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Bermuda's Anti-Money Laundering
Regime
Article for
The Chartered Institute of Bankers Reference Book
and Diary
"BERMUDA'S ANTI-MONEY LAUNDERING REGIME"
by
CHERYL-ANN LISTER CFA MBA
CHAIRMAN
BERMUDA MONETARY AUTHORITY
Historical
Perspective
For more than fifty years Bermuda has been careful to ensure that it "knows its
customers". The Defence (Finance) Regulations were introduced in 1940 to enable
Bermuda to control (or to prevent) transactions with wartime enemies. Today
money-launderers are high on the list of "enemies", and the Exchange Control Act
1972 (and the Regulations made thereunder), the direct successor to the Defence
(Finance) legislation, continue to play their part in keeping these enemies at
bay. In addition, the more recent Proceeds of Crime Act 1997 and related
Regulations provide key ammunition in fighting this important battle.
International "know your customer" initiatives, beginning with the Vienna
Convention of 1988, have been comprehensively embraced by Bermuda. While
Bermuda's historically careful approval process had done much to ensure a
"clean" jurisdiction, the authorities knew that they could not afford to be
complacent. In the face of the growing sophistication of the launderers, they
recognised the importance of heightening awareness of the dangers. Throughout
much of the last decade, the Bermuda Monetary Authority has been active in
implementing and developing an anti-money laundering regime. Following
consultation with Bermuda's financial institutions over a period of some twelve
months, the Bermuda Monetary Authority issued a Code of Conduct in October 1991
"To assist in the Detection and Disclosure of Information with respect to the
Criminal Use of the Systems Operated by the Banks" (commonly known as "the
Anti-Money Laundering Code") and an attendant "Guide To Assist in the Detection
of Money Laundering". The Code and the Guide were subsequently extended to cover
Deposit Companies, Credit Unions, and Trust Companies. The Code and Guide were
updated and re-issued in September 1995 and were formally adopted by all
financial institutions (other than collective investment schemes) and, latterly,
by a cross section of Bermuda's investment services sector generally. The Code
was superseded by the commencement of the Proceeds of Crime Act 1997.
International background
The Convention against Illicit Traffic in Narcotic Drugs and Psychotropic
Substances ("the Vienna Convention") was signed in 1988 under the auspices of
the United Nations and became effective in November 1990. The signatories, which
included the G7 and European Union countries, agreed to join together to combat
the laundering of the proceeds of drug trafficking. The measures included the
criminalisation of money laundering and enhanced international cooperation
together with the commitment of signatories to procure that the laws of their
jurisdictions should be amended to bring this about. In addition, an
international body was established to oversee the implementation of the
principles of the Vienna Convention. This organisation is known as the Financial
Action Task Force (FATF) and is based in Paris. The FATF has established a
number of regional groupings including the Caribbean Financial Action Task Force
(CFATF) of which Bermuda is a member. Later, what began as an international
effort to combat the laundering of proceeds of drug crime was formally extended
to the laundering of proceeds of other serious offences at the meeting of FATF
in June 1996.
Bermuda
In 1991 Bermuda introduced the Bermuda Monetary Authority Anti-Money Laundering
Code of Conduct mentioned above. But Bermuda's formal international
responsibilities began on 6 February 1995, when the Government of the United
Kingdom formally declared to the United Nations that the obligations of the
Vienna Convention "shall apply to Bermuda". As required under its membership of
CFATF, Bermuda then established a National Anti-Money Laundering Committee whose
standing members were the Financial Secretary, the Attorney General, the
Commissioner of Police and the General Manager of the Bermuda Monetary
Authority. The Proceeds of Crime Act 1997 formally constituted the National
Anti-Money Laundering Committee in law and added to its membership the Permanent
Secretary of the Ministry of Labour, Home Affairs & Public Safety. The Minister
of Finance has exercised his power to appoint other persons to the Committee by
the addition of the Collector of Customs to membership.
Proceeds of Crime Legislation
Exchange Control legislation and administration and the successive versions of
the Codes of Conduct served well in reducing the scope for money laundering in
Bermuda, but subsequently this has been bolstered by specific legislation
tailored to reflect the growing international consensus on this issue. The
result was the Proceeds of Crime legislation, building very much on the existing
framework. This introduced a legal duty to report suspicious transactions and
imposed legal sanctions for non-compliance.
The Proceeds of Crime Act, which received the Royal Assent in December 1997,
criminalises the laundering of the proceeds of criminal conduct (not only of
drug trafficking), and provides for the confiscation of such proceeds and
creates a number of new offences, viz.:
- Prejudicing an investigation
into criminal conduct;
- Concealing or transferring
proceeds of criminal conduct;
- Assisting another to retain
proceeds of criminal conduct;
- Acquisition, possession or use
of proceeds of criminal conduct;
- Failure to disclose knowledge
or suspicion of money laundering;
- Tipping off, i.e. disclosure
to a third party that he is (or may be) under investigation in connection with
suspected money laundering offences.
The above offences are punishable
by imprisonment for up to twenty years or unlimited fines or both.
The Proceeds of Crime (Money Laundering) Regulations 1998 provide that banks,
trust companies, deposit companies and certain other categories of businesses
are "regulated institutions" which are obliged to observe certain rules
concerning identification ("know your customer"), record keeping, reporting
suspicious transactions and training staff. Failure by regulated institutions to
comply with these requirements is punishable by fines of up to $50,000 ($100,000
for a second or subsequent offence).
The CFATF conducted a mutual evaluation survey of Bermuda's anti-money
laundering regime in June 1998 and the resulting report should be made public
shortly. Bermuda expects that this report will be generally favourable.
The Proceeds of Crime Amendment Act 1999 received the Royal Assent on 23
September 1999. The changes reflected a need to follow international best
practice by extending the scope of the legislation to cover the proceeds of all
indictable offences including criminal tax evasion.
It is of course still early days for the new legislation, but it is encouraging
to note that there have been two cash seizures and there are now two further
matters before the court subject to confiscation hearings. Suspicious activity
reporting under the provisions of the legislation is now an established
procedure for regulated institutions. The Financial Investigation Unit of the
Police follows up such reports where appropriate.
The regulatory environment created by such measures has helped to ensure that
Bermuda continues to attract business of the highest quality. Bermuda's emphasis
on quality rather than quantity together with its sophisticated infrastructure,
political stability and attractive legal framework have helped to make it one of
the world's leading international business and financial centres.
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