Ethics and governance in the European Financial centers

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.