Paul has a decade of experience working at the Guernsey Financial Services Commission, the last four spent as an Assistant Director in the Financial Crime Division. Find out more...
Following the Commission’s update on 1st November, the transitional provisions for revising and approving Business Risk Assessments and Policies, Procedures and Controls are now in force, running until the end of May 2020.
Consequently, regulated and registered businesses must now review their Business Risk Assessments, taking into account the revised requirements of the Commission’s 2019 Handbook on Countering Financial Crime and Terrorist Financing. This includes carrying out and documenting a suitable, sufficient and separate assessment of terrorist financing risk.
While the threat to Bailiwick businesses from terrorist financing has historically been considered low, this has largely been based on the internal perception of the Bailiwick and its terrorism risk, rather than on a detailed, coordinated assessment of the Bailiwick’s vulnerabilities. However, as stated by the FATF, ‘in light of the cross-border nature of terrorist financing, a jurisdiction that faces a low terrorism risk may still face significant terrorist financing risks’.
With this in mind, and in the wake of the Isle of Man’s 2016 mutual evaluation by MONEYVAL, the authorities locally are paying greater attention to terrorist financing, culminating in the requirement in the revised Handbook for a distinct assessment of that risk by businesses.
In line with the money laundering assessment, this assessment of terrorist financing risk must be appropriate to the nature, size and complexity of the firm, and be in respect of:
- customers, and the beneficial owners of customers;
- countries and geographic areas; and
- products, services, transactions and delivery channels, and in particular in respect of the risks associated with new products and business practices, and the use of new or developing technologies for both new and pre-existing products.
To assist in drafting your terrorist financing Business Risk Assessment, below are some risk factors and sources of information which may aid in the identification of potential terrorist financing threats and vulnerabilities.
Customer and Beneficial Owner Risk
As alluded to above, the Bailiwick of Guernsey has no domestic terrorism, therefore any terrorist financing threat will almost invariably come from outside of the jurisdiction. While this much may be clear, identifying customers with connections to, or support for, terrorist organisations is no easy task. With this in mind, the following list provides some points to consider when assessing the threat posed by customers and beneficial owners:
- charities and NPOs are internationally recognised as being open to abuse by terrorist organisations. Therefore, are any of your customers charities or NPOs (or beneficially owned by such)? If so, what are the aims and purposes of those charities, how do they raise and distribute funds, and within which jurisdictions?
- do you have customers dealing in sectors known to be exploited by terrorist organisations, particularly those operating in countries and geographic areas falling within the categories below? Examples include the extraction or handling of natural resources, the importation/exportation of goods and the handling or dealing of antiquities?
- do you provide products/services to customers who are politically exposed persons (“PEPs”), or where the beneficial owners of customers are PEPs, particularly where those persons hold prominent public functions in jurisdictions with increased risks of state-sponsored terrorism?
- do you have customers with complex ownership structures? Have you considered how these ownership structures could be used to mask or obscure the involvement of terrorist organisations?
- how do you ensure that customers and beneficial owners are not subject to UN, EU or other terrorism financing sanctions measures prior to providing products/services to them? Do you screen other connected parties, such as the recipients of transactions, to ensure the same?
Country and Geographic Area Risk
When considering the terrorist financing risk associated with countries and geographic areas, particular attention should be paid to those falling within categories such as the following:
- countries and geographic areas that are recognised internationally as having significant terrorism risks (for example, those known for their state-level support of terrorist organisations and those with terrorist organisations operating within their borders);
- countries and geographic areas with ongoing, active conflicts within their borders;
- countries and geographic areas with a secondary terrorist financing risk (for example, a jurisdiction with a reduced terrorism risk but an increased risk of crimes occurring from which the proceeds are used to fund terrorism, or a jurisdiction with strong communal links to areas with an active terrorist threat); and
- countries and geographic areas that have strong links to the above (for example, those bordering active conflict zones or within close proximity to jurisdictions with active terrorist organisations, particularly where they are known to act as conduits for fighters, funds or other resources).
Sources of information on a country/geographic area’s terrorist financing risk could include:
- the mutual evaluation reports published by the FATF on the AML/CFT framework within a country or geographic area (or in the case of smaller jurisdictions, similar reports published by regional bodies, such as MONEYVAL and the MENAFATF).
- data aggregation websites, such as Know Your Country or the Basel Institute on Governance, which present consolidated data on the financial crime risk posed by jurisdictions.
Product, Service, Transaction and Delivery Channel Risk
The terrorist financing risk associated with the products, services and transactions of businesses could manifest in two main ways:
- funds entering the Bailiwick representing terrorist property, i.e. funds raised elsewhere by terrorist organisations being deposited in, or otherwise moved through, the Bailiwick; and
- legitimate funds held in or passing through the Bailiwick being used to finance terrorism, whether deliberately (for example, a payment made to an account known to belong to a terrorist organisation) or inadvertently (such as the funds of a charity operating within the Bailiwick being diverted to fund terrorism).
The following list provides some points to consider when assessing the vulnerability of a product/service offered by your business, or transactions that could take place as part of a product/service, being used to finance terrorism:
- do you offer products or services which could be exploited by terrorist organisations (for example, kidnap and ransom insurance) or used to conceal or disguise ownership of assets held by terrorist organisations?
- do you make or receive transactions to or from people based in, or with accounts in, any country falling within the categories listed above?
- do any of your products or services allow for customers to deposit from or withdraw into an anonymous/pseudonymous form (for example, cash, precious metals or virtual assets) or can a customer otherwise undertake transactions in such a form?
- could a customer make such a withdrawal outside of the Bailiwick, particularly within a jurisdiction falling within the categories above?
Notwithstanding the widely accepted view that the Bailiwick has a low vulnerability to terrorist financing, going forward businesses must be able to clearly demonstrate their consideration of this risk and any conclusions reached. Whilst the above is not an exhaustive list of factors, it hopefully provides some examples of the terrorist financing threats to, and vulnerabilities of, local businesses.
Should you need any assistance revising your firm's AML/CFT framework in line with the transitional provisions, or an independent review of the work you have undertaken to date, please don't hesitate to get in touch: [email protected].