We can’t go on together with suspicious minds

Following the issuance of the Bailiwick of Guernsey Consent Regime (the Guidance) by the FIU in April 2023, the role of Money Laundering Reporting Officer (MLRO) has become increasingly challenging.

Filing a SAR

An MLRO is obligated to file a Suspicious Activity Report (SAR) where they think there is a more than fanciful possibility, that relevant facts exist. These facts are that another person:

• is engaged in money laundering or holds proceeds of criminal conduct;
• is engaged in terrorist financing or holds the proceeds of terrorist property; or
• is engaged in or holds the proceeds of the proliferation of weapons of mass destruction.

The “more than fanciful possibility” is an extremely low and entirely subjective threshold for reporting and is combined with the threat of criminal prosecution for failing to submit a SAR when an MLRO had or reasonably should have had knowledge or suspicion that an individual is holding the proceeds of criminal or terrorist activity.  Understandably, this tends (anecdotally at least) to result in MLROs choosing to report.

Previously, reporting of such minor suspicions would be negated by the FIU carrying out their own investigation and making a determination as to whether the funds are in fact the proceeds of criminal activity. The Guidance shows that this appears to have changed under the Consent Regime.

The Consent Regime

When a SAR has been filed, if the Reporting Entity is asked to conceal, convert, transfer or remove funds, the MLRO must seek consent from the FIU before carrying out that act.

Whilst previously, a risk-based approach had been adopted when considering consent requests, the approach now taken is limited to the FIU granting consent only where there is an identified interest to law enforcement to do so.

Examples of an identified interest to law enforcement provided in the Guidance are:

• To preserve the value of assets;
• The payment of legitimate fees;
• To protect undercover operations from discovery; and
• To enable funds to be traced as part of an investigation.

This limitation leaves MLROs in a difficult position whereby they are required to report all suspicions but are unable to alleviate minor suspicions by asking the FIU to carry out an independent consideration. The result is an effective temporary freezing of funds through a refusal of consent that in no way reflects whether the funds are the proceeds of criminal conduct.

Under the Consent Regime, the FIU will either refuse consent or provide a letter confirming consent has been granted, providing a defence to a money laundering/ terrorist financing offence in carrying out the action.

What if Consent is refused?

If consent is refused, the MLRO has no statutory defence in proceeding to carry out the action that has been asked by their client and may face a charge of money laundering or terrorist financing should they do so.

Whilst a refusal of consent does not mean that the funds are the proceeds of criminal conduct, the threat of prosecution if they are wrong means that MLROs are unlikely to take the risk.

What if Consent is granted?

Whilst a letter of consent will provide protection from a money laundering/ terrorist financing offence, it does not imply FIU approval of the proposed action, confirm whether the funds are or are not the proceeds of criminal conduct or provide a defence against other criminal offences or regulatory breaches related to carrying out the action.

It does not, in effect mandate the carrying out of the activity. However, in practice, it would be difficult to justify a failure to carry out the activity once consent has been granted.

Tipping Off

It is an offence to inform a client or customer that a SAR has been or is going to be submitted.

This does not prevent the making of appropriate enquiries in an attempt to negate suspicion.

How can we help?

Robin Gist, Alison Antill and Charlotte Tomlinson regularly advise those impacted by the Consent Regime in Guernsey.

Should you have any queries or require further assistance please contact Robin, Alison, Charlotte or your usual contact at Ferbrache & Farrell.