Monetry Authority


Bermuda's Anti-Money Laundering Regime
Article for
The Chartered Institute of Bankers Reference Book and Diary



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 The Code was superseded by the commencement of the Proceeds of Crime Act 1997.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.

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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