S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

S tephen Baker 

Barrister at Law 

Senior Legal Adviser

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Money Launder ingLocal Risks

• Internal Threats• Reputational Damage

• How to Protect Your Business.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Major Local Risk

• Handling the proceeds of serious financial crime

• Nature of the Island’s business means that there isalmost invariably an international dimension

• The major local risk is the handling of theproceeds of serious crime committed abroad.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

How is serious financialcrime investigated?

• Investigated by the Attorney General

• Expert barristers• Forensic accountants• Police

• Investigation of Fraud (Jersey) Law 1991.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Local / Internal Risks

•Deliberate criminality•A rogue employee

•Systemic failures / incompetence•Not realising that you are handling theproceeds of crime when you should havedone.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Deliberate CriminalityA bad apple in the barrel

• A rogue employee

• Trusted colleague• Respectable person• Nobody can believe it.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Case studies

Timothy John Nelson

• Late 30s

• Respectable

• Director

• Trusted colleague

• Nobody couldbelieve it

• Manipulatingcompany accountsfor eight years

• Lied to colleagues

• Bankrupted company.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

But it couldn’t happen in amajor financial institution

• Nick Leeson

• Barings Bank

• Trusted

• Successful

• Respected

• Manipulated bankrecords

• Bankrupted bank

• Nobody could believeit

• But it won’t happenagain

• Allied Irish Bank.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Christine Donnelly

• Trust member of staff• Working in finance industry

• Respected• Stole hundreds of thousands of pounds from

employer

• Financing heroin habit.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Maria Culkin

• Employed as trust administrator in local trustcompany

• Trusted

• Honest

• Outside work environment:

  - living with drugs trafficker

- pleads guilty to money laundering offences (not connected to her employment).

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Risks of bad apple

• Employer is the victim of dishonesty orother criminal conduct

• Employer may be victim in one of twoways:

  (i) direct financial loser  (ii) the employer’s bank accounts are mis-

used to launder the proceeds of crime.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Is that as bad as it can get?

No!

Worst case: because the employee is thecontrolling mind of the company, theemployer is prosecuted.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Consequences of risk

• Damage to reputation• Loss of customers

• Legal costs• Regulatory action• Risk of becoming the subject of the

investigation• Risk of prosecution.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Case Study

• Bank Cantrade

 

• Robert Young

 

• Academic

• Doctor ofeconometrics

 

• Respectable

 

• Dishonest.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Consequences to bank

• Criminal convictionbecause of behaviourof senior manager

 

• £3 million fine

• Costs

 

• Reputational damage

 

• Civil Liability.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Systems failures /Incompetence

Risk 

• Weak systems / incompetence leads to thelaundering of the proceeds of serious crime.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Consequences• Damage to reputation• Loss of customers• Legal costs• Regulatory action• Civil liability• Risk of becoming the subject of the investigation• Risk of prosecution• Dragged into a vast time-consuming costly

litigation.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Protection against internalthreats

Two limbs : 

Deliberate wrongdoing 

Systems failure / Incompetence

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Deliberate Wrongdoing

• Controls• Structure• Segregation of duties• Clear definition of roles and responsibilities• Dual signatories• A genuine control or a rubber stamp?• No one employee should have too much power• Proper supervision.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Case Study

A Jersey financial institution employed a man. Theyhad a copy of his curriculum vitae. It was animpressive document. He had a degree in Law fromthe University of Salford. He had many otherqualifications. The CV had never been checked.When the Registrar of Salford University wascontacted by those conducting a criminalinvestigation, it turned out that Salford did not offera Law Degree. A simple check would haveprevented this man being employed.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Systems Failures /Incompetence

i) Know the Law

ii) Fulfil, at the very least, the minimumrequirements of the money launderingorder and guidance notes. Ideally meetbest practice.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Knowing the Law

• What are the proceeds of crime? • Proceeds of Crime (Jersey) Law, 1999,

Article 1 • “Proceeds of criminal conduct”, in relation

to any person who has benefited fromcriminal conduct, means that benefit;”

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

• “Criminal conduct” means conduct, whetheroccurring before or after Article 3 comes intoforce, that -

 • (a) . . . , or • (b) if it occurs or has occurred outside the Island,

would have constituted such an offence ifoccurring in the Island;”

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

• It does not matter that the conduct may not haveconstituted a crime in the country where theconduct occurred

 • What matters is whether the conduct would have

constituted a crime in Jersey • The relevant conduct is transposed to Jersey.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Fulfil the requirements ofthe Money Laundering

Order• Article 37 of the Proceeds of Crime (Jersey) Law

1999 makes it a crime to act in breach of theMoney Laundering Order

 • The sentence for a body corporate is an unlimited

fine • For an individual, the sentence is two years

imprisonment.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

• Article 37 : • “(5) Where an offence under paragraph (4) by a body

corporate is proved - • (a) to have been committed with the consent or

connivance of; or • (b) to be attributable to any neglect on the part of, 

a director, manager, secretary or other similar officerof the body corporate or any person who was purporting toact in any such capacity he, as well as the body corporate,

shall be guilty of that offence and shall be liable to beproceeded against and punished accordingly.”

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

The Risks

• The risks are high. Institutions are at risk ofprosecution for breach of the MoneyLaundering Order

 • The potential consequences for an

individual are loss of liberty and loss oflivelihood.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Protecting the Business

• Invest in time training staff in Money LaunderingProcedures

• Monitor the criminal and civil litigation whichtakes place in Jersey. What can be learned?

• Monitor World Events

• Assess the risks

• Aim for best practice not minimum standards.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

Case Study - Bank Cantrade

• A junior member of staff knew there was a fraudbeing committed. He told his senior managers.His warnings were ignored. Consider a similarsituation relating to money laundering

• A junior member of staff tells a senior member “Ithink these funds are the proceeds of crime”.

• Can that warning be ignored?• Look at the consequences.• All staff must be trained in how to respond to such

warnings.

S t a t e s o f J e r s e y L a w O f f i c e r s ’ D e p a r t m e n t

S tephen Baker 

Barrister at Law 

Senior Legal Adviser