## _cr1113 — Sections 1–3

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---

### A. Introduction
- Report type: Report on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering (AML) and 9 Special Recommendations on Combating the Financing of Terrorism (CFT).
- Prepared by: Legal Department of the IMF.
- Assessment dates: mission from May 17, 2010 to June 1, 2010.
- Methodology: 2004 Assessment Methodology.
- Note: Views expressed are those of the assessment team and do not necessarily reflect the views of the Government of the Bailiwick of Guernsey or the Executive Board of the IMF.

### B. Key Findings — Overview
- General assessment:
  - Guernsey’s AML/CFT legal framework is comprehensive and provides a sound basis for an effective AML/CFT regime.
  - Most shortcomings identified are technical in nature; some deficiencies were addressed immediately after the onsite visit.
- Criminalization and asset measures:
  - Money laundering (ML) and the financing of terrorism (FT) are criminalized fully in line with the FATF standard.
  - Ability to freeze and confiscate assets exists; as of the assessment date, no prosecutions or convictions for terrorist financing.
  - Guernsey can freeze assets under UNSCRs 1267 and 1373 and successor regulations through administrative orders issued by the Attorney General.
- FIU / FIS performance:
  - FIU is the Financial Intelligence Service (FIS), a law enforcement type FIU performing a pre-investigative/intermediary role.
  - Separation between intelligence and investigative handling of STRs exists.
  - Dissemination rate of STRs: 70 percent to 86 percent of STRs received.
  - Recommendation: FIS and other law enforcement agencies should enhance performance in producing cases for investigation for money laundering activity, particularly as a stand-alone offense.
- Supervision and sanctions:
  - Guernsey Financial Services Commission (GFSC) has a risk-based AML/CFT supervisory approach and adequate authority.
  - Discretionary financial penalties regime could be enhanced to ensure penalties are dissuasive and proportionate.
- DNFBPs and eCasinos:
  - Preventive measures mirror financial institutions; GFSC supervises DNFBPs except eCasinos (supervised by AGCC).
  - Shortcomings in CDD, recordkeeping, non face-to-face transaction risks, licensing, and eCasinos effectiveness.
- Legal persons, trusts, and NPOs:
  - Legal persons: sound transparency measures and availability of beneficial ownership information to law enforcement and competent authorities.
  - Trusts: well established under Guernsey law but not subject to registration or filing; most trusts involve regulated trustees subject to full AML/CFT, but concerns remain for trusts not administered by licensed TCSPs.
  - NPOs: registration regime exists but does not apply to all charities; purpose/objectives and ownership/control information not publicly available; sanctions for noncompliance not effective and dissuasive.
- Coordination and international cooperation:
  - Effective domestic coordination (active policy coordination committee).
  - MLA and extradition framework is sound; Bailiwick law allows provision of all assistance required by the Vienna and Palermo Conventions.
  - Extradition regime managed by the U.K. under the U.K. Extradition Act 1989; no extraditions on record under that Act.
  - Cross-border cooperation: FIS/police cooperative; consent to use supplied information for intelligence purposes has never been refused.

### C. Legal Systems and Related Institutional Measures
- Money laundering provisions:
  - Two-strand approach differentiating between drug trafficking offenses and all other predicate offenses.
  - Bailiwick is party to the Vienna but not to the Palermo Convention.
  - All categories of predicate offences listed in the international standard are covered.
  - Mens rea: criminal liability where a person acted intentionally and with knowledge that property stems from a criminal source; intent may be inferred from objective factual circumstances.
  - Criminal liability extends to legal persons.
  - Implementation concerns: modest number of ML cases investigated relative to financial sector size; disconnect between investigations and prosecutions/convictions.
- Financing of terrorism provisions:
  - Guernsey is party to the International Convention for the Suppression of the Financing of Terrorism and has criminalized terrorism financing fully in line with the international standard.
  - Terrorism (United Nations Measures) (Channel Islands) Order 2001 enables prosecution for collection of funds with unlawful intention or knowledge of terrorist use.
  - As of on-site visit, no prosecutions or convictions for terrorist financing.
- Confiscation and freezing:
  - Comprehensive legal framework to identify, freeze, seize and confiscate criminal assets.
  - Recommendation: use confiscation provisions more actively as financial sector ML and predicate activity are detected.
  - Freezing under UNSCRs 1267 and 1373: framework largely sufficient; recommendation to clarify that designated persons are not to receive prior notice of freezing actions.
- FIS details and access to information:
  - FIS officially designated by law on May 17, 2010.
  - Access to information: range of law enforcement, administrative and commercial information available but administrative sources under-used.
  - Direct access to financial information is restricted; additional financial information requires a court order.
  - International cooperation: FIS systematically shares information with counterpart FIUs.
  - Performance: FIS adequately performs role; system focused on local predicate criminality; challenge to investigate/prosecute foreign-predicated ML as an autonomous offense using domestic evidence.
- Law enforcement, judicial capacity and cross-border cash controls:
  - Law enforcement adequately resourced and trained; results modest.
  - Judicial progress: pending autonomous ML case evidences progress; recommendation to further develop expertise and case law on stand-alone ML.
  - Cash Controls Law 2007 aligned with European Community Regulation 1889/2005; cross-border cash controls effectively implemented, with frequent declarations and STRs filed by the Post Office resulting in sizable seizures and confiscations.
  - Mail cash transport: corrective action taken to align mail declaration system with cash importation regime by freight.

### D. Preventive Measures — Financial Institutions
- Legislative framework:
  - Primary foundation: Proceeds of Crime (Bailiwick of Guernsey) (POC) Law 1999.
  - Secondary legislation: Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007 (FSB Regulations).
  - GFSC Handbook issued in 2007 includes other enforceable means (OEM) and guidance.
- Customer Due Diligence (CDD) and preventive measures:
  - GFSC risk-based approach addresses a vast majority of CDD elements; shortcomings mainly technical.
  - Requirements:
    - Customers and beneficial owners required to be identified in all cases.
    - Detailed requirements apply to legal entities and trusts.
    - Enhanced due diligence required for higher risk customers, including politically exposed persons (PEPs).
    - Records of customer identification must be kept up-to-date.
    - All documentation, including transactions and customer information, must be retained for at least five years.
    - Suspicious activity effectively required to be reported to the FIU.
- Financial secrecy and transaction monitoring:
  - No legal impediments to FATF Recommendations regarding financial secrecy.
  - Institutions required to pay special attention to complex, unusual large transactions and unusual patterns with no apparent lawful purpose, and to business relations/transactions from countries which do not follow or insufficiently apply FATF Recommendations.
- Reporting and internal controls:
  - All categories of financial institutions appear to be reporting suspicious transactions.
  - No requirement exists for maintaining an adequately resourced and independent audit function in financial institutions.
  - Measures to prevent establishment of shell banks and dealing with shell banks are adequate.
- Supervision and sanctions:
  - GFSC has adequate authority and powers to supervise financial institutions, including money transfer systems.
  - Inspections were risk-based and adequate in scope at time of visit.
  - Remedial measures imposed on institutions have included updating CDD information, improving internal control systems, and providing additional training.
  - GFSC can impose fines up to £200,000; assessors consider this limit too low and not sufficiently dissuasive.

### E. Preventive Measures — DNFBPs and eCasinos
- Legal and supervisory framework:
  - DNFBP preventive measures in POC Law 1999 and Criminal Justice (Proceeds of Crime) (Legal Professionals, Accountants and Estate Agents) Regulations, 2008 (PB Regulations).
  - GFSC Handbook 2008 provides further requirements (OEM).
  - eCasinos regulated under Alderney eGambling Ordinance, 1999 and Alderney eGambling Regulations, 2009; supervised by Alderney Gambling Control Commission (AGCC).
  - TCSPs and bullion dealers subject to same requirements as financial services businesses.
- Implementation and effectiveness:
  - Substantial implementation efforts across DNFBPs; risks in eCasino sector not fully mitigated.
  - Identified shortcomings:
    - On-line verification methods used by eCasinos not sufficiently reliable.
    - Non-face-to-face transaction mitigation in eCasinos not in line with the standard.
    - Some eCasinos have not implemented requirements to pay special attention to complex and unusual transactions.
    - Exemptions: the exemption for individuals who act as a director for six companies or less and broad exemption for accountants from CDD on existing customers are not in line with the standard.
    - Lawyers, accountants and estate agents not required to determine potential customers are PEPs.
    - GFSC guidance on low/high risk jurisdictions is contradictory; GFSC has not identified legal arrangements and TCSPs as high risk.
    - Reliance on introducers/intermediaries who are DNFBPs is discouraged.
- STR reporting and internal controls for DNFBPs:
  - Entities required to report STRs to the FIU including attempted transactions.
  - Adequate protections for STR reporting and tipping-off exist.
  - Entities required to establish internal procedures to prevent ML and TF; compliance officers and employee screening required.
  - Suggested improvements: increase number of STRs from eCasinos; provide AML training to all eCasino employees.
- Supervisory capacity and gaps:
  - GFSC and AGCC have powers to supervise DNFBPs; supervisory programs largely adequate.
  - AGCC conducts extensive criminal background checks for eGambling licenses but inconsistent police record checks present infiltration risk.
  - Resources for supervision of TCSPs should be increased due to reduced number of examinations in this high risk sector.

### F. Legal Persons, Trusts, and NPOs
- Legal persons:
  - Incorporation allowed for limited, unlimited or mixed liability companies and limited liability partnerships (LLPs); registration required with Guernsey or Alderney companies registries.
  - More than 18,000 companies registered in Guernsey and 530 in Alderney at time of assessment.
  - Sark does not provide for incorporation of companies.
- Beneficial ownership measures for companies and LLPs:
  - Three measures to obtain, maintain, verify beneficial ownership information:
    - Requirement for a registered agent for majority of Guernsey companies to take reasonable steps to ascertain beneficial owners.
    - Requirement for majority of Bailiwick companies and limited partnerships to utilize a licensed TCSP subject to CDD obligations and supervision.
    - Obligation for all Bailiwick companies and limited partnerships to provide certain beneficial ownership information to the relevant registry and to update such information.
  - Legal obligation to maintain shareholder, director and partner registers and to file annual returns.
  - Investigative and other powers of LEAs and GFSC support access to information held by FSBs, TCSPs and others.
  - Conclusion: Bailiwick well positioned to ensure legal entities are transparent and that accurate, adequate and current beneficial ownership/control information is available to competent authorities.
- Trusts and legal arrangements:
  - Trust (Guernsey) Law 2007 governs trusts; trusts are not subject to registration or filing requirements.
  - Alderney and Sark law do not provide for creation of trusts.
  - With few exceptions, acting as trustee is a regulated activity subject to full AML/CFT requirements.
  - Concerns remain about availability of accurate and complete beneficial ownership information for trusts not administered by licensed TCSPs.
- NPOs and terrorism financing:
  - Registration regime established but does not apply to all charitable organizations.
  - Outreach and oversight limited; outreach not provided to entire sector and oversight limited to manumitted organizations administered by TCSPs.
  - Information on purpose/objectives and identities of owners/controllers/directors is not publicly available.
  - Sanctions for non-compliance with registration requirements are not effective and dissuasive.
  - Recommendations include requiring manumitted organizations to register, conducting outreach to entire NPO sector, making NPO purpose/ownership information publicly available, supervising all categories of NPOs, and strengthening sanctions for non-compliance.

### G. National and International Co-operation
- Domestic coordination:
  - Effective mechanisms and active policy coordination committee.
  - Regular consultation and coordination at policy and operational levels; ongoing development of a common vision and strategy.
- Mutual Legal Assistance (MLA) and extradition:
  - Legal framework for MLA and extradition is sound; majority of requests processed in a timely and constructive manner.
  - Bailiwick law allows provision of all types of assistance required by the Vienna and Palermo Conventions in ML, TF or predicate offense cases.
  - Provision of MLA not subject to unreasonable or unduly restrictive conditions; since 2007 majority of requests implemented efficiently and timely.
  - Both ML and TF are extraditable offenses; extradition regime managed by the U.K. under the U.K. Extradition Act 1989 with no extraditions on record under that Act.
- Cross-border operational cooperation:
  - Cross-border cooperation at FIS and police level significant; of STRs disseminated, some 60 percent have an overseas destination.
  - FIS and police take a constructive approach; consent to use supplied information for intelligence purposes has never been refused.

### H. Selected Key Assessor Recommendations (summary of ratings and selected measures)
- Legal System and Related Institutional Measures
  - Criminalization of Money Laundering (R.1): LC
    - Continue focusing on identifying ML crimes within the domestic financial sector.
    - Examine and address disconnect between ML investigations and prosecutions/convictions.
  - Criminalization of Terrorist Financing (SR.II): C
  - Confiscation, freezing, and seizing of proceeds (R.3): LC
    - Use confiscation provisions as financial sector criminal activity is addressed.
  - Freezing funds used for terrorist financing (SR.III): LC
    - Make explicit that designated persons do not receive prior notice of freeze actions.
    - Enhance monitoring of compliance with UN sanctions obligations.
  - The Financial Intelligence Unit and its functions (R.26): LC
    - Improve effectiveness of reporting system to support increased investigations and prosecutions.
  - Law enforcement, prosecution and other competent authorities (R.27): LC; (R.28): C
    - Increase number of investigations and prosecutions, particularly autonomous ML.
  - Cross Border Declaration or disclosure (SR IX): LC
    - Align mail cross-border cash declaration controls with Cash Controls Law 2007; amendments came into effect on July 2010 after the onsite visit.
- Preventive Measures — Financial Institutions
  - Customer due diligence (R.5): LC; (R.6): C; (R.7): C; (R.8): C
    - Expand list of higher-risk customers to include private banking and non-resident customers.
  - Third parties and introduced business (R.9): LC
    - Do not include lawyers and accountants in Guernsey, Jersey, Isle of Man and U.K. as Appendix C businesses until they have been subject to AML/CFT regulation and supervision for a sufficient period.
  - Internal controls, compliance, audit (R.15): LC; (R.22): C
    - Establish direct obligation for FSBs to maintain an adequately resourced and independent audit function.
  - Supervisory powers (R.17): LC; (R.23): C; (R.25): C; (R.29): LC
    - Review effectiveness of GFSC powers to impose financial sanctions for non-compliance.
- Preventive Measures — DNFBPs
  - Customer due diligence and record-keeping (R.12): PC
  - Legal profession, accountants, real estate agents:
    - Eliminate exemption for individuals who act as a director for six companies or less.
    - GFSC should identify legal arrangements and fiduciaries as high risk.
    - Remove ability to rely on introducers or intermediaries who are DNFBPs.

### I. eCasinos — Specific Recommendations (Section 3)
- Client identification and verification:
  - AGCC should require online verification software used by eCasinos to be combined with other client identification methods.
  - Enhance client identification measures for non-face-to-face transactions in eCasinos.
  - Ensure Category 1 eGambling licensees systematically review gambling transactions facilitated by Category 2 eGambling licensees to pay attention to complex and unusual transactions.
- Suspicious transaction reporting (R.16 — LC):
  - Ensure eCasino suspicious transaction detection mechanisms are appropriate to sector AML risk and effectively detect suspicious transactions.
  - Ensure AML/CFT training requirements apply to all eCasino employees, including training on money laundering techniques and CDD/reporting obligations.
- Regulation, supervision, monitoring, and sanctions (R.24 — LC; R.25 — LC):
  - Ensure police record checks are conducted systematically on key individuals seeking an eGambling license.
  - GFSC should increase frequency of on-site inspections for TCSPs.
  - AGCC should provide more guidance on AML requirements, particularly CDD.

### J. Other Ratings and Prescriptive Entries
- Legal Persons — Access to beneficial ownership information (R.33 — C): rating recorded.
- Legal Arrangements — Access to beneficial ownership information (R.34 — LC):
  - Put in place measures to ensure availability of accurate and complete beneficial ownership information for trusts and general partnerships not administered by licensed TCSPs.
- Nonprofit organizations (SR.VIII — PC):
  - Require manumitted organizations to register as NPOs.
  - Conduct outreach to entire NPO sector on TF risks.
  - Require public availability of NPO purpose/objectives and identities of persons who own, control or direct activities.
  - Supervise all categories of NPOs and strengthen sanctions for registration non-compliance.
- National cooperation (R.31 — C): rating recorded.
- The Conventions and UN Special Resolutions (R.35 — LC; SR.I — LC):
  - Work to resolve issues with the United Kingdom to request extension of ratification of the Palermo Convention to the Bailiwick.
  - Continue efforts to improve effective application of ML provisions and address disconnect between investigations and prosecutions.
- Mutual Legal Assistance (R.36 — LC; R.37 — C; R.38 — LC; SR.V — LC):
  - Prior to July 2010, the designation mechanism may have negatively affected MLA effectiveness; recent legislative amendments de facto eliminate the designation mechanism.
- Extradition (R.39 — C; R.37 — C; SR.V — C): ratings recorded.
- Other forms of cooperation (R.40 — C; SR.V — C): ratings recorded.
- Resources & Statistics (R.30 — C; R.32 — C): ratings recorded.

### K. Authorities’ Response and Developments
- Commitment and framework:
  - Bailiwick authorities committed to FATF Forty Recommendations and Nine Special Recommendations.
  - Authorities state the Bailiwick has a comprehensive AML/CFT legal framework and comprehensive coordination via the AML/CFT Advisory Committee.
  - Ongoing programme to review and enhance AML/CFT legislation, regulation, rules and guidance; monitor effectiveness and address shortcomings.
- Actions and outcomes since on-site visit:
  - First prosecution for autonomous money laundering has come to trial and the defendant convicted on nine different counts.
  - Further successful money laundering prosecution involving two counts of self-laundering.
  - Trend expected to continue with further successful prosecutions for self-laundering and autonomous money laundering anticipated.
  - A confiscation order of £268,556 has been made (biggest domestic confiscation to date) arising from a non-drug trafficking case.
  - Following successful prosecution for autonomous money laundering, an application will be made for a confiscation order in excess of £300,000.
  - First prosecution under cash controls legislation resulted in a £2,000 fine and confiscation of all the money involved (nearly £10,000) even though it was legitimately sourced.
- Legislative and guidance actions:
  - Designation requirement removed with effect from 28 July 2010.
  - Freezing and confiscation of terrorist assets: recommendations to be addressed in replacement legislation currently being drafted.
  - Further guidance provided to financial sector on freezing and confiscation of terrorist assets; Sanctions Committee to monitor effectiveness.
  - Several assessor recommendations will be considered in context of proposed revisions to the FATF Recommendations.

*Source: IMF Country Report No. 11/13 — Guernsey: Report on Observance of Standards and Codes—FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism (Sections 1–3, December 22, 2010).*

### Section 1

### _cr1113 - Section 1

### A. Introduction
- Report type: Report on the Observance of Standards and Codes for the FATF 40 Recommendations for Anti-Money Laundering (AML) and 9 Special Recommendations on Combating the Financing of Terrorism (CFT).
- Prepared by: Legal Department of the IMF.
- Assessment dates: mission from May 17, 2010 to June 1, 2010.
- Methodology: 2004 Assessment Methodology.
- Note: Views expressed are those of the assessment team and do not necessarily reflect the views of the Government of the Bailiwick of Guernsey or the Executive Board of the IMF.

### B. Key Findings
- General assessment:
  - Guernsey’s AML/CFT legal framework is comprehensive and provides a sound basis for an effective AML/CFT regime.
  - Most shortcomings identified are technical in nature; some deficiencies were addressed immediately after the onsite visit.
- Criminalization and asset measures:
  - Money laundering (ML) and the financing of terrorism (FT) are criminalized fully in line with the FATF standard.
  - The legal framework provides an ability to freeze and confiscate assets in appropriate circumstances.
  - As of the assessment date, there had been no prosecutions or convictions for terrorist financing.
  - Guernsey is able to freeze the assets of those covered by UN Security Council Resolutions 1267 and 1373 and successor regulations through administrative orders issued by the Attorney General.
- Financial Intelligence Unit (FIU) / Financial Intelligence Service (FIS):
  - The FIU is the Financial Intelligence Service (FIS), a law enforcement type FIU.
  - FIS primarily performs a pre-investigative and intermediary role before disseminating information domestically and to counterpart FIUs.
  - Separation exists between intelligence and investigative handling of suspicious transaction reports (STRs), enhancing transparency.
  - Dissemination rate of STRs ranges from 70 percent to 86 percent of the total number of STRs received.
  - Recommendation: FIS and other law enforcement agencies should endeavor to enhance performance in producing cases for investigation for money laundering activity, particularly as a stand-alone offense.
- Supervision and sanctions:
  - The Guernsey Financial Services Commission (GFSC) has established a risk-based approach to AML/CFT and adequate authority to supervise financial institutions, including money transfer systems.
  - Powers to sanction financial institutions for noncompliance, particularly the discretionary financial penalties regime, could be enhanced to ensure penalties are dissuasive and proportionate.
- DNFBPs and eCasinos:
  - Preventive measures for Designated Non-Financial Businesses and Professions (DNFBPs) mirror those for financial institutions; supervision and regulation conducted by GFSC except for eCasinos.
  - ECasinos are regulated and supervised by the Alderney Gambling Control Commission (AGCC).
  - Shortcomings in DNFBPs noted in: CDD, recordkeeping, non face-to-face transaction risks, licensing measures, and effectiveness in the eCasinos sector.
  - Concerns in legal framework for DNFBPs regarding exemptions and guidance to the sectors.
- Legal persons, trusts, and NPOs:
  - Legal persons incorporated in the Bailiwick: sound measures to ensure transparency and availability of accurate, adequate, and current beneficial ownership information to law enforcement and competent authorities.
  - Trusts are recognized and well established under Guernsey law but are not subject to any registration or filing requirements.
  - Most trusts require involvement of a regulated trustee who is subject to full AML/CFT requirements; for trusts not administered by a licensed TCSP, concerns remain about availability of accurate and complete beneficial ownership information.
  - A registration regime for NPOs exists but does not apply to all charitable organizations; information on purpose/objectives and identities of persons who own, control or direct activities is not publicly available.
  - Sanctions for noncompliance with NPO registration requirements are not effective and dissuasive.
- Coordination and international cooperation:
  - Effective mechanisms for coordination and cooperation among domestic AML/CFT stakeholders, including an active policy coordination committee.
  - Legal framework for mutual legal assistance (MLA) and extradition is sound; majority of requests processed in a timely and constructive manner.
  - Bailiwick law allows provision of all types of assistance required by the Vienna and Palermo Conventions in money laundering, terrorism financing or predicate offense cases.
  - Both money laundering and terrorism financing are extraditable offenses.
  - Guernsey extradition regime is still managed by the United Kingdom (U.K.) authorities by virtue of the U.K. Extradition Act 1989; no extraditions on record under that Act, but framework is comprehensive.
  - FIS and police cooperation: limited direct collection of financial information at intelligence level but cross-border cooperation at FIS and police level is an essential part of assignment; FIS and police have followed a constructive approach to serious requests and consent to use supplied information for intelligence purposes has never been refused.

### C. Legal Systems and Related Institutional Measures
- Money laundering provisions:
  - Approach: two-strand approach differentiating between drug trafficking offenses and all other predicate offenses.
  - ML is criminalized fully in line with international standard; Bailiwick is party to the Vienna but not to the Palermo Convention.
  - All categories of predicate offences listed in the international standard are covered.
  - ML offenses extend to any type of property representing proceeds of crime; acts constituting ML or ancillary offenses are criminalized in line with international standard.
  - Mens rea: varies depending on specific ML offense; at a minimum, criminal liability where a person acted intentionally and with knowledge that property stems from a criminal source; intent may be inferred from objective factual circumstances based on English common law principle.
  - Criminal liability extends to legal persons.
  - Implementation concerns: modest number of ML cases investigated relative to Bailiwick’s financial sector size; disconnect between investigated cases and prosecutions/convictions raises questions on effectiveness of application.
- Financing of terrorism provisions:
  - Guernsey is party to the International Convention for the Suppression of the Financing of Terrorism and has criminalized terrorism financing fully in line with international standard.
  - Terrorism law and Terrorism (United Nations Measures) (Channel Islands) Order 2001 allow prosecution for collection of funds with unlawful intention or knowledge that funds will be used in full or in part for a terrorist act, by a terrorist organization or individual terrorist.
  - As of on-site visit, no prosecutions or convictions for terrorist financing.
- Confiscation:
  - Comprehensive legal framework exists to identify, freeze, seize and confiscate criminal assets.
  - Recommendation: as additional financial sector money laundering and predicate activity is detected, legal provisions should be used to secure and confiscate proceeds.
- Freezing of funds and UNSCRs:
  - Legal framework and procedures for implementing UNSCRs 1267 and 1373 are largely sufficient.
  - Recommendation: legal framework should more clearly reflect that designated persons are not to receive prior notice of freezing actions.
- Financial Intelligence Unit (FIS) details:
  - FIS officially designated by law on May 17, 2010; long-standing practice of channeling all STRs to FIS as subdivision within the Financial Investigation Unit of the Customs and Immigration Service was formally recognized.
  - FIS dissemination rate: 70 percent to 86 percent of STRs received.
  - Access to information:
    - FIS has access to a range of law enforcement, administrative and commercial information but makes little use of administrative sources.
    - Direct access to financial information is quite restricted: legal permission exists to query reporting entity for complementary information and to request supervisory authorities for information in their possession; access to additional financial information requires a court order.
  - International cooperation: FIS is active internationally and systematically shares information with counterpart FIUs for intelligence purposes.
  - Performance and challenges:
    - FIS adequately performs its role and has developed trust with the financial sector.
    - System geared to ensure STRs are appropriately handled; clear separation between intelligence and investigative sides enhances transparency.
    - Recommendation: FIS should enhance performance in generating cases for investigation for ML as a stand-alone offense.
    - System predominantly focused on local predicate criminality and related ML; challenge remains to investigate and prosecute foreign-predicated ML as an autonomous offense using evidence gathered domestically.
  - Law enforcement and judicial capacity:
    - Law enforcement authorities are adequately resourced and trained with sufficient legal tools to conduct ML investigations, but results remain modest.
    - Emphasis placed on making information available to overseas agencies is commendable but carries risk of overreliance on foreign law enforcement while ML activity continues locally.
    - Judicial progress: pending autonomous ML case evidences progress; recommendation that judicial authorities further develop expertise and case law on stand-alone ML based on domestic evidence.
  - Cross-border cash controls:
    - Cash Controls Law 2007 aligned Bailiwick with European Community Regulation 1889/2005, covering physical and freight cross-border cash transportation.
    - Controls effectively implemented with frequent declarations and STRs filed by the Post Office resulting in a sizable amount seized and confiscated.
    - Mail cash transport: recent corrective action taken to bring mail declaration system in line with cash importation regime by freight.

### D. Preventive Measures – Financial Institutions
- Legislative framework:
  - Primary foundation: Proceeds of Crime (Bailiwick of Guernsey) (POC) Law 1999.
  - Specific requirements in secondary legislation: Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007 (FSB Regulations).
  - Supplemented by GFSC Handbook issued in 2007 which includes other enforceable means (OEM) and guidance.
  - 2007 updating followed extensive industry consultations to address international standard requirements.
- Customer Due Diligence (CDD) and preventive measures:
  - GFSC risk-based approach addresses a vast majority of CDD elements of the international standards; shortcomings mainly technical.
  - Requirements:
    - Customers and beneficial owners required to be identified in all cases.
    - Detailed requirements apply to legal entities and trusts.
    - Enhanced due diligence required for higher risk customers, including politically exposed persons (PEPs).
    - Records of customer identification must be kept up-to-date.
    - All documentation, including transactions and customer information, must be retained for at least five years.
    - Suspicious activity effectively required to be reported to the FIU.
- Financial secrecy and transaction monitoring:
  - No legal impediments to implementation of FATF Recommendations regarding financial secrecy.
  - Mechanisms exist for confidentiality of financial information and access by competent authorities.
  - Financial institutions required to pay special attention to complex, unusual large transactions and unusual patterns of transactions with no apparent lawful purpose, and to business relations/transactions from countries which do not follow or insufficiently apply FATF Recommendations.
- Reporting:
  - All categories of financial institutions appear to be reporting suspicious transactions.

*Source: IMF Country Report No. 11/13 — Guernsey: Report on Observance of Standards and Codes—FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism (Section 1, December 22, 2010).*

### Section 2

### Section 2

### Preventive Measures — Financial Institutions: Findings and Issues
- Laws providing legal protection for those filing were recently amended to be limited to those acting in good faith and the tipping-off offence was also amended to eliminate any technical noncompliance with the international standard.
- Financial institutions are required to establish internal programs and controls to implement the requirements of the AML/CFT laws, regulations, and rules; however, there is no requirement for maintaining an adequately resourced and independent audit function in financial institutions.
- Measures to prevent the establishment of shell banks and to prevent financial institutions from dealing with shell banks are adequate.
- The GFSC has been given adequate authority and powers to supervise financial institutions, including money transfer systems, and ensure compliance with existing AML/CFT laws, regulations, and rules.
- At the time of the visit, inspections of AML/CFT matters were risk-based and considered adequate in scope.
- As a result of inspections, some financial institutions were required to implement remedial measures, including:
  - bringing their CDD information (including on beneficial owners) into line with the latest requirements;
  - improving their internal control systems;
  - providing additional training.
- The GFSC has adequate powers to sanction financial institutions for noncompliance and has used these powers on numerous occasions; however, the discretionary financial penalties available to the GFSC are not considered dissuasive and proportionate.
  - The GFSC can only impose fines for up to £200,000; which is considered too low, for violations of any provisions of the prescribed laws.
- Authorities need to exercise additional oversight to further strengthen the existing regime, particularly in certain aspects related to CDD.
  - Authorities need to expand the list of higher-risk customers to which enhanced due diligence must be applied and consider including private banking and non-resident customers.
  - Authorities should not permit reliance on attorneys and accountants from the United Kingdom and other Channel Islands as introducers, until they have been subject to AML/CFT regulations, and supervised for compliance, for a greater period of time.

### Preventive Measures — Designated Non-Financial Businesses and Professions (DNFBPs)
- Legal and regulatory framework:
  - Preventive measures for lawyers, accountants and estate agents are outlined in the Proceeds of Crime (Bailiwick of Guernsey) (POC) Law, 1999.
  - Specific requirements are set out in the Criminal Justice (Proceeds of Crime) (Legal Professionals, Accountants and Estate Agents) Regulations, 2008 (PB Regulations).
  - A Handbook issued by the GFSC in 2008 includes further requirements–which qualify as other enforceable means.
  - Requirements for eCasinos are outlined in the Alderney eGambling Ordinance, 1999 and supported by the Alderney eGambling Regulations, 2009.
  - Trust Company and Service Providers (TCSPs) and bullion dealers have the same requirements as financial services businesses.
- Supervisory responsibilities:
  - The Guernsey Financial Services Commission (GFSC) is responsible for supervising lawyers, accountants, estate agents, TCSPs and bullion dealers.
  - The Alderney Gambling Control Commission (AGCC) supervises eCasinos.
- Implementation and effectiveness:
  - Substantial efforts have been made in implementing preventative measures for all DNFBPs.
  - Risks in the eCasino sectors are not fully mitigated and some shortcomings exist in the implementation of preventative measures for DNFBPs supervised by the GFSC.
- Customer due diligence and record-keeping:
  - CDD measures are applied to all customers and beneficial owners.
  - Detailed requirements apply to legal entities and TCSPs.
  - On-going due diligence is conducted on on-going business relationships.
  - Enhanced due diligence is conducted for higher risk categories including PEPs.
  - Records of customer identification are kept up to date and all documentation is retained for at least five years.
- Identified shortcomings:
  - On-line verification methods used by eCasinos are not sufficiently reliable.
  - Requirements to mitigate the risk associated with non-face-to-face transactions in the eCasinos sector are not in line with the standard.
  - Not all eCasinos have effectively implemented the requirement to pay special attention to complex and unusual transactions.
  - Statutory/exemptions issues:
    - The exemption for individuals who act as a director for six companies or less is not in line with the standard.
    - The exemption for accountants from CDD requirements on existing customers is defined too broadly.
    - Lawyers, accountants and estate agents are not required to determine potential customers are PEPs.
    - Guidance provided by the GFSC on low and high risk jurisdictions is contradictory.
    - The GFSC has not identified legal arrangements and TCSPs as high risk.
    - Reliance should not be placed on introducers or intermediaries who are DNFBPs.
- STR reporting and internal controls:
  - Entities are required to report STRs to the FIU including attempted transactions.
  - Adequate protections exist for STR reporting and tipping off.
  - Entities are required to establish and maintain internal procedures to prevent ML and TF; policies and procedures are tested; compliance officers must be appointed and screening procedures are in place when hiring employees.
  - Improvements suggested:
    - The number of reports submitted by the eCasinos sector could be increased to better reflect the ML risk and the size of the industry.
    - eCasinos should provide training to all their employees.
- Supervisory capacity and gaps:
  - The GFSC and the AGCC have the necessary powers and authority to supervise the DNFBP sector.
  - Both commissions have implemented robust supervisory programs that, with one exception, have the necessary resources to provide comprehensive oversight of the DNFBP sectors including the necessary sanctions and penalties to address non-compliance.
  - Guidance issued by the commissions receives positive feedback from industry.
  - The AGCC conducts extensive criminal background checks on individuals seeking an eGambling license but the absence of consistent police record checks creates a risk that the industry may be infiltrated by criminals.
  - Resources dedicated to the supervision of TCSPs should be increased to address the reduced number of examinations in this high risk sector.

### Legal Persons and Arrangements; Non-Profit Organizations (NPOs)
- Legal persons:
  - Guernsey and Alderney laws allow incorporation of limited, unlimited or mixed liability companies as well as limited liability partnerships (LLPs), subject to registration with the Guernsey or Alderney companies registries.
  - More than 18,000 companies were registered in Guernsey and 530 in Alderney at the time of the assessment.
  - Sark does not provide for the incorporation of companies on the island.
- Beneficial ownership measures for companies and LLPs:
  - The Bailiwick has three measures in place to obtain, maintain, and verify beneficial ownership information for companies and LLPs:
    - For the majority of Guernsey companies, the requirement to have a registered agent, who in turn has an obligation to “take reasonable steps” to ascertain the identity of persons who are beneficial owners of the company.
    - For the majority of Bailiwick companies (Guernsey and Alderney) and limited partnerships, the requirement to utilize a licensed Trust and Company Service Provider (TCSP), who in turn is subject to and in most cases supervised for compliance with the CDD obligations under the AML/CFT regime.
    - For all Bailiwick companies (Guernsey and Alderney) and limited partnerships, the obligation to provide certain beneficial ownership information to the relevant registry (Alderney companies registry, Guernsey company registry or Guernsey partnership registry) and to update such information.
  - All Bailiwick companies (Guernsey and Alderney) and limited partnerships have a legal obligation to maintain shareholder, director and partner registers and to file annual returns with the Alderney and Guernsey Company Registrars.
  - Investigative and other powers of LEAs and the GFSC support access to information held by FSBs, TCSPs and other entities and persons.
  - Conclusion: measures put the Bailiwick in a very strong position to ensure legal entities are transparent and that accurate, adequate and current information concerning beneficial ownership and control of all legal persons is available to law enforcement and other competent authorities.
- Trusts and legal arrangements:
  - Trusts have been recognized under Guernsey law for many years; the Trust (Guernsey) Law 2007 is the main piece of legislation governing such legal arrangements.
  - No statistics are maintained on the number of Guernsey trust arrangements or the volume of trust assets administered in Guernsey.
  - Alderney and Sark law do not provide for the creation of trusts.
  - Trusts are not subject to any registration or filing requirements.
  - With few exceptions, acting as a trustee is a regulated activity and is subject to the full range of AML/CFT requirements, including obligation to identify and verify the identity of beneficial owners and to keep such information complete, accurate and updated.
  - Concerns remain with respect to availability of accurate and complete beneficial ownership information for trust arrangements that are not administered by a licensed TCSP.
- Non-Profit Organizations (NPOs) and terrorism financing:
  - Substantive efforts have been made to mitigate TF risks associated with NPOs although changes are required to enhance effectiveness.
  - A registration regime for NPOs has been established although it does not apply to all charitable organizations.
  - Information exchange mechanisms both domestically and internationally are robust and authorities have capacity to undertake investigations relating to terrorism financing and NPOs.
  - Outreach and oversight efforts have been made but outreach was not provided to the entire sector and oversight has been limited to manumitted organizations administered by TSCPs.
  - Information on the purpose and objectives of NPOs and the identity of the persons who own, control or direct their activities is not publicly available.
  - Sanctions for non-compliance with registration requirements are not effective and dissuasive.

### National and International Co-operation
- Domestic coordination:
  - Guernsey has effective mechanisms for coordination and cooperation among all domestic AML/CFT stakeholders including an active policy coordination committee.
  - Regular consultation and coordination on both policy and operational levels exists, with ongoing development and refinement of a common vision and strategy including regular internal assessments against the strategy.
- Mutual Legal Assistance (MLA) and extradition:
  - The legal framework for mutual legal assistance (MLA) and extradition is sound and the majority of requests seem to be processed in a timely and constructive manner.
  - Bailiwick law allows provision of all types of assistance as required by the Vienna and Palermo Conventions in money laundering, terrorism financing or predicate offense cases.
  - The provision of MLA is not subject to any unreasonable, disproportionate or unduly restrictive conditions and statistics indicate that since 2007 the majority of requests have been implemented in an efficient and timely manner.
  - Both money laundering and terrorism financing are extraditable offenses.
  - The Guernsey extradition regime is still managed by the U.K. authorities by virtue of the U.K. Extradition Act 1989, the Bailiwick being only marginally involved in the process. No extraditions are on record under that Act, but formally the legal framework is comprehensive and solid.
- Cross-border operational cooperation:
  - Cross-border cooperation at FIS and police level constitutes a primordial part of their assignment, as shown by relatively high volume of information exchange traffic.
  - Of the STRs disseminated, some 60 percent have an overseas destination.
  - The FIS and police follow a constructive approach to all serious requests and consent to use the supplied information for intelligence purposes has never been refused.

### Summary Table — Key Assessor Recommendations (selected entries)
- Legal System and Related Institutional Measures
  - Criminalization of Money Laundering (R.1): LC
    - Authorities should continue to focus attention on identifying ML crimes within the domestic financial sector.
    - Authorities should further examine the underlying reasons for the disconnect between the number of ML investigations vis-à-vis the number of ML prosecutions and convictions and take measures to overcome any identified obstacles.
  - Criminalization of Terrorist Financing (SR.II): C
  - Confiscation, freezing, and seizing of proceeds of crime (R.3): LC
    - As authorities increase their efforts to use their robust framework more effectively by addressing more financial sector criminal activity, confiscation provisions also should be used in such matters.
  - Freezing of funds used for terrorist financing (SR.III): LC
    - It should be explicit that designated persons do not receive prior notice of a freeze action.
    - The recent efforts of the GFSC in the public information sphere to clarify the relevance of referenced lists and to emphasize the obligation of financial sector and other participants to locate and screen for funds and, irrespective of the STR process, not to make funds available should continue.
    - Authorities should enhance the monitoring of compliance with legislation, rules, and regulations relevant to the UN sanctions obligations.
  - The Financial Intelligence Unit and its functions (R.26): LC
    - The FIU/FIS should implement steps to improve the effectiveness of the reporting system to support an increase in the number of investigations and prosecutions.
  - Law enforcement, prosecution and other competent authorities (R.27): LC; (R.28): C
    - Authorities should implement steps to improve effectiveness by seeking to increase the number of investigations and prosecutions, particularly on autonomous money laundering.
  - Cross Border Declaration or disclosure (SR IX): LC
    - Legislative steps need to be taken to align the cross-border cash declaration control related to mail with the comprehensive approach of Cash Controls Law 2007, particularly in relation to the authority to enquire, the temporary restraint measures, and the adequate and uniform level of sanctions. Amendments came into effect on July 2010 – after the onsite visit.
    - From an effectiveness perspective, it is recommended to adapt a uniform approach for all cross-border cash transportations.
- Preventive Measures: Financial Institutions
  - Customer due diligence, including enhanced or reduced measures (R.5): LC; (R.6): C; (R.7): C; (R.8): C
    - Authorities should expand the list of higher-risk customers to which enhanced due diligence must be applied and consider including private banking and non-resident customers.
  - Third parties and introduced business (R.9): LC
    - Authorities should not include lawyers and accountants in Guernsey, Jersey, the Isle of Man and the United Kingdom as Appendix C businesses, as they have not been subject to, nor supervised for compliance with, AML/CFT regulation and supervision for a sufficient period.
  - Internal controls, compliance, audit and foreign branches (R.15): LC; (R.22): C
    - Authorities should establish a direct obligation for FSB maintain an adequately resourced and independent audit function to test compliance with the AML/CFT policies, procedures, and controls.
  - Supervisory and oversight system — effectiveness of powers (R.17): LC; (R.23): C; (R.25): C; (R.29): LC
    - The effectiveness of the powers of the GFSC to impose financial sanctions for non-compliance should be reviewed.
- Preventive Measures: Non-Financial Businesses and Professions
  - Customer due diligence and record-keeping (R.12): PC
  - Legal profession, accountants and real estate agents — recommendations:
    - Authorities should eliminate the exemption for individuals who act as a director for six companies or less.
    - The GFSC should identify legal arrangements and fiduciaries as high risk given their vulnerability to money laundering and their prevalence in the Bailiwick.
    - Authorities should remove the ability to rely on introducers or intermediaries who are DNFBPs.

*Source: _cr1113 - Section 2*

### Section 3

### _cr1113 - Section 3

### eCasinos
- The AGCC should establish a legislative or regulatory obligation requiring that on-line verification software used by eCasinos for client identification purposes to be combined with other client identification methods to enhance the reliability of customer identification.
- The authorities should enhance client identification measures for eCasinos to mitigate against the risk associated with non-face-to-face transactions and the imprecise findings resulting from on-line verification methods.
- The authorities should ensure that Category 1 eGambling licensees effectively implement the requirement to pay special attention to complex and unusual transactions by systematically reviewing gambling transactions facilitated by Category 2 eGambling licensees.

### Suspicious transaction reporting (R.16 — LC)
- The authorities should ensure that eCasinos suspicious transactions detection mechanisms are appropriate to the AML risk level of the sector and effectively detect suspicious transactions.
- The authorities should ensure that AML/CFT training requirements apply to all eCasino employees and specifically require training on money laundering techniques or employee obligations regarding CDD and reporting.

### Regulation, supervision, monitoring, and sanctions (R.24 — LC; R.25 — LC)
- The authorities should ensure that police record checks are conducted systematically on key individuals seeking an eGambling license.
- The GFSC should, as it has recognized, increase the frequency of its on-site inspections for TCSPs.
- The AGCC should provide more guidance with respect to AML requirements particularly in the area of customer due diligence.

### Other designated non-financial businesses and professions (R.20 — C)
- (No additional measures specified in this section beyond the rating.)

### Legal Persons and Arrangements & Nonprofit Organizations
- Legal Persons–Access to beneficial ownership and control information (R.33 — C): (rating recorded; no further prescriptive text in this extract.)
- Legal Arrangements–Access to beneficial ownership and control information (R.34 — LC):
  - The authorities should put in place specific measures to ensure the availability of accurate and complete beneficial ownership information for trusts and general partnerships that are not administered by licensed TCSPs is available.
- Nonprofit organizations (SR.VIII — PC):
  - The authorities should require manumitted organizations to register as NPOs.
  - The authorities should conduct outreach to the entire NPO sector focused on the raising awareness of the risks of terrorist abuse.
  - The authorities should require information on the purpose and objectives of the NPO and the identity of the persons who own, control or direct their activities to be made publicly available.
  - The authorities should undertake supervision of all categories of NPOs.
  - The authorities should strengthen the sanctions regime for non-compliance with registration requirements to ensure its effectiveness and dissuasiveness.

### National and International Cooperation
- National cooperation and coordination (R.31 — C): (rating recorded; no further prescriptive text in this extract.)
- The Conventions and UN Special Resolutions (R.35 — LC; SR.I — LC):
  - The Bailiwick should work to resolve issues with the United Kingdom in order to be in a position to request an extension of the ratification of the Palermo Convention to it.
  - The authorities should continue efforts to improve the effective application of the ML provisions with the development of cases involving financial sector participants, and by addressing the disconnect between the number of ML cases investigated versus the cases prosecuted and eventually resulting in a conviction.
- Mutual Legal Assistance (R.36 — LC; R.37 — C; R.38 — LC; SR.V — LC):
  - While the recent legislative amendments de facto eliminate the designation mechanism and thus any concern on this point for future cases, prior to July 2010 the designation mechanism may have had a negative impact on the overall effectiveness of Guernsey’s MLA framework.
- Extradition (R.39 — C; R.37 — C; SR.V — C): (ratings recorded.)
- Other Forms of Cooperation (R.40 — C; SR.V — C): (ratings recorded.)

### Other Issues: Resources & Statistics (R.30 — C; R.32 — C)
- (Ratings recorded; no additional prescriptive text in this extract.)

### Authorities’ Response
- The Bailiwick authorities are fully committed to meeting the standards set by the FATF Forty Recommendations on Money Laundering and the Nine Special Recommendations.
- The Bailiwick of Guernsey has a comprehensive AML/CFT legal framework and this framework provides a sound basis for an effective AML/CFT regime.
- There is comprehensive co-ordination and co-operation between the AML/CFT authorities in the Bailiwick, evidenced by the effectiveness of the AML/CFT Advisory Committee.
- The Bailiwick will continue to place a very high priority on co-operation, co-ordination and information exchange with authorities both locally and in other jurisdictions.
- The Bailiwick has an on-going programme to review and enhance AML/CFT legislation, regulation, rules and guidance; monitor effectiveness of compliance with the AML/CFT regime; and address identified shortcomings.
- The recommendations made by the IMF have been, and will continue to be, taken seriously. Work on addressing the shortcomings began as soon as the IMF evaluation team left the Bailiwick.
- Most of the recommendations made by the assessors are technical in nature, with some relating to the improvement of implementation of legislation. Even since the on-site element of the IMF’s evaluation, steps taken by the Bailiwick’s AML/CFT authorities over several years have produced enhanced results.
- Criminal enforcement and confiscation developments reported by the authorities:
  - The first prosecution for autonomous money laundering has come to trial and the defendant has been convicted on nine different counts.
  - There has been a further successful money laundering prosecution involving two counts of self-laundering.
  - This trend is expected to continue, with further successful money laundering prosecutions for both self laundering and autonomous money laundering anticipated.
  - Since the on-site element of the IMF’s evaluation a confiscation order in the sum of £268,556 has been made. This is the biggest domestic confiscation order made to date and arose from a non-drug trafficking case.
  - Following the successful prosecution for autonomous money laundering, an application will be made for a confiscation order in excess of £300,000.
  - The first prosecution under the cash controls legislation resulted in a £2,000 fine and confiscation of all the money involved (nearly £10,000) even though it was legitimately sourced.
- Legislative and guidance actions:
  - The designation requirement was removed with effect from 28 July 2010.
  - Recommendations to enhance the requirements for the freezing and confiscation of terrorist assets will be addressed in the legislation which is being drafted to replace the current framework.
  - Further guidance has been provided to the financial sector in respect of the freezing and confiscation of terrorist assets and the Sanctions Committee will continue to monitor its effectiveness.
  - Several of the assessors’ recommendations will be considered in the context of the proposed revisions to the FATF Recommendations.

*Source: _cr1113 - Section 3*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr1113.pdf_