About Andrew A. Martin
Andrew Martin’s practice bridges the international corporate and dispute resolution fields and focuses on commercial litigation and arbitration, insolvency and corporate reconstruction.
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The proposed amendments to the Proceeds of Crime Act 1997 (POCA) (and related legislation) under the Proceeds of Crime Amendment Bill 2015 require careful reading. The amendments proposed in this Bill introduce several important amendments in a piece meal fashion in relation to several distinct statutory régimes. The form and content of the amendments are difficult to follow because you have to read them alongside the existing legislation, and the amendments are not readily comprehensible in the wider context of the existing provisions. Eventually the various Acts which are to be amended by this Bill will be published in a revised form that includes the amendments and deletes the sections that are to be repealed and replaced. Until then, make sure you have all relevant legislation open in front of you when you read the Bill.
The following summary of headline points is not intended to be an exhaustive review, but focuses on the most immediate business implications of the changes for professional service providers (PSPs) such as lawyers, accountants, insurance managers, corporate service providers, and trustees; and by extension, all of their clients.
Proceeds of ‘criminal conduct’ (s.3)
Of course there are proposed a few specific amendments aimed at true anti money laundering (as opposed to the regulation of persons required to conduct information gathering and monitoring) and the enforcement of criminal confiscation orders. There are certain rebuttable assumptions to be made concerning the source of assets, and the arrest and detention of persons who are the subject of a Confiscation Order, on which I will not dwell here. In a similar vein, there are enabling provisions adding powers to the Financial Intelligence Agency (“FIA”) to share confidential information with other organs of government in order to perform their functions, provided that adequate safeguards are in place to protect the confidentiality of the information.
The main general point to spot is that the present definition of money laundering offences is to be replaced with the much broader concept of “criminal conduct”. This is a subtle point with potentially wide implications. At the moment, POCA defines money laundering offences as drug trafficking and any indictable offence; this definition, although broad, is at least capable of precise application. The definition is to be changed to the much looser definition of ‘criminal conduct’, which is not defined, and for which there may be considerable ambiguity; for example it will presumably include regulatory type offences and ‘strict liability’ offences (about whose criminality there is still debate). Note that World Check and similar background checks may not pick up these types of offences. A service provider should be able to apply the ‘criminal conduct’ test with certainty.
Notice periods for response by the FIA (s.13)
The first item to note for those engaged in the provision of services to business clients (PSPs) is that the time period for getting a response from the FIA is for the first time defined. If a report is made to the FIA concerning a transaction or dealing with a client, and the FIA’s consent to the transaction or performing the act in question is not refused within a) seven working days (which means about ten actual days in most cases) and b) the moratorium period has expired (ie 45 days after the notification is given to the FIA), then the transaction can proceed without the PSP (potentially) committing the serious offence of transferring criminal property.
This is better than having no defined periods at all, but in practical terms still leaves the concerned PSP hanging somewhat on a limb. It is difficult to know what a PSP can say to explain the delay in implementing the instruction; even if the PSP is creative in coming up with vague and plausible reasons for delay, after a relatively short period of inaction the modern client will draw his or her own conclusion that there has been a report of some sort made to the FIA. Any direct engagement with the client by the PSP runs the risk of a potential charge of tipping off if the result of the exchange is that the client makes the (rather obvious) deduction that something is up.
The National Anti Money Laundering Committee’s explanation for the reason for the lengthy period is that it may take the FIA up to 45 days to be able to perform an investigation and get a response from overseas agencies.
The Register of Directors (s.25)
It is proposed that there will be an annual filing requirement for the directors of Bermuda registered companies under the Companies Act, including their names and addresses and a requirement to notify the Registrar of Companies of any changes during the year. There is no time period specified, but presumably it must be filed as soon as reasonably practicable after a change has been made. This duplicates the present system where there is a register of directors and officers available for inspection at the registered office, and which remains in place. It is difficult to see what is added by an annual filing if there has been no change.
This will increase the administrative burden, but it is not onerous: what is surprising is the proposed penalty for a failure to comply: imprisonment or a fine of up to two thousand dollars on summary conviction, or up to five years and a fine of five thousand on indictment. This is a possible concern for corporate service providers because it appears as if the offence is a strict liability offence, requiring no guilty intent, and a director’s resignation takes effect (usually) on the date it is executed, not on the date it is received by the Secretary. One hopes that the provision will not be applied in cases where there is a reasonable explanation for delay in making the filing.
Customer Due Diligence (s.30)
Amendments are proposed to add Settlors of trusts to the persons on whom Customer Due Diligence (CDD) is required, as well as any beneficiaries who will receive distributions. The beneficiaries of life insurance policies will be subject to the same CDD requirements. Additional duties to undertake enquiries to understand the business relationship, including the persons who occupy the positions of senior management, and expanding the definition of politically exposed person to any person who has been entrusted with prominent public functions, including but not limited to the positions defined in the Schedule. The difficulty of defining with precision who is or is not within this definition remains, as does being able to find out about the associates, business and personal relationships of clients who occupy positions in which they perform these undefined “prominent public functions”.
Information sharing and outsourcing (ss.34-36)
The Regulations will require appropriate information sharing on CDD and transaction information between members of a group (eg a law firm and its trust administration and corporate services affiliates) and proper controls to safeguard the confidentiality of that information. In addition, if the customer due diligence function is outsourced, the management of the service provider will remain ultimately responsible for the compliance function, and if outsourced, will be responsible to monitor and review the effectiveness of the party to whom the function has been outsourced. Outsourcing will not be permitted where the access to records will be delayed or impeded by confidentiality or data protection restrictions as a result of the outsourcing.
Independent Audit Function (s.40)
Regulated persons must maintain an independent audit function to be conducted by a qualified independent third party or internally by persons independent of any other function to provide an independent objective evaluation of the robustness of the AML ATF framework of the regulated person, and the reliability, integrity and completeness of the design and effectiveness of the AML/ATF risk management function, as well as internal controls and AML/ATF compliance. It appears that any internal audit function cannot be undertaken by persons who have responsibility for any other function than compliance, and cannot be a person employed on a temporary basis to fulfil this function.
Compliance Officer (s.42)
The requirement for a statutory Compliance Officer to be employed at managerial level will be introduced. The (existing) Reporting Officer does not have to be a member of the management team, and the Compliance Officer can also be the Reporting Officer. The duties of the Compliance Officer are to a) ensure that the necessary compliance programme and procedures and controls are in place and b) to co-ordinate and monitor the compliance programme to ensure continuous compliance with the Regulations.
PSP controls (s.48)
The payer of money who is a regulated person must obtain “complete” information on both the payer and payee before the transaction can be implemented. The information must be verified by an independent and reliable source, and must be kept for 5 years. Cash transactions under $1000 are exempted, except if the payment appears to be linked to other payments which together exceed $1000. This may cause some problems in practice. For lawyers, presumably a payment can be routed to the recipient in a transaction through his or her lawyer; in other cases, it may add delay if the recipient is required to provide the payer his CDD: but he or she will have an incentive to provide CDD in a timely way to make sure payment for the goods, services or property.
It does leave one wondering, however, what additional value this step adds to the detection and prevention of money laundering? All banks in FATF/GAFI countries are already required to gather CDD information on their customers, and to keep records of their transactions, and it is difficult to see what real purpose will be served by requiring CSPs to obtain and maintain the same information.
The inevitable result will be delay and expense burden which will ultimately fall on the client.
Revenue Act 1898 (s.26)
The penalty for making a false statement under the Revenue Act is to be amended to increase the penalty for making any statement that is untrue in any particular (irrespective of materiality) and provides that the maker of the false statement shall be liable to a forfeit in the level 4 amount (ie BD$12,000); note that there is no “up to”, so it is a mandatory BD$12,000 fine! Any person who makes a statement which is false in any material particular with intention to deceive shall be liable to conviction on indictment (only) to a penalty of up to 5 years in prison or a fine of the level 7 amount (ie BD$100,000) or both and the goods are liable to be forfeit.
It is hard to imagine why the Revenue Act offence needs to be amended as part of POCA. Making an intentionally false declaration as to the value of goods imported with a view to evading or avoiding payment of duty is a serious matter. But making a mistaken statement as to a detail on a form (say a name or address) which is untrue, but which is not intentional, and which is not material to the value of the goods declared, does not seem to be worthy of a mandatory fine of BD$12,000. Is there a typo in my copy of the draft?