Chapter II                                   

             2          Legal Basis for the Notes

These Notes are “supervisory or regulatory” guidance for the purposes of Section 20A of the Crime (Money Laundering and Proceeds) Act 2007 and have been issued:

(a)         Under Section 20A(2) of the Crime (Money Laundering and Proceeds) Act, as read with Section 23(g) of the Interpretation and General Clauses Act;

(b)         under the powers conferred upon the Commission appointed under Section 24 of the Financial Services Commission Act 2007 in pursuit of the functions outlined in Section 6 of that Act;

(c)         by the Financial Secretary;

(d)         by the following supervisory authorities as defined in Section 19 of the Crime (Money Laundering and Proceeds) Act 2007;   

(i)          the Financial Services Commission;

(ii)         the Authority appointed under Section 2(1) of the Financial Services (Investment and Fiduciary Services) Act 1989;

(iii)        the Commissioner of Banking and the Banking Supervisor;

(iv)        the Commissioner of Insurance and the Insurance Supervisor.

      2.1          Scope and application

The coverage of the Crime (Money Laundering and Proceeds) Act was extended with the transposition of the 3rd Money Laundering Directive to include non financial sectors.  The Government of Gibraltar has produced its own Guidance Notes for business sectors which accept large cash payments for goods. These guidance Notes only, therefore, cover the following financial services providers;

·         Banks and Building Societies whether or not operating in or from Gibraltar as a branch or locally incorporated institution;

·         The Gibraltar Savings Bank;

·         Investment Businesses and Controlled Activities[4] conducted under an authorisation granted under the Financial Services Acts 1989 or 1998 (this includes investment services, company management, professional trusteeship, insurance management and insurance intermediation-other than general insurance intermediation);

·         Life insurance companies;

·         Currency exchangers/bureau de change;

·         Money transmission/remittance offices.

      2.2          Implementation

These Notes came into effect on the 15^th December 2007.  The requirements and expectations laid out in these notes come into play for all business relationships and one-off transactions commenced or entered into after this date.

      2.3          Is compliance compulsory?

Section 20A(2) of the CJA provides, inter alia, as follows:

“(2) In deciding whether a person has committed an offence under sub-section(1), the courts must consider whether he followed any relevant guidance which was at the time issued by a supervisory authority or any other appropriate body.”

The Notes are drawn up by the FSC in light of the above provisions.

The Notes are, therefore, intended to interpret the requirements of the CJA in a practical manner.  They are intended to illustrate good industry practice.  The key question, however, is whether a relevant financial business is obliged to comply with the provisions of the Notes.

The word “must” in section 20A(2) of the CJA imports an obligation on the Courts to “consider” the Notes in determining whether a person has complied with the CJA. 

It is the view of the FSC that the provisions and the structure of the CJA must be taken as a whole.  Part III creates an obligation on relevant financial businesses to establish and maintain certain standards and procedures to combat money laundering and terrorist financing – the Act is not, however, prescriptive on how these requirements should be fulfilled.  It is suggested that it was clearly intended that this would be left to industry practice as embodied in the Notes and that a judge, in determining whether a breach had been committed, would be obliged to consider such guidance issued by the regulatory authorities.

By way of summary:-

(a)        the Notes are written in such a way that compliance with its terms is obligatory;

(b)        if there is non-compliance with the Notes, a judge must take into account such non-compliance when determining whether a person is in breach of the provisions of section the CJA;

(c)         the end result of the combination of (a) and (b) immediately above is that a judge, save in an exceptional case, must hold that a person who does not comply with the terms of the Notes is in breach of the provisions of the CJA.

It follows that, if a person does not adhere to the provisions of the Notes, such person would be applying the standards of practice falling below best market practice and would not be held to have taken all reasonable steps and exercised all due diligence.

      2.4          What action can be taken against firms that do not comply?

As well as the criminal sanctions for failure to comply with the CJA, TO and the UN Orders, the FSC will consider the “fit and proper” status of its officers for the purposes of assessing its compliance with the regulatory and supervisory Acts under which it exercises its powers.

Firms are also required to implement systems of control under the legislation in which they are authorised[5].  As a result the Authority that issued this authorisation may take regulatory action against a firm whose systems of control do not meet the requirements of these Notes.

These powers range from the imposition of penalty fees in certain circumstances, the imposition of conditions or directions and ultimately, the revocation of the firm’s authorisation.