Money Laundering and the Financing of Terrorism

Legislation and Regulatory Guidance

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 list of both the Island's historic and current anti-money laundering and countering the financing of terrorism legislation is below.

1. The Drug Trafficking Offences Act 1987;
2. The Prevention of Terrorism Act 1990;
3. The Criminal Justice Act 1990;
4. The Criminal Justice Act 1991;
5. The Drug Trafficking Act 1996;
6. The Criminal Justice (Money Laundering Offences) Act 1998;
7. The Anti-Money Laundering Code 1998;
8. The Anti-Money Laundering (Amendment) Codes 1999, 2001 and 2005;
9. The Criminal Justice Act 2001
10. The Terrorism (United Nations Measures) (Isle of Man) Order 2001
11. The Anti-Money Laundering (Money Service Businesses) Regulations 2002;
12. The Anti-Money Laundering (Online Gambling) Code 2002;
13. The Anti-Terrorism and Crime Act 2003;
14. The Criminal Justice (Money Laundering) Code 2007;
15. The Criminal Justice (Money Laundering) (Amendment) Codes 2007 and 2008;
16. Part 9 of the Financial Services Rule Book 2008;
17. The Criminal Justice (Money Laundering) Code 2008; and
18. The Proceeds of Crime Act 2008.

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, which came into force on 1st December 1998. The Anti Money Laundering Code was replaced by the Criminal Justice (Money Laundering) Code 2007 in September 2007. This has now been superseded by the Criminal Justice (Money Laundering) Code 2008 (“the 2008 Code”) which came into effect on the 18 December 2008.

A copy of the 2008 Code can be accessed at Appendix A of the Anti Money Laundering and Countering the Financing of Terrorism Handbook (“AML/CFT Handbook”). Schedule 1 of the AML/CFT Handbook lists the businesses that it applies to. The requirements of the Code include:

1. A risk based approach to customer due diligence including enhanced customer due diligence for higher risk customers;
2. Identification and verification of identity of applicants for business and beneficial owners - for example, through satisfactory evidence of name, date of birth, address, and nationality;
3. Provisions dealing with relationships involving Politically Exposed Persons (“PEP”) - including determining whether any applicant for business, beneficial owner or existing customer is a PEP and requiring approval of senior management to continue or commence a business relationship with a PEP;
4. Provisions concerning correspondent banking services – additional steps to be taken where relationships involve correspondent banking services and prohibition from entering or continuing relationships with shell banks;
5. Provisions with respect to foreign branches and subsidiaries – ensuring measures taken by foreign branches and subsidiaries are consistent with the Code;
6. Ongoing monitoring of existing business relationships – including reviews of customer due diligence information and scrutiny of transactions;
7. Report suspicious transactions - when merited, following a robust assessment of the circumstances;
8. Maintain adequate records - in terms of completeness, format, location and period of retention, including a register of all enquiries made to the institution by the investigating authorities;
9. Adopt adequate internal controls and communication procedures - written procedures for preventing money laundering, and a register of all disclosures made by the relevant person to the investigating authorities;
10. Maintain procedures and controls to prevent the misuse of technological developments for money laundering or terrorist financing;
11. Screen staff - In order to be satisfied as to the integrity of new directors or partners and new appropriate employees;
12. Provide appropriate training for employees - to educate them on a regular basis about money laundering techniques, their obligations under the law, the internal procedures to forestall and prevent money laundering, and the procedures to follow where money laundering is known or suspected; and
13. Establish internal reporting procedures - paragraph 20 of the Code requires that relevant businesses establish written internal reporting procedures covering:-

1. to whom staff should report suspicious transactions;
2. the establishment of a reporting chain;
3. the appointment of a Money Laundering Reporting Officer ("MLRO");
4. the MLRO having access to all relevant information, and that the MLRO takes account of it;
5. the prompt reporting of suspicious transactions by the MLRO;
6. and the establishment of a register recording certain minimum information.

Part 9 of the Financial Services Rule Book 2008 provides for money laundering and terrorist financing provisions specific to the Commission’s licenceholders, but which have now been largely incorporated in the 2008 Code. Part 9 of the Financial Services Rule Book 2008 can be found at Appendix B of the AML/CFT Handbook.

To accompany the Anti Money Laundering Code 1998, 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.

Following the introduction of Part 9 of the Financial Services Rule Book and new requirements brought in with the 2007 Code, the Commission issued the Anti-Money Laundering and Countering the Financing of Terrorism Handbook on 1 August 2008. This Handbook replaced the Anti-Money Laundering Guidance Notes. . The AML/CFT Handbook was amended in 2009 following the coming into effect of the 2008 Code.

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