MLRO) who: - (a) must be sufficiently senior in the organisation or, if not within that organisation, have sufficient experience and authority; - (b) must have a right of direct access to the directors, the managing board or the partners to be effective. - Written internal reporting procedures must: - (a) enable all directors/partners/management/employees to know to whom to report any knowledge or suspicions of money laundering activity; - (b) ensure a clear reporting chain to the MLRO; - (c) require reports to the MLRO of any information or matter giving rise to knowledge or suspicion of money laundering; - (d) require the MLRO to consider reports in light of all other relevant information to determine whether they give rise to knowledge or suspicion of money laundering; - (e) ensure the MLRO has full access to any other available information which may assist him; - (f) enable matters in a report to be disclosed promptly to a constable serving with the Financial Crime Unit where the MLRO knows or suspects another is engaged in money laundering. - Relevant person shall establish and maintain a register of all reports made to a constable in pursuance of sub‑paragraph (2)(f). The register must contain date of report, person who makes the report, constable to whom it is made and information sufficient to identify the relevant papers. ### Staff screening, training and technology (paragraphs 21–23) - Staff screening (paragraph 21): - establish, maintain and operate appropriate procedures to satisfy itself of the integrity of new directors or partners and of all new appropriate employees. - Staff training (paragraph 22): - provide education and training including refresher training (not less than annually) for all directors/partners/management/key staff/appropriate employees to ensure awareness of: - (a) provisions of the money laundering requirements; - (b) personal obligations under the money laundering requirements; - (c) internal reporting procedures established under paragraph 20; - (d) the relevant person’s policies and procedures to prevent money laundering; - (e) customer identification, record‑keeping and other procedures; - (f) recognition and handling of suspicious transactions; - (g) personal liability for failure to report information or suspicions in accordance with internal procedures; - (h) new developments, including information on current techniques, methods and trends in money laundering and the financing of terrorism. - Technological developments (paragraph 23): - relevant person must maintain appropriate procedures and controls for preventing misuse of technological developments for money laundering or the financing of terrorism. Made 2008 - Signed by the Minister for Home Affairs. *Source: section 7 of the Financial Services Act 2008 (extracted from the supplied PDF content).* ### 1. Business carried on by a building society within the meaning of section 7 of ### _cr09278 - 1. Business carried on by a building society within the meaning of section 7 of ### Enumerated activities (Schedule: numbered list) - 1. Business carried on by a building society within the meaning of section 7 of the Industrial and Building Societies Act 1892. - 2. Business carried on by a society (other than a building society or credit union) registered under the Industrial and Building Societies Act 1892. - 3. Any activity carried on for the purpose of raising money authorised to be borrowed under the Isle of Man Loans Act 1974 18. - 4. The business of an estate agent within the meaning of the Estate Agents Act 1975 19. - 5. The provision by way of business of audit services in respect of a body corporate. - 6. (1) Any activity specified in sub‐paragraph (2) that is undertaken by — - (a) an advocate within the meaning of the Advocates Act 1976; - (b) a registered legal practitioner within the meaning of the Legal Practitioners Registration Act 1986; - (c) a Notary Public within the meaning of the Advocates Act 1995 and the Notaries Regulations 2000; - (d) an accountant or a person who, in the course of business, provides accountancy services. (2) The activities referred to in sub‐paragraph (1) are — - (a) holding or managing any assets belonging to a client; - (b) the provision of legal services which involves participation in a financial or real property transaction (whether by assisting in the planning or execution of any such transaction or otherwise) by acting for, or on behalf of, a client in respect of — - (i) the sale or purchase of land; - (ii) managing bank, savings or security accounts; - (iii) organising contributions for the promotion, formation, operation or management of bodies corporate; - (iv) the sale or purchase of a business; - (v) the creation, operation or management of a legal structure or legal arrangement. - 7. Insurance business within the meaning of the Insurance Act 2008. - 8. The business of acting as an insurance manager for or in relation to an insurer within the meaning of the Insurance Act 2008. - 9. Any activity permitted to be carried on by a licence holder under a casino licence granted under the Casino Act 1986 20. - 10. A collective investment scheme within the meaning of section 1 of the Collective Investment Schemes Act 2008 notwithstanding the provisions of the Collective Investment Scheme (Definition) Order 2008 had not been made 21. - 11. The business of a bookmaker within the meaning of the Gaming, Betting and Lotteries Act 1988 22 but excluding activities to which the Anti‐Money Laundering (Online Gambling and Peer to Peer Gambling) Code 2006 23 applies. - 12. Investment business within the meaning of section 3 of the Financial Services Act 2008 and Class 2 of Schedule 1 to the Regulated Activities Order 2008 as if the exclusions contained within the Order or the Financial Services (Exemptions) Regulations 2008 had not been made. - 13. Business carried by a society registered as a credit union within the meaning of the Credit Unions Act 1993 24. - 14. The business of insurance intermediary within the meaning of the Insurance Act 2008. - 15. Deposit taking within the meaning of section 3 of the Financial Services Act 2008 and Class 1 of Schedule 1 to the Regulated Activities Order 2008 ignoring any exclusions for that class contained within the Order or the Financial Services (Exemptions) Regulations 2008 had not been made. - 16. Corporate services or trust services within the meaning of section 3 of the Financial Services Act 2008 and Classes 4 and 5 of Schedule 1 to the Regulated Activities Order 2008 ignoring any exclusions for that class contained within the Order or the Financial Services (Exemptions) Regulations 2008. - 17. Acting as a retirement benefits schemes administrator within the meaning of Part 6 of the Retirement Benefits Schemes Act 2000. - 18. Acting as the trustee of a retirement benefits scheme within the meaning of the Retirement Benefits Schemes Act 2000. - 19. Any activity carried on for the purpose of raising money by a local authority. - 20. The business of a bureau de change. - 21. The business of the Post Office in respect of any activity undertaken on behalf of the National Savings Bank. - 22. Any activity involving money (including any representation of monetary value) transmission services or cheque encashment facilities. - 23. The provision of safe custody facilities for cash or liquid securities on behalf of other persons. - 24. The business of dealing in goods of any description (including dealing as an auctioneer) whenever a transaction involves accepting a total cash payment of euro 15,000 or more. - 25. Subject to note 2 below, lending including, but not limited to, consumer credit, mortgage credit factoring and the finance of commercial transactions. - 26. Subject to note 2 below, financial leasing arrangements in respect of products other than consumer products. - 27. Any business involving the issuing and managing of means of payment (including but not limited to credit and debit cards, cheques, traveller’s cheques, money orders, bankers’ drafts and electronic money). - 28. Subject to note 2 below, the business of providing financial guarantees and commitments. - 29. Administering or managing money on behalf of other persons. - 30. Services to collective investment schemes as defined in section 3 of the Financial Services Act 2008 and Class 3 of Schedule 1 to the Regulated Activities Order 2008 ignoring any exclusions for that class contained within the Order or the Financial Services (Exemptions) Regulations 2008. ### Notes to the Schedule - Note 1. Paragraphs 25 to 30 are additional to paragraphs 1 to 24. - Note 2. A person does not carry on relevant business by reason only of the provisions of paragraphs 25, 26 or 28 of this Schedule if the lending, leasing or provision of guarantees or commitments (as the case may be) is made by:‐ - (a) a parent undertaking to a subsidiary of that parent undertaking; - (b) a subsidiary of a parent undertaking to the parent undertaking; or - (c) a subsidiary of a parent undertaking to another subsidiary of that parent undertaking. - Note 3. In Note 2 “parent undertaking” means an undertaking which, in relation to another undertaking, a “subsidiary”:‐ - (a) owns or controls, whether directly or indirectly, shares or other interests in the subsidiary together aggregating in excess of 50 per cent of the votes exercisable at general or other meetings of the subsidiary on any or all matters; - (b) has a right to appoint or remove a majority of its board of directors, or other governing body; - (c) has the right to exercise a dominant influence over the subsidiary:‐ - (i) by virtue of the provisions contained in the subsidiary’s constitutional documents, or   - (ii) by virtue of a control contract; or - (d) controls, alone or pursuant to an agreement with other persons, a majority of the voting rights in the subsidiary; and - “undertaking” means a natural person, body corporate, trust, partnership or unincorporated association. - Note 4. For the purposes of Note 3:‐ - (a) an undertaking is taken to have the right to exercise a dominant influence over another undertaking only if it has a right to give directions with respect to the operating and financial policies of that other undertaking with which its directors are, or governing body is, obliged to comply whether or not they are for the benefit of that other undertaking; - (b) “control contract” means a contract in writing conferring a dominant influence right which:‐ - (i) is of a kind authorised by the constitutional documents of the undertaking in relating to which the right is exercisable; and   - (ii) is permitted by the law under which that undertaking is established; and   - (c) any undertaking which is a subsidiary of another undertaking is also a subsidiary of any further undertaking of which that other is a subsidiary. ### Schedule 2 — List of countries - Argentina; Australia; Austria; Belgium; Bermuda; Brazil; Canada; Cayman Islands; Cyprus; Denmark; Finland; France; Germany; Gibraltar; Greece; Guernsey; Hong Kong; Iceland; Ireland; Italy; Japan; Jersey; Luxembourg; Malta; Mauritius; Monaco; Netherlands; New Zealand; Norway; Portugal; Singapore; South Africa; Spain; Sweden; Switzerland; United Kingdom; United States of America. ### Explanatory Note (Code context) - The Criminal Justice (Money Laundering) Code 2008 is made under section 17F of the Criminal Justice Act 1990 and revokes and replaces the Anti-Money Laundering Code 2007 (SD 712/07), as amended by SD 903/07 and SD 296/07. - The Code contains anti-money laundering provisions in line with Financial Action Task Force’s Recommendations on money laundering and terrorist financing and accompanying methodology. ### Anti-Money Laundering Handbook — Financial Services Rule Book 2008 (PART 9) - 9.1 Application - This Part applies to all licenceholders. - 9.2 Interpretation — selected definitions and cross-references - "beneficial owner" means the natural person who ultimately owns or controls an applicant for business or on whose behalf a transaction or activity is being conducted; and in relation to a legal person or legal arrangement, includes (but is not restricted to) — - (a) in the case of a legal person other than a company whose securities are listed on a recognised stock exchange, a natural person who ultimately owns or controls (whether through direct or indirect ownership or control, including through bearer share holdings) more than 25% of the shares or voting rights in the legal person; or - (b) in the case of any legal person, a natural person who otherwise exercises control over the management of the legal person; - (c) in the case of a legal arrangement — - (i) the trustees or other persons controlling the applicant; and - (ii) the settlor or other person by whom the arrangement is made, - "the Code" means the Criminal Justice (Money Laundering) Code 2007; - "correspondent banking services" means banking services provided by a financial institution in one country or territory ("the correspondent bank") to a financial institution in another country or territory ("the respondent bank"); - "customer due diligence" (except in the expression "enhanced customer due diligence") means the measures specified in paragraphs 5 to 8 of the Code; - "legal arrangement" means — - (a) an express trust, or - (b) any other arrangement which has a similar legal effect (such as a fiducie, Treuhand or fideicomiso); - "legal person" includes any body corporate or unincorporate which is capable of establishing a permanent customer relationship with a financial institution or of owning property; - "money laundering reporting officer" means an individual appointed under paragraph 14(1) of the Code; - "payable-through account" means an account maintained by a correspondent bank which may be operated directly by a customer of the respondent bank; - "politically exposed person" means any of the following resident in a country or territory outside the Island — - (a) a natural person who is or has been entrusted with prominent public functions, including — - (i) a head of state, head of government, minister or deputy or assistant minister; - (ii) a senior government official; - (ii) a member of parliament; - (iv) a senior politician; - (v) an important political party official; - (vi) a senior judicial official; - (vii) a member of a court of auditors or the board of a central bank; - (viii) an ambassador, chargé d'affaires or other high-ranking officer in a diplomatic service; - (ix) a high-ranking officer in an armed force; - (x) a senior member of an administrative, management or supervisory body of a State-owned enterprise; and - (xi) a senior official of an international entity or organisation; - (b) family members (enumerated precisely in the source, including spouse; partner considered by national law as equivalent to a spouse; child or the spouse or partner of a child; brother or sister (including a half-brother or half-sister); parent; parent-in-law; grandparent; grandchild); - (c) any close associate (enumerated precisely in the source, including joint beneficial ownership, sole beneficial ownership of an entity set up for benefit, known beneficiary of a legal arrangement, or a person in a position to conduct substantial financial transactions on behalf). - "risk" means a risk of money laundering or the financing of terrorism, or both. - (2) “shell bank” means a bank which is — - (a) incorporated in a country or territory in which it has no physical presence, and - (b) not affiliated with a financial services group which is subject to effective consolidated supervision; - "consolidated supervision" means supervision of the group by a regulatory body on the basis of the totality of its business, wherever conducted; - "financial services group" means a group of companies whose activities include to a significant extent activities which are, or if carried on in the Island would be, regulated activities. - (3) Expressions with same meanings as in the Code — "applicant for business"; "business relationship"; "FATF Recommendations"; "one-off transaction". - 9.3 Anonymous accounts etc. - (1) A licenceholder must not maintain — - (a) an anonymous account, or - (b) an account in a fictitious name. - (2) If a licenceholder maintains a numbered account it must — - (a) identify, and verify the identity of, the customer, and - (b) maintain the account in such a way as to comply fully with the requirements of the Code and this Part. - 9.4 Business risk assessment - (1) For the purpose of determining the measures to be taken when carrying out customer due diligence, a licenceholder must carry out a risk assessment in accordance with this rule. - (2) The assessment must estimate the risk of money laundering and terrorist financing on the part of the licenceholder's customers, having regard to — - (a) the nature, scale and complexity of its activities; - (b) the products and services provided by it, and - (c) the persons to whom, and the manner in which, they are provided. - (3) The assessment must be — - (a) undertaken as soon as reasonably practicable — - (i) after this Part comes into force, in the case of an existing business; - (ii) after the licenceholder commences business, in any other case; and - (b) regularly reviewed and, where appropriate, amended so as to keep it up to date. - 9.5 Customer due diligence — general - When carrying out customer due diligence, whether in relation to an applicant for business, an existing business relationship or a one-off transaction, a licenceholder must do so — - (a) on the basis of materiality and risk, and - (b) in accordance with its current risk assessment under rule 9.4. - 9.6 Customer due diligence procedures - (1) This rule applies where a licenceholder is operating the procedures required by paragraphs 5 to 8 of the Code, except where paragraph 5(4) or 7(4) of the Code applies. - (2) The licenceholder must, in the case of any applicant for business, — - (a) determine who is the beneficial owner of the applicant; - (b) take reasonable steps to verify the identity of those persons, using relevant information or data obtained from a reliable source; and - (c) determine whether the applicant is acting on behalf of another person and, if so, take reasonable steps to identify that other person, and to verify his identity using relevant information or data obtained from a reliable source. - (3) Without prejudice to paragraph (2), the licenceholder must, in the case of an applicant for business which is a legal person or legal arrangement — - (a) verify that any person purporting to act on behalf of the applicant is authorised to do so; - (b) identify and verify the identity of that person using reliable and independent source documents, data or information; - (c) in the case of a legal arrangement, identify any known beneficiaries; - (d) verify the legal status of the applicant using relevant information or data obtained from a reliable source; - (e) obtain information concerning the names and addresses of the applicant and any natural persons having power to direct its activities; - (f) obtain information concerning the person by whom, and the method by which, binding obligations may be imposed on the applicant; - (g) take reasonable steps to understand the ownership and control structure of the applicant. - (4) Where the licenceholder deals with an applicant for business otherwise than face-to-face, it must, in taking any steps under this rule, take adequate measures to compensate for any risk arising as a result. - (5) The licenceholder must not proceed with the business relationship or transaction in question unless the requirements of paragraph (2) and (where appropriate) paragraphs (3) and (4) have been complied with. - (6) In this rule "applicant for business", in relation to a continuing business relationship, means the person who, in relation to the formation of the business relationship, was the applicant for business. *Source: _cr09278 (PDF chapter/section) — content as supplied.* ### 9.7 Source of funds ### 9.7 Source of funds ### Source of funds (rule summary) - Applies where: - (a) a licenceholder enters into a new business relationship with a customer, - (b) in the course of a continuing business relationship between the licenceholder and a customer, any of the events referred to in paragraph 6(2) of the Code occurs, or - (c) the licenceholder enters into a one-off transaction with or on behalf of a customer. - Requirement: - The licenceholder must take all reasonable steps to establish the source of the customer's funds with which the relationship or transaction is concerned. ### Payments to beneficiaries (rule 9.8) - A licenceholder must not make a payment of income or capital under a legal arrangement to a beneficiary of the arrangement unless it has: - (a) identified the beneficiary, and - (b) verified his identity using relevant information or data obtained from a reliable source. ### Enhanced customer due diligence (rule 9.9) - Trigger: - Where, in accordance with the risk assessment, an applicant for business, business relationship or one-off transaction poses a higher risk. - Matters posing higher risk include but are not restricted to: - (a)(i) a business relationship or one-off transaction with a politically exposed person; or - (a)(ii) a person or legal arrangement resident or located in a country which the licenceholder has reason to believe does not apply, or insufficiently applies, the FATF Recommendations in respect of the business or transaction in question; - (b) a person or legal arrangement which is the subject of a warning issued by the Commission for the purpose of this rule; and - (c) a company which has shares in bearer form. - "Enhanced customer due diligence" means additional steps beyond paragraphs 5 to 8 of the Code, namely: - (a) considering whether additional identification data needs to be obtained; - (b) considering whether additional aspects of the customer’s identity need to be verified; - (c) taking reasonable measures to establish the source of the wealth of the customer and any beneficial owner; and - (d) considering what ongoing monitoring should be carried on in accordance with rule 9.15. ### Introduced business (rule 9.10) - Scope: - Applies where a licenceholder enters into a business relationship with a customer who is introduced by a third party ("the introducer"). - Written terms of business between licenceholder and introducer required by sub-paragraph (6) of paragraph 8 of the Code must also include: - If the introducer at any time is no longer able to comply with those requirements (because of a change in law, cessation of business, or any other reason) the introducer must: - (a) notify the licenceholder that he is no longer able to comply, and - (b) provide the licenceholder with the records, or copies of the records, which the introducer maintains pursuant to that sub-paragraph. ### Politically exposed persons (rule 9.11) - Licenceholder must maintain appropriate procedures and controls to determine whether any of the following is a politically exposed person: - (a) an applicant for business; - (b) a customer; - (c) any natural person having power to direct the activities of a person mentioned in (a) or (b); - (d) the beneficial owner of a person mentioned in (a) or (b); - (e) a known beneficiary of a legal arrangement mentioned in (a) or (b). - Senior management approval: - Licenceholder must maintain procedures requiring the approval of its senior management before: - (a) any business relationship is established with a politically exposed person; or - (b) where it is discovered that an existing business relationship is with a politically exposed person, to the continuance of that relationship. ### Correspondent banking services (rule 9.12) - Scope: - Applies to business relationships or one-off transactions involving correspondent banking services or similar arrangements. - Prohibitions and conditions: - (2) Must not enter into or continue a relationship with a shell bank. - (3) Must not enter into or continue a relationship with a financial institution in a country or territory outside the Island unless satisfied that the respondent bank does not permit its accounts to be used by shell banks. - Additional pre-relationship steps: - (4)(a) obtain sufficient information about the respondent bank to understand fully the nature of its business; - (4)(b) determine from publicly available information: - (i) the reputation of the respondent bank, - (ii) the quality of the supervision to which it is subject, and - (iii) whether it has been subject to investigation or regulatory action with respect to money laundering or the financing of terrorism; - (4)(c) assess the procedures and controls maintained by the respondent bank for preventing money laundering or the financing of terrorism, and ascertain that they are adequate and effective; - (4)(d) ensure senior management approval is obtained; and - (4)(e) document the respective responsibilities of the licenceholder and the respondent bank with respect to measures to prevent money laundering and the financing of terrorism. - Payable-through accounts: - Where a relationship or transaction involves a payable-through account, the licenceholder must be satisfied that the respondent bank: - (a) has taken steps complying with the requirements of Recommendation 5 (customer due diligence and record keeping) of the FATF Recommendations with respect to every customer having direct access to the account; and - (b) will provide the licenceholder on request with relevant evidence of the identity of the customer. ### Technological developments (rule 9.13) - Requirement: - Licenceholder must maintain appropriate procedures and controls for the purpose of preventing the misuse of technological developments for the purpose of money laundering or the financing of terrorism. ### Foreign branches and subsidiaries (rule 9.14) - Requirement: - (1) Licenceholder must ensure that any branch or subsidiary in a country or territory outside the Island takes measures consistent with the Code, this Rule Book and guidance issued by the Commission, to the extent permitted by the laws and regulations of that country or territory. - (2) Where minimum measures in such country or territory differ from those required by the law of the Island, the licenceholder must ensure that any branch or subsidiary in that country or territory applies the higher standard, to the extent permitted by the laws and regulations of that country or territory. - (3) Licenceholder must inform the Commission when a branch or subsidiary is unable to take any of the measures referred to in paragraph (1) or (2) because it is prohibited by the laws and regulations of the country or territory concerned. - Definition: - (4) "Subsidiary" means a legal person more than half of whose equity share capital is owned by the licenceholder. ### Ongoing monitoring (rule 9.15) - Licenceholder must perform ongoing and effective monitoring of any existing business relationship, including: - (1)(a) review of information held for the purpose of customer due diligence to ensure that it is up to date and appropriate (in particular where the relationship poses a higher risk for the purpose of rule 9.9); - (1)(b) appropriate scrutiny of transactions and other activities, paying particular attention to transactions which are: - (i) complex, - (ii) both large and unusual, or - (iii) of an unusual pattern of transactions, - and which have no apparent economic or lawful purpose; and - (1)(c) appropriate scrutiny of transactions to ensure that they are consistent with the licenceholder’s knowledge of the customer, its business and risk profile and, where necessary, the source of funds. - Determination of extent and frequency: - (2)(a) on the basis of materiality and risk, - (2)(b) in accordance with the licenceholder's current risk assessment under rule 9.4, and - (2)(c) having regard to whether the business relationship poses a higher risk for the purpose of rule 9.9. - Non-face-to-face customers: - (3) Where the licenceholder deals with a customer otherwise than face-to-face, it must take adequate measures to compensate for any risk arising as a result. ### Retention etc. of records (rule 9.16) - Recordkeeping obligations: - (1) Where a licenceholder takes any steps under this Part for identifying, or verifying the identity of, or obtaining any information concerning, any person, or ascertaining the source of any funds, it must retain a record of those steps and copies of any documents produced for that purpose. - (2) The licenceholder must make the record and copies available if required to: - (a) the licenceholder’s money laundering reporting officer, - (b) any other appropriate staff of the licenceholder; - (c) any constable, and - (d) the Commission. - Retention period: - (3) The licenceholder must keep the record and copies for at least 5 years: - (a) in the case of activities relating to a one-off transaction or a series of linked transactions, from the date when the activities were completed; - (b) in the case of activities under a business relationship: - (i) from the date when the relationship was formally ended; or - (ii) if the relationship was not formally ended, from the date when all activities relating to the transaction in question were completed. - Exceptions where investigations or reports occur: - (4)(a) where a report has been made to a constable in pursuance of paragraph 14(2)(f) of the Code, or - (4)(b) where the licenceholder knows or believes that a matter is under investigation, - the licenceholder must retain all relevant records for as long as required by a constable. _Excerpt from Anti-Money Laundering Handbook Appendix B — Isle of Man Financial Supervision Commission, August 2008 (sections 9.7–9.16)._ ### 12. The verification of the iden tity of a beneficiary nam ### 12. The verification of the identity of a beneficiary named or nominated under a life insurance policy to receive any benefits arising following a claim or event ### Verification timing - Verification of the identity of a beneficiary named or nominated under a life insurance policy may take place after the business relationship has been established provided that it takes place: - at or before the time of payout; or - at or before the time the beneficiary exercises a right vested under the policy. - This regulation does not apply to a beneficiary under a trust. ### Risk assessment and customer due diligence (Regulation 13) - An insurer must assess the information required on each applicant or policyholder on a risk assessed basis to establish the inherent money laundering or terrorist financing risk. - Where following such an assessment an applicant or policyholder is considered high risk, the insurer must undertake appropriate enhanced customer due diligence. - An insurer must not apply simplified, or lower, levels of customer due diligence where: - there is a suspicion of money laundering; or - the applicant or policyholder (including any party to the application or policy) is considered to be higher risk. ### Purpose and intended nature (Regulation 14) - The insurer must satisfy itself (obtaining information where necessary) as to the purpose and intended nature of the business relationship. ### Anonymous bonds and fictitious names (Regulation 15) - Anonymous bonds or contracts in fictitious names are not permitted. - Any such business relationships already in place must be treated as high risk and subjected to enhanced customer due diligence and ongoing monitoring. ### Failure to obtain satisfactory evidence (Regulation 16) - Where an insurer is unable to obtain satisfactory evidence of identification it must consider making a suspicious transaction report to the Financial Crime Unit. ### Complex, unusual or large transactions (Regulation 17) - An insurer must pay special attention to complex transactions, unusual large transactions, unusual patterns of transactions, and transactions that have no apparent or visible economic or lawful purpose, whether at inception or during the lifetime of a business relationship. - An insurer must take reasonable steps to examine as far as possible the background and purpose of such transactions and to record its findings in writing. - Whether the applicant is accepted or not, the insurer must keep such records in accordance with regulations 28 to 30. ### Existing business and changing circumstances (Regulation 18) - At any time during a business relationship the risk profile and circumstances of a policyholder or beneficial owner may change or additional information may come to the attention of an insurer; the insurer must continue to consider whether additional customer due diligence information is required. - Obligations to consider and report any person are not limited to the application procedure nor is a transaction required to have occurred before additional information may be sought or a suspicion reported. - An insurer must apply customer due diligence requirements to parties referred to in regulation 10(1) on the basis of materiality and risk, and conduct due diligence on such existing relationships on a risk assessed basis in accordance with regulation 13. - Paragraphs (1) to (3) apply irrespective of any waiver under regulation 7(1) or (2) which applies, or has applied, during the business relationship. ### Sanctions notices (Regulation 19) - An insurer must have procedures describing the system used to establish whether it maintains policies for the benefit of any of those individuals or organisations listed on, or transactions into jurisdictions appearing on, Sanctions Notices applicable to the Isle of Man. - Procedures must specify the actions to be taken should an individual, organisation or transaction be identified in respect of which a Sanctions Notice applies. ### Politically exposed persons (Regulation 20) - An insurer must have procedures to apply customer due diligence measures to identify whether any of the following is a politically exposed person: - (a) an applicant; - (b) a policyholder; - (c) a beneficial owner of an applicant or the person funding a premium paid under a policy; - (d) a settlor or trustee of a trust whose trustee is an applicant or policyholder; - (e) a beneficiary named or nominated under a policy; - (f) a beneficiary of a trust whose trustee is an applicant or policyholder; - (g) any natural person having power to direct the activities of an applicant or policyholder. - If identified as a politically exposed person, an insurer must determine, on a risk assessed basis, whether or not to apply appropriate enhanced customer due diligence measures. - Simplified or reduced customer due diligence, as set out in the Guidance Notes, must not be applied where any person mentioned in paragraph (1) is identified as a politically exposed person. - An insurer must obtain senior management approval to accept an application where any person mentioned in paragraph (1) is identified as a politically exposed person. - If a politically exposed person is subsequently found to have been, or becomes, such after acceptance, the policy (or policies) must be referred to senior management. - Where in a business relationship with a politically exposed person, the insurer must effectively monitor the relationship on an ongoing basis having due regard to the inherent money laundering risk. - Failure to identify a person as a politically exposed person will not automatically be considered a failure of systems or procedures provided reasonable and adequate measures were undertaken in an attempt to identify. ### Introducers (Regulation 21) - Where reliance is placed on an introducer, before business may be accepted: - there must be written terms of business between the insurer and the introducer; and - the insurer must have written procedures for granting such terms. - Insurers must have procedures for ongoing monitoring of an introducer, including information on its regulatory status. - Where an insurer relies on an introducer to collect identification or customer due diligence and permits the introducer to retain this, the insurer must take adequate steps to satisfy itself that copies of identification data and relevant documentation will be made available to the insurer by the introducer upon request and without delay. - Insurers must undertake random testing of procedures to ensure requested documentation is made available without delay. - Ultimate responsibility for customer due diligence remains with the insurer, irrespective of introducer involvement. - Written terms must require the introducer to supply, upon request and without delay, suitably certified evidence of customer due diligence information and to maintain records for the required period as specified in regulation 29. ### Outsourcing (Regulation 22) - Where functions concerning customer due diligence are outsourced, the person undertaking the outsourced function is to be treated, for the purposes of these Regulations, as if it were the insurer and its customer due diligence processes and documentation will be considered those of the insurer itself. - Paragraph (1) applies whether or not the outsourced function is undertaken by a member of the same group as the insurer. ### Compliance monitoring and control (Regulation 23) - An insurer must have adequate compliance management arrangements taking into account the size and risk profile of its business. - The Money Laundering Reporting Officer, Compliance Officer(s) and other appropriate staff must have timely access to customer identification data, other customer due diligence information, transaction records and any other relevant information sufficient for them to perform their respective roles. ### Source of funds and source of wealth (Regulation 24) - An insurer must make enquiries as to how an applicant has acquired the monies to be used as premium for, or contribution to, a policy. - An insurer must establish how any payment is to be made, from where and by whom. Where payment is made from an account other than in the name of the applicant the reasons must be understood and recorded; where considered necessary evidence of identity of the account holder should be obtained. - The insurer must be satisfied that the monies received have come from expected account(s). ### Payment out of monies (Regulation 25) - Where payment of monies is to be made by an insurer to an account other than in the name of the policyholder the reasons for this must be understood, documented and the insurer must consider, on a risk assessed basis, whether evidence of identity of the account holder should be obtained. ### Money Laundering Reporting Officer (Regulation 26) - A suitably senior person must be appointed by the board as Money Laundering Reporting Officer (MLRO). - The MLRO must be able to act independently and report on money laundering matters directly to the board where necessary. - For an insurer authorised under section 6 of the Act, the person appointed must be resident in the Isle of Man. - An MLRO shall be treated as a manager for the purposes of section 20 of the Act and the provisions of that section shall apply. - Where an insurer has a branch or subsidiary in another jurisdiction, an officer resident in that jurisdiction may be appointed to deal with suspicion reports raised in that jurisdiction; however, the MLRO retains overall responsibility for the role in all jurisdictions. - Where the MLRO is not an employee of the insurer, the MLRO must be of sufficient seniority and experience and must have a right of direct access to the board. - The MLRO must have access to all documents and files, wherever held, as required to undertake the role. - Where an MLRO holds that position for more than one insurer, paragraphs (1) and (2) apply to each appointment. - The MLRO must submit, not less than annually, a report to the board describing: - the business’ anti-money laundering environment; - progress on internal or external developments and activities undertaken during the reporting period; - any money laundering or terrorist financing issues or risks to which the insurer may be exposed. ### Suspicion reporting procedure (Regulation 27) - An insurer must have procedures for raising suspicions by employees or directors and for subsequent reporting to the Financial Crime Unit. - The obligation to make a report also applies where there are reasonable grounds to suspect funds are linked or related to, or to be used for terrorism, terrorist acts or by terrorist organisations or those who finance terrorism. - All suspicious transactions, including attempted transactions, must be reported regardless of the amount or nature of the transaction. ### Record keeping (Regulation 28) - Records prepared and maintained on policyholder relationships and transactions must ensure: - (a) requirements of all legislation, including the Code, these Regulations and the Guidance Notes, are met; - (b) competent third parties are able to assess the insurer’s observance of money laundering policies and procedures; - (c) any transactions effected via the insurer can be reconstructed; - (d) the insurer is able to satisfy, within a reasonable time, enquiries or court orders from the appropriate authorities as to disclosure of information. - Records retained in electronic or microfilm format must be viewable and legible and be capable of being reproduced in a physical form acceptable to the Authority and the courts of the Isle of Man in accordance with the requirements of those courts. - Reproduced records are acceptable if they are a true representation of the original physical document and must be legible, complete and sufficient to comply with paragraph (1) or as otherwise specified by the Authority or the courts. ### Retention periods (Regulation 29) - For the purposes of regulation 21(6), the “required period” is at least 5 years from the date when: - (a) all activities relating to a one-off transaction or a series of linked transactions were completed; - (b) the business relationship was formally ended; or - (c) if the business relationship was not formally ended, when the last transaction was carried out. - Where a report has been made to the Financial Crime Unit, or the insurer knows or believes that a matter is under investigation, the insurer must retain all relevant records for as long as required by the Financial Crime Unit. ### Access to information (Regulation 30) - All customer due diligence records wherever held, and whether held by the insurer or not, must be available to the Money Laundering Reporting Officer, Compliance Officer and other competent staff for review and investigation purposes. ### Staff screening (Regulation 31) - Every insurer and insurance manager must have appropriate and effective screening procedures when employing staff to ensure they have the integrity and abilities appropriate for their respective roles. ### Training requirements (Regulation 32) - An insurer must provide, or arrange provision of, appropriate and ongoing anti-money laundering and prevention of terrorist financing education and training for all staff, including: - (a) information on new developments; - (b) current money laundering and financing of terrorism techniques; - (c) methods and trends; - (d) a clear explanation of the relevant significant aspects of applicable laws and obligations; - (e) the requirements concerning suspicious transaction reporting. - Additional specific training must be provided for senior management, specific anti-money laundering staff and holders of relevant key control positions. - Where an insurer outsources or delegates any functions, it remains the responsibility of the insurer to ensure any staff undertaking work on its behalf are trained in accordance with these Regulations. ### Training records and induction (Regulations 33–34) - Training records demonstrating that appropriate training has been provided to all participants, including temporary staff, must be maintained. - As soon as reasonably practicable after commencement of employment, all new employees must be given education and training in avoidance of money laundering and prevention of terrorist financing in accordance with regulation 32. ### Refresher training (Regulation 35) - An insurer must provide, or arrange provision of, refresher courses at regular intervals, not less than annually, for senior management, specific anti-money laundering staff and holders of relevant key control positions. - Where there have been significant changes to legislative, regulatory or internal requirements or procedures, the insurer must provide suitable training to make all staff aware of their responsibilities. ### Compliance monitoring (Regulation 36) - Insurers must have procedures to ensure the MLRO, and Compliance Department if applicable, regularly monitors the implementation and operation of all anti-money laundering and terrorist financing procedures and controls, including monitoring effectiveness of awareness and training techniques. ### Misuse of technological developments (Regulation 37) - An insurer must regularly consider, and where necessary have policies in place or take such measures as are needed, to prevent misuse of technological developments for money laundering or the financing of terrorism. ### Offences (Regulation 38) - A person who contravenes a provision of these Regulations without lawful authority commits an offence. ### Revocation (Regulation 39) - Paragraph 6 of Part II of Schedule 6 to the Insurance Regulations 1986 (certification of compliance with requirements of the Common Trading Practices for Isle of Man Insurers) is revoked. - Made 20th June 2008 *Source: _cr09278 - 12. The verification of the identity of a beneficiary named or nominated under a life insurance policy (PDF chapter).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09278.pdf_