Ethics and governance in the European Financial centers

To ensure the sustainability of the financial center, Governing authorities must be aware of the changes to the geopolitics and the geoeconomics : we live at a time of transparence and governance with various programs (OECD, World Bank...).

Governing authorities must ask questions and accept questions especially on compliance issues. They must tighten up the ship on issues all the more than there are alternative financial centers for investors and head offices of banks. Otherwise they weaken their international credibility.

The failure to ask or to answer questions allows these authorities (either political or professional) to operate with a distorted sense of reality. In fact, Finkelstein calls companies that are unable to question their prevailing view of reality zombies. A zombie company, he says, is “a walking corpse that just doesn’t yet know that it’s dead—because this company has created an insulated culture that systematically excludes any information that could contradict its reigning picture of reality”.

This is true as well for a financial center.

Some are aware of that. For example, Marcus Killick (Chairman and Commissioner, Gibraltar Financial Services Commission) : "Our stakeholders have a right to criticise not merely our actions but the culture an methodology that underlies them. More importantly, we believe, by understanding our approach, our actions become, in themselves, clearer and therefore more transparent." he wrote.

Other refuse and may be contemptuous enough to put on the black list mails from senders that contradict their reigning picture of reality : For example I received the message "501 5.7.1 This system is not configured to relay mail from " from an official representative body for the investment fund industry that moreover had previously never replied to my questions about public breaches of the code of ethics (that is no longer online).



To go further

Zombie Businesses: How to Learn from Their Mistakes
Reputation: Riks of risks

Bibliography

Finkelstein, Sydney. "Zombie Businesses: How to Learn from Their Mistakes" Leader to Leader. 32 (Spring 2004), pp 29-35.

Finkelstein, Sydney, Why Smart Executives Fail: And What You Can Learn from Their Mistakes. Portfolio Hardcover, 2003 ; and the translation in French : Finkelstein (S.), Quand les grands patrons se plantent . Paris, Editions d’Organisation, 2004.

In the late 1980s and early '90s, Harvard-educated economist Franklin Jurado ran an operation to launder money for Columbian drug lord Jose Santacruz-Londono. His was a very complex scheme. In its simplest form, the operation went something like this:

Placement: Jurado deposited cash from U.S. drug sales in Panama bank accounts.
Layering: He then transferred the money from Panama to more than 100 bank accounts in 68 banks in nine countries in Europe, always in transactions under $10,000 to avoid suspicion. The bank accounts were in made-up names and names of Santacruz-Londono's mistresses and family members. Jurado then set up shell companies in Europe in order to document the money as legitimate income.
Integration: The plan was to send the money to Columbia, where Santacruz-Londono would use it to fund his numerous legitimate business there. But Jurado got caught.

In total, Jurado funneled $36 million in drug money through legitimate financial institutions. Jurado's scheme came to light when a Monaco bank collapsed, and a subsequent audit revealed numerous accounts that could be traced back to Jurado.

Jurado's neighbour in Luxembourg filed a noise complaint because Jurado had a money-counting machine running all night. Local authorities investigated, and a Luxembourg court ultimately found him guilty of money laundering. When he'd finished serving his time in Luxembourg, a U.S. court found him guilty, too, and sentenced him to seven-and-a-half years in prison.

When authorities are able to interrupt a laundering scheme, it can pay off tremendously, leading to arrests, dirty money and property seizures and sometimes the dismantling of a criminal operation. However, most money-laundering schemes go unnoticed, and large operations have serious effects on social and economic health

The Jurado case is an example of the increasingly sophisticated means drug cartels employ to secure assets. But it also indicates that the very profits that motivate drug organizations are an Achilles heel and that national legislators, law enforcement agencies and international bodies are stepping up efforts against money laundering.

In this context, Luxembourg did a very good job.

Something striking is that the case, which is in favour of Luxembourg to demonstrate the action to refuse criminals, is forgotten in Luxembourg (it is not actually presented in the Codeplafi Database, it is not quoted by professionals to promote the ethics of the financial center) all the more as at the time of the trial, Etienne Schmit, who was deputy prosecuting attorney had said "We hope this makes the criminals understand that we do not want their money" (quoted by the International Herald Tribune). As if some pragmatic people wanted the criminals do not understand Luxembourg do not want their money. After the Jurado case Luxembourg had adopted a money-laundering law in 1989, but critics had said that it was full of holes. At the same time, the government had been concerned not to undermine the banking secrecy laws on which much of Luxembourg's wealth depends. Other text came later: Law of 5 April 1993 updated on 18 October 1999 and recently law of 12 November 2004.

We saw the same bad pragmatism in the framework of the debate relating to the current law on money laundering (12/11/2004). Luc Frieden's draft text was credible and appreciated by the IFM, but some professionals refused the wording as they wanted a text that would not have a negative impact on the commercial objectives and would be strictly limited to European requirements. The Prosecutors' Office underlined some international recommendations and especially those of the FATF-GAFI and explained it is no use having texts if the implementation is not effective. The Prosecutors' Office had even understood when reading comments on the draft that it was expected "to close the eyes on some obvious cases of dysfunction".

"Pragmatic people" won, which is a shame as Luxembourg could have anticipated some of the requirements of the new 3rd European directive. and therefore become a market leader in business ethics.



Know more

Financial havens, banking secrecy and money laundering
Watching the clothes go round
Banking Secrecy Diluted Duchy Convicts 2 in Drug Case
In Luxembourg, Drug Money Goes Down Legal Drain

Case Law as presented in the Codeplafi database (in French)

Tribunal d'arrondissement de Luxembourg, 2 avril 1992

Law 2004

Interview of Luc Frieden, Minister of Finance to justify the draft (in French)
Archives of the debate about the AML law (in French)

Table to compare the draft and the final text (in French) : an Englsh version of the essentials will be provided later, including influences in the debate.

On 12th July 2006 the Monegasque Tribunal found William Fogwell guilty of the charges against him in relation to the collapse of Hobbs Melville in 2000 and sentenced to 5 years prison. He was also fined €500,000. Fogwell was not in court for the sentencing and an international arrest warrant was issued against him. He is now a fugitive from justice. Shelley Fogwell, the 45-year-old daughter, was also convicted of fraud charges against her. She was sentenced to four and a half years in prison and fined €300,000.
Guillaume Losada, Shelley Fogwell's former boyfriend, and Jean-Christophe Moroni, a broker, were found guilty and jailed and fined €100,000. Patrick Grasset, another broker, was discharged and released.

The criminal trial of Bill and Shelley Fogwell had started on 28 March 2006 in the Palais de Justice with a stop after concerns were raised over the impartiality and independence from Monegasque authorities of court President Gérard Launoy who was replaced after three weeks.

The Hobbs-Melville brokerage folded in 2000 leaving a EUR140 million hole in its accounts, according to Reuters
Wealthy investors had invested sums of up to EUR8 million each in the company, lured by the promise of returns of between 30% and 60%. While things appeared to be running smoothly for investors in the five years prior to the collapse of Hobbs-Melville, many suspected that things were amiss when the company began to make late payments and failed to honour other obligations to its stakeholders.
Citing one investor in the firm, Reuters reported that Hobbs-Melville made risky bets in the short-term money markets.
It is thought that around 500 investors have lost money, and 300 of them have hired 50 lawyers to press their case
Mr Hobbs was not present at the court hearing, although his daughter, Shelley, 45, was on the stand in connectionwith the collapse of the brokerage.

Monaco has renewed its determination to rid itself of the image as a haven for financial criminals and money launderers : Prince Albert II, who assumed the throne following the death in April of his father, Prince Ranier, stated in his inaugural speech last July that: “I intend that ethics always be the basis of the behaviour of the Monegasque authorities". The case illustrates the time when English author Somerset Maugham called Monaco "a sunny place for shady people" (quoted by The Times , April 07, 2005).

Lawyers representing several plaintiffs declared they will file proceedings against the Monegasque authorities.

All the steps of the trial were reported by the local media.



Know more

Articles in English :

Investment Fraud Trial Commences In Monaco
Hobbs-Melville - the final verdict

Articles in French

See L'Observateur de Monaco
See the news on TV : France 3 (in French)

Supporting actually a financial center means sentencing, especially in cases of criminal breach of fiduciary duty. This reflects need to protect reputation of Island’s financial services industry and is a positive sign of ethics all the more as issues are transparent.

FRAUDULENT CONVERSION—factors for consideration

Six years’ imprisonment is an appropriate sentence for an accused convicted of a multi-million pound series of fraudulent conversions, committed to fund his neurotic addiction to gambling. Whilst a plea of guilty (which saves time and cost) and remorse are mitigating factors, the fact that his gambling has been encouraged by others is not. Furthermore, the court should have regard to the effect of the offence on the reputation of the Island’s financial businesses (Hayden v. Att. Gen., 1985–86 JLR N–23, considered; Att. Gen. v. Delaney, Royal Court, May 13th, 1993, unreported, considered; R. v. Aucott (1989), 11 Cr. App. R. (S.) 86, dictum of Watkins, L.J. considered; R. v. Barrick (1985), 7 Cr. App. R. (S.) 142, considered).
Att. Gen. v. Hanley (Royal Ct.: Crill, Bailiff and Jurats Coutanche, Vint, Bonn, Orchard, Hamon, Le Ruez, Herbert and Rumfitt), October 14th, 1993.

FORGERY—sentence—breach of trust—mitigating factors

The appellant was an accountant who had pleaded guilty to 15 counts of forgery, uttering and obtaining money on false instructions and fraudulent conversion, involving £52,600 of funds administered on behalf of clients in England. The proceeds were used primarily to relieve his liabilities incurred mainly through unsuccessful investment. He sold his business and left the Island leaving the problems unresolved and a considerable sum of money unaccounted for. He appealed against a sentence of four years’ imprisonment.
Held: The appellant’s behaviour amounted to a gross breach of trust and it was of paramount importance that the reputation and integrity of the financial businesses on the Island should be preserved. Nevertheless, important mitigating factors were the appellant’s total co-operation with the police, his previous good behaviour and subsequent remorse, his intention to repay and his actual repayment of some of the money, and the occurrence of the offences over the relatively short period of five years. The sentence would be reduced to one of three years, based on the particular circumstances of the case, without making any comment on appropriate tariff levels (R. v. Pemberton (1982), 4 Cr. App. R. (S.) 328, distinguished).
Hayden v. Att. Gen. (C.A.: Neill, Clyde and Collins, JJ.A.): July 10th, 1985.

More cases in the financial sector

Every year, U.S. officials from agencies with anti-money laundering responsibilities meet to assess the money laundering situations in 200 jurisdictions. The review includes an assessment of the significance of financial transactions in the country’s financial institutions that involve proceeds of serious crime, steps taken or not taken to address financial crime and money laundering, each jurisdiction’s vulnerability to money laundering, the conformance of its laws and policies to international standards, the effectiveness with which the government has acted, and the government’s political will to take needed actions.

The Bureau for International Narcotics and Law Enforcement Affairs publishes a table. It assessed the actions by government :



As far as Luxembourg is concerned, the financial center has a correct legal and regulatory framework. The only weakness is the international transportation of currency : there are no law or regulation allowing the jurisdiction, in cooperation with banks to control or monitor the flow of currency and monetary instruments crossing its borders. Of critical weight here are the presence or absence of wire transfer regulations and use of reports completed by each person transiting the jurisdiction and reports of monetary instrument transmitters.

The last paragraph of the detailed report is : "The Government of Luxembourg has enacted laws and adopted practices that help to prevent the abuse of its bank secrecy laws, and has enacted a comprehensive legal and supervisory anti-money laundering regime. However, further action should be taken to address issues such as the lack of a distinct legal framework for the Financial Intelligence Unit and the small number of money laundering investigations and prosecutions. The Financial Intelligence Unit should work with regulatory agencies to formulate and issue substantive guidance to financial institutions on anti-money laundering trends and techniques. Luxembourg should continue to strengthen enforcement to prevent abuse of its financial sector, and should continue its active participation in international fora. Luxembourg should enact legislative amendments to address the continued use of bearer shares and the lack of crossborder currency reporting requirements."

To reject the French MPs' report about Luxembourg Luc Frieden said in Paris that Luxembourg is not a tax, banking or judiciary haven and explained that their statements were not verified on the field.

The official communication for the financial center states as well that "Contrary to a widely held misconception, Luxembourg is not a tax haven and has many other characteristics which make it internationally attractive. It is, however, stated Government policy to create conditions which will allow the Luxembourg Financial Centre to compete on equal terms with other important financial centres. Over the years, this policy has been translated into various measures such as the auspicious corporate tax of 30,38% and the different VAT rates applicable: 3%, 6%, 12% and 15%".


Let's have a look on the field.

Let's have a look on what is said by a Professional : "Despites moderate taxes rates Luxembourg is not a tax haven. There are taxes for individuals and companies. More than a tax haven, Luxembourg gathers the advantages of an on shore jurisdiction because it is in Europe and the advantages of off shore states taxes of which are similar to a tax haven for Holding 1929 companies, Holding companies' (SOPARFI)...".

Let's see what is said by another professional on the Benefits of the Place :
(...)
The economic policy of Luxembourg is characterized by its liberalism as regards establishment.
The policy pursued by the government encourages the private initiatives, the administration is with the service of the companies, and not the reverse.
The bank secrecy forms integral part of the Luxembourg legislative system.
Absence of local taxation for the non-residents, bearer shares, exemption of appreciations on the participations.
(...)
The abuse social good and tax evasion are non-existent in the Luxembourg law.
The majority of the daily expenses of the leaders can pass in load.
(...)
Anonymity is a paramount concept in the Grand Duchy whose keystone is the bank secrecy.
The economic recipient with the possibility of not appearing as a shareholder and/or an administrator of the company by the installation of the contract of trust.
This contract is regulated by the Luxembourg law as well as the bank secrecy.
Trust is a notion absent from the French right, it makes it possible to transfer the legal property from its goods fiduciary while preserving the economic capacity on the aforementioned goods.
The application of trust makes it possible to manage its business very by preserving anonymity.
(...)
We irremediably entered a phase of delocalization which corresponds above all to problems of tax management and say for the company to a procedure of survival.

And the professional to specify that "thanks to X and has its partners Attorney and Lawyers, you can within the framework of an economic beneficiary, own and manage your business without appearing officially. That can be practical for the detention of goods and real estate , or for the continuation of an activity

The best is the legal page where the fiduciary explains that :
- it does not support fraud, and
- it is not responsible for verifying the compliance with laws and regulation, which is up to the client.



Considering such public marketing communication, that is not repudiated, how can Luc Frieden be so affirmative when saying that Luxembourg is not a tax, banking or judiciary haven for people that do not have a proper business conduct ?

Accorddin to the official communication (www.gov.im), the Isle of Man has applied the "Know Your Customer" ("KYC") principle since 1985. More detailed provisions are now in place to determine how customers and clients are adequately identified and their identification verified.

KYC is a convenient term to describe the process of obtaining, retaining and using information about a customer such that his identity and residential address are verified, the source of his funds and wealth are understood, his financial circumstances are understood, and the nature of the transactions he undertakes are understood in the context of his known personal circumstances and activities. Similar concepts apply to corporate, trust and other business, modified accordingly. Increasingly the term "Customer Due Diligence" ("CDD") is being used to represent the same concepts.

Every licenceholder must have a Money Laundering Reporting Officer, keep adequate records and have effective staff training in this area. The definition of business caught by the new standards goes much wider than financial services and includes Estate Agents, Bookmakers, Casinos and Local Authorities amongst others.

The Commission has issued Guidelines for licenceholders on the prevention of money laundering explaining how the Commission would expect institutions to fulfil their responsibilities under the new legislation. In order to assist licenceholders to fulfil their training obligations under the Code the Commission arranges, from time to time, Anti-Money Laundering seminars.

The Island introduced its first anti-money laundering legislation in 1987, the Drug Trafficking Offences Act. This was followed by other legislation such as the Prevention of Terrorism Act 1990, the Criminal Justice Act 1990 and the Criminal Justice Act 1991. A full list of the Island's anti-money laundering legislation is below.

The Drug Trafficking Offences Act 1987;
The Prevention of Terrorism Act 1990;
The Criminal Justice Act 1990;
The Criminal Justice Act 1991;
The Drug Trafficking Act 1996;
The Criminal Justice (Money Laundering Offences) Act 1998;
The Anti-Money Laundering Code 1998;
The Anti-Money Laundering (Amendment) Codes 1999, 2001 and 2005;
The Criminal Justice Act 2001
The Terrorism (United Nations Measures) (Isle of Man) Order 2001
The Anti-Money Laundering (Money Service Businesses) Regulations 2002;
The Anti-Money Laundering (Online Gambling) Code 2002; and
The Anti-Terrorism and Crime Act 2003.
The Commission issued updated guidance to its licenceholders in 1991, extending the application of guidance to the new investment business licenceholders, as well as to banks. The introduction of the Drug Trafficking Act 1996 led to a further revision of the Commission's guidance to licenceholders in the same year.

The introduction of the Criminal Justice (Money Laundering Offences) Act 1998 extended the definition of money laundering to cover all serious crimes, leading to its informal title of "the all crimes legislation." In addition, it led to the creation of the Anti-Money Laundering Code ("the Code"), which came into force on 1st December 1998.

The Code applies to:
- banking business within the meaning of the Banking Act 1998;
- investment business within the meaning of the Investment Business Act 1991;
- insurance business within the meaning of the Insurance Act 1986;
- business carried on by a building society within the meaning of section 7 of the Industrial and Building Societies Act 1892;
- business carried on by a society registered as a credit union within the meaning of the Credit Unions Act 1993;
- business carried on by a society (other than a building society or credit union) registered under the Industrial and Building Societies Act 1892;
- any activity carried on for the purpose of raising money authorised to be borrowed under the Isle of Man Loans Act 1974;
- any activity carried on for the purpose of raising money by a local authority;
- the business of a bureau de change, cheque encashment facilities and money (including any representation of monetary value) transmission services etc.;
- the business of an estate agent within the meaning of the Estate Agents Act 1975;
- the business of a bookmaker within the meaning of the Gaming, Betting and Lotteries Act 1988 but excluding business which is online gambling to which the Anti-Money Laundering (Online Gambling) Code 2002 applies;
any activity permitted to be carried on by a licenceholder under a casino licence granted under the Casino Act 1986;
- the business of the Post Office in respect of - any activity undertaken on behalf of the National Savings Bank;
any activity involving money transmission services or cheque encashment facilities;
any activity in which money belonging to a client is held or managed by –
an advocate;
- a registered legal practitioner within the meaning of the Legal Practitioners Registration Act 1986;
- an accountant or a person who, in the course of business, provides accountancy services;
- the business of engaging in any regulated activity within the meaning of Part 1 (corporate services) of Schedule 1 to the Corporate Service Providers Act 2000.
- the business of engaging in any regulated activity within the meaning of Part 1A (trust services) of Schedule 1 to the Corporate Service Providers Act 2000.

Persons who are subject to the Code's requirements are "relevant persons."

Any relevant person who fails to comply with the requirements of the Code may be liable on summary conviction to a fine of up to £5000, to custody of up to 6 months, or both, and may be liable on conviction on information* to a fine, to custody of up to 2 years, or to both.

The Code requires that relevant persons have in place anti-money laundering policies, procedures and practices in relation to money laundering, including the financing of terrorism. Specifically, the Code requires that relevant persons should not form business relationships or carry out one-off transactions with or for another person unless they:
-Establish procedures which establish the identity of the applicant for business as soon as is reasonably practicable after contact is first made;
- Report suspicious transactions;
- Maintain adequate records;
- Adopt adequate internal controls and communication procedures;
- Provide appropriate training for employees; and
- Establish internal reporting procedures, including the appointment of a Money Laundering Reporting Officer ("MLRO").

To accompany the new Code, in January 1999 the Commission issued fully revised draft Anti-Money Laundering Guidance Notes ("AMLGN") to licenceholders, which went into force in April 2000. To reflect evolving international standards, new legislation on the Island, and the new licensed status of Corporate Service Providers, the AMLGN were further revised in December 2001, and April 2003.

An updated Anti Money Laundering Guidance Notes is provided online.

According to the official communication from the Gibraltar Financial Services Commission (www.fsc.gi), Gibraltar is at the forefront of anti-money laundering practices :
- it was one of the first jurisdictions worldwide to criminalise money laundering from all types of criminal activity not just drugs related offences. This was also recently extended to cover the financing of terrorism.
- it was the first jurisdiction to regulate the providers of fiduciary services (company management and formation as well as professional trustees) and to apply the provisions of the Anti-Money Laundering regime to this sector.

Gibraltar has transposed and given effect to the EU’s 1st and 2nd Money Laundering Directives and is already largely compliant with the provisions of the proposed 3rd Directive. Gibraltar is also largely compliant with the recently revised 40+9 special recommendations of the Financial Action Task Force (FATF/GAFI) and is actively working to update those few areas where international standards have recently changed all the more as money launderers get more sophisticated, which requires the evolution of regulatory and supervisory practices.

In relation to other jurisdictions both onshore and offshore, Gibraltar’s company management industry with only 30,000 active companies does not make it a large player worldwide. The risks posed by the sector itself is mitigated by the fact that the firms providing these services are vetted and regulated by the Gibraltar Financial Services Commission. The firms providing these services are themselves required to apply the same standards as any financial institution in relation to the fight against money laundering and the combating of terrorism.

Tax evasion is considered as a criminal offence as the person committing such an offence will also be committing a number of other offences as well, all of which are defined as criminal offences under the Laws of Gibraltar. There is no differentiation drawn between tax evasion and other criminal activity in the legislation.

Gibraltar is geographically exposed to launderers from two main sources :
- the first of these is the existence of a major drug producing region (Morocco) and
- a large consumer and distribution network in Spain not only for drugs emanating from Morocco but also cocaine and designer drugs imported into Europe. Add this risk to the recent establishment of organised criminal activities from Eastern Europe into southern Spain and there is a huge potential for launderers to use Gibraltar as a base for money laundering.
These risks are mitigated by the small coastline and effective policing of the area preventing Gibraltar being used as a transhipment area for drugs or people smuggling. Secondly many of the Eastern Europeans settling in Southern Spain remain outside of the EU and therefore cannot travel physically into Gibraltar due to visa requirements. Meticulous border controls between Gibraltar and Spain also acts as a deterrent to potential launders wishing to use Gibraltar for placement stages of their activities.

The strongest defence mechanism for preventing layering stages, which is where Gibraltar is most vulnerable, is the regulation of every financial intermediary that operates in or from within Gibraltar with strong KYC requirements and linked to an effective enforcement agency network.

Evaluations have been effected by the FATF under the aegis of the Offshore Group of Banking Supervisors who found that Gibraltar’s standards were "close to complete adherence with the FATF 40 Recommendations." FATF itself found that Gibraltar was a co-operative jurisdiction in the fight against money laundering and found "Gibraltar has in place a robust arsenal of legislation, regulations and administrative practices to counter money laundering." The findings were further reinforced by a subsequent evaluation by the International Monetary Fund (IMF) and a independent review of the activities of the Financial Services Commission which concluded that "supervision is generally effective and thorough and Gibraltar ranks as a well-developed supervisor." The IMF is due to report again on Gibraltar in 2006.

The latest supervisory review of the Financial Services Commission was conducted to establish whether the Financial Services Commission matches UK regulatory practice. In relation to anti-money laundering practices the report praises the Gibraltar regime as "more robust than that of the UK in a number of areas" and says that regulations have been "developed to a good standard and staffed by competent regulators with a manifest determination to improve performance further." The review notes that Gibraltar's decision to regulate professional trustees and company management means that "enforcement of these requirements in Gibraltar now exceeds that in the UK, even taking account of the different risks posed by the business," It adds that the Financial Services Commission imposed a review of the identification evidence held on all existing customers by Gibraltar financial institutions, and commented that "this requirement goes beyond the position in the UK. The FFinancial Services Commission is to be particularly commended for this."
Gibraltar participates in the Egmont Group of Financial Intelligence Units via the independently run Gibraltar Financial Intelligence Unit (GFIU) which is manned by officers of the Royal Gibraltar Police and Customs Department of the Government of Gibraltar.


Summary of the anti-money laundering provisions

Scope

All financial and non-financial institutions need to comply with the provisions of the Criminal Justice Ordinance 1995 (the “Ordinance”). This creates the offences of money laundering (assisting another person to retain the benefit of criminal conduct, acquisition, possession or use of property representing proceeds of criminal conduct, concealing or transferring the proceeds of criminal conduct and failing to report knowledge or suspicion of money laundering).

All financial institutions and certain non-financial business needs to abide by the specific provisions in the Ordinance which require identity and source of funds to be sought and documented.

The financial institutions caught by these requirements are :Banks & Building Societies, The Gibraltar Savings Bank, Investment Business and Fiduciary Service Providers, Life Insurance Companies, Insurance Intermediaries, Bureaux de Change and money transmission services. Compliance with the provisions of the Ordinance is facilitated by the Anti-Money Laundering Guidance Notes issued and updated by the Financial Services Commission.

Additionally the following non-financial businesses are also caught by the Ordinance : Auditors, external accountants, tax advisors, estate agents, notaries and other legal professionals, dealers in high value goods and casinos.

Requirements

The legal requirement on all of these businesses is that the identity and source of funds of their clients is known and recorded before entering into any arrangement. If the business finds or suspects that money laundering has or may be about to happen, the requirements impose upon them an obligation to make a report to GFIU.

“Knowing your client” (KYC) cannot be delegated to another person. Gibraltar, unlike most other jurisdictions does not permit the use of introducer certificates whereby the true identity of the beneficial owner is not known to the Gibraltar institution.

The provisions also require the true beneficial owner of funds to be established before entering into a business relationship. This also extends to companies and trusts. If the beneficial ownership cannot be established then the firm cannot enter into the business relationship.

KYC records are required to be maintained and be made available to enforcement/ investigating agencies for a period of up to five years from the end of the business relationship.

Training is also required to be provided for all staff on the detection and prevention of money laundering.

Gibraltar is one of the few jurisdictions worldwide to have required a retrospective review of KYC documentation for all existing clients of financial institutions.

The Financial Services Commission conducts on-site reviews of all regulated entities to ensure that compliance with the requirements of the CJO and Guidance Notes are adhered to.

The Definition of Criminal Conduct

The Ordinance defines criminal conduct as any activity, either committed in Gibraltar or elsewhere which if it had been conducted in Gibraltar would be indictable. This includes tax evasion as the committal of such an offence would normally also include the committal of other indictable offences.


Article_-_Winning_Battles_but_loosing_the_war_against_ML_...

When looking the website "Luxembourg For Finance" (http://en.luxembourgforfinance.lu/index.html) there is a quotation from the IMF in the page dedicated to the prevention of anti money laundering: "Luxembourg has in place a solid legal framework and supervisory system to adress the challenge of money laundering".

When having a look at the report that is linked, it appears that the report is not based on the current legislation, the assessment being based on the information available at the time it was completed on November 30, 2003 (Information and Methodology used for the Assessment, page 4 of the report). It is said about Criminalization of ML and FT page 5 that "a new draft law has been adopted in first reading by the Parliament which would substantially amend the legal framework, but it has not been taken into consideration in the AML/CFT assessment since it is not yet in force. If adopted in its present form, however, it would result in a legal framework likely to fall short in some important respects of the requirements of the revised FATF recommendations, particularly as regards predicate offences, customer due diligence, and the operation of the financial intelligence unit (FIU)."
Report: http://en.luxembourgforfinance.lu/imperia/md/content/luxembourgforfinance/financial-centre/liberal-legislation/cr04399_1_.pdf

The problem is that the law was not adopted in the form on which the IMF based the statement. There were a debate with on one side professionals that did not want strict rules, and on the other side the Prosecutor's office that was warning that it would be a shame to have a legislation that would not be effective, a "Potemkine village".
The debate is traced in French in parliamentary documents, especially what was said by the Prosecutors' Office.

Professionals won, but not AML : the text was amended to reduce the penal risk for professionals notably by introducing pragmatically the word "sciemment" (i.e. knowingly) : in order to obtain a conviction for money laundering, prosecutors must now prove criminal intent rather than negligence, which was a positive sign for all those who do not have a proper conduct in business operations. Negligence, however, is still scrutinized by the CSSF.

Some professionals regret the failure of the draft. For example, Victor Rod, who is Director of the Insurance Commission of the Grand-Duchy of Luxembourg. He was one of the author of the strict requirements Victor Rod is worrying about the next assessment by the IMF because of the changes to the draft all the more as the market supports requirements like those that were removed.

In the report of activity dated March 2006 page 119, the Prosecutor's office states that is most case it will be unable to prove the « sciemment » introduced by the law of 12 November 2004 and that they lack staff.

Figures of declarations of suspicion show a turn after the law of 12 November 2004 while business is still being developed :

1998 : 114
1999 : 108
2000 : 158
2001 : 413
2002 : 631
2003 : 828
2004 : 943
Law
2005 : 831


There is a gap between the official communication and what is stated by the Prosecutors' Office that is on the field.



To know more

Victor Rod's interview (in French)

In June 2000, depide an existing diligence legislation, Liechtenstein was branded by the FATF as a "non-cooperative" country in combatting money laundering. The decision was a shame for the state that realised that its legislation wanted brushing up to comply with international requirements.
On 1 January 2001, Liechtenstein put a new act on professional diligence obligations for financial transactions into force (Due Diligence Act). In parallel, specially trained staff has been made available to supervise compliance with due diligence legislation. These efforts have been officially acknowledged by the Financial Action Task Force (FATF) of the Organisation for Economic Cooperation and Development (OECD). It has assessed Liechtenstein as a state that supports international efforts to fight money laundering. For investors, this rating is another clear indication that the Liechtenstein legal framework for financial services meets the highest international quality and safety standards.
The FATF recognised Liechtenstein's measures to combat money laundering and in June 2001 struck Liechtenstein off the list of non-cooperative states in combatting money laundering.



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