Full Statement: Proceeds of Crime Regulations

August 29, 2010

The Proceeds of Crime Regulations (Supervision and Enforcement) Amendment Act 2010 has been Gazetted and brought into effect. Minister of Justice and Attorney General Senator Kim Wilson said that “This Act is part of the ongoing effort to strengthen Bermuda’s anti-money laundering and anti-terrorism financing framework to ensure a high level of compliance with international standards.”

Senator Wilson’s full statement in reference to it is below:

As Minister of Justice, I am pleased to report that, by commencement order which has been officially gazetted, the Proceeds of Crime Regulations (Supervision and Enforcement) Amendment Act 2010 has today been brought into effect. This Act made amendments to the following pieces of legislation:

  • Proceeds of Crime Regulations (Supervision and Enforcement) Act 2008 (SEA)
  • Bermuda Bar Act 1974 (Bar Act)
  • Institute of Chartered Accountants Act 1973 (ICAB Act)
  • Financial Intelligence Agency Act 2007 (FIA Act)

This Act is part of the ongoing effort to strengthen Bermuda’s anti-money laundering and anti-terrorism financing (AML/ATF) framework to ensure a high level of compliance with international standards, and in particular with certain important requirements relating to Designated Non-Financial Businesses and Professions (DNFBP) as contained in the Financial Action Task Force’s (FATF) 40+9 Recommendations.

The Bermuda Government has consistently reiterated its commitment to ensuring that Bermuda has a strong and effective regime to combat money laundering and terrorism financing. Therefore, as part of the program to enhance and update its legislative and supervisory framework, a significant overhaul of Bermuda’s core Anti-Money Laundering/Anti-Terrorist Financing AML/ATF legislation took place, in 2007 and 2008. This resulted in, among other things, the greatly improved Proceeds of Crime Act 1997 (POCA) and the Anti-Terrorism (Financial and other Measures) Act 2004 (ATFA).

The enhancement of the regulatory regime came with a complete update of the Regulations in this area, with the enactment of the new and more comprehensive Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008, which replaced the 1998 Regulations. A significant element of the Regulations was the expansion and strengthening of the customer due diligence (CDD) requirements as well as the provision for a risk-based approach to the implementation of the AML/ATF systems and controls. In addition, the new Proceeds of Crime Regulations (Supervision and Enforcement) Act 2008 (SEA) was enacted, which implemented a full range of supervisory and enforcement procedures to support the Regulations. In this Act, the only supervisory authority designated was the Bermuda Monetary Authority (BMA), which was given responsibility for AML/ATF regulation of financial institutions.

Part of this updating involved the establishment of the Financial Intelligence Agency (FIA), a dedicated independent administrative body, whose current statutory purpose is to receive, collate, analyse, and disseminate suspicious activity reports. This was done through the enactment of the Financial Intelligence Agency Act 2007.

This Act expands the existing supervisory framework to allow for additional supervisory authorities and to facilitate the supervision of a wider cohort of entities. It creates a comprehensive supervisory framework in SEA for all supervisory authorities. Further, although lawyers and accountants who are members of the Institute of Chartered Accountants are specified in the Regulations as being in scope, that provision has not yet been implemented. This Act begins the process of addressing that by creating the framework for the supervision of lawyers and ICAB-Accountants to allow for the implementation of the Regulations in relation to them.

By way of background information, the FATF is the inter-governmental body established in 1989, which sets the international standards for combating money laundering and the financing of terrorism through its 40 Recommendations on money laundering and 9 Special Recommendations on terrorist financing. As a member of the regional body Caribbean Financial Action Task Force (CFATF), which is an associate member of the FATF, Bermuda has fully committed itself to implementing the international standards created by the FATF.

The FATF Recommendations 12, 16 and 24 deal specifically with Designated Non-Financial Businesses and Professions (DNFBP), which are defined to include casinos, real estate agents, dealers in precious metals and stones, lawyers and accountants and trust and company service providers. This FATF definition only pertains to lawyers and accountants when they engage in certain kinds of commercial activities.

Under Recommendations 12 and 16, jurisdictions are required, among other things, to apply to DNFBPs the obligations for customer due diligence (CDD), recordkeeping,internal systems and procedures and suspicious transaction reporting, in the same way as they are made obligatory for financial institutions. In order to make the implementation of these requirements workable and to monitor compliance by the obligated entities, the FATF also requires, under Recommendation 24, that jurisdictions put in place effective systems for monitoring and ensuring that DNFBP’s comply with the requirements to combat money laundering and terrorist financing. The FATF allows jurisdictions the flexibility to determine whether the supervisory functions over certain classes of DNFBPs should be performed by governmental authorities or by appropriate self-regulatory organisations (SRO). Additionally, although DNFBPs are not specifically mentioned in Recommendation 17, the FATF nevertheless requires jurisdictions to ensure that effective, proportionate and dissuasive sanctions are available to deal with any DNFBP that fails to comply with the AML/ATF requirements.

In 2007 the International Monetary Fund (IMF) carried out a review of Bermuda’s AML/ATF regime against the FATF requirements. In that review Bermuda received a non-compliant rating in relation to Recommendations 12, 16 and 24, and the IMF made a number of recommendations to assist Bermuda in becoming compliant.

Bringing the Proceeds of Crime Regulations (Supervision and Enforcement) Amendment Act 2010 into force allows us to begin to address the requirements of the FATF Recommendations 12, 16, 17 and 24 and the relevant recommendations made by the IMF examination team in the 2007 Detailed Assessment Report.

This Amendment Act addresses the following key issues:

A. Amendments to SEA

1. SEA is now renamed as the ‘Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing Supervision and Enforcement) Act 2008’. This takes into account the wider obligations beyond those under the AML/ATF Regulations, for instance the obligation to file suspicious activity reports under POCA and ATFA.

2. The FIA has now been added as a new supervisory authority with supervisory powers equal to those granted to the BMA under that Act. It is proposed that the FIA will be given responsibility for specified sectors that are defined by the FATF as DFNBP’s. The FIA will now have a similar power to impose civil sanctions on persons or entities supervised by it, except that the maximum threshold for the fines will be at a level deemed appropriate for the types of entities which the FIA will be responsible for supervising. This maximum level will be $250,000, as opposed to the maximum of $500,000 which the BMA will continue to be able to impose on financial institutions. Appeals from the decisions of both the FIA and the BMA will go to the Appeals Tribunal that is established under SEA.

3. In addition to those general powers, the FIA will now have the power to issue directives to persons or entities subject to the FIA’s supervision. Directives may be issued to address a breach of the regulations; or a failure to meet any applicable fit and proper requirements. Non-compliance with a directive will give rise to the same civil sanction regime as is available for breach of the AML/ATF Regulations. This additional power given to the FIA is similar to powers available to the BMA under the Regulatory Acts; and which SEA has allowed the BMA to use to assist in enforcing compliance with the Regulations.

4. The Act allows for the Minister of Justice to designate Professional Bodies as supervisory authorities under section 4(1). A new Part has now been added to SEA to make provisions specifically to give these bodies similar powers for monitoring and supervision as will be exercised by both the FIA and BMA.

5. However, the key exceptions are that the maximum civil sanction that can be imposed by a designated professional body will be $250,000 (similar to the FIA); the designated professional body will have a power similar to that given to the FIA to issue directives; and appeals from decisions of the designated professional body will go to the Supreme Court rather than the Appeals Tribunal.

6. Under the new amendment Act, provisions have now been made to recognise two new classes of entities to be brought into scope of the AML/ATF Regulations, namely ‘regulated non-financial businesses and professions’ and ‘regulated professional firms’. The former will be supervised by the FIA, and they will be listed over time in a new Schedule 2 to SEA. However, it should be noted that Act does not add any persons or entities to Schedule 2 at this time. ‘Regulated professional firms’ will be supervised by the designated professional body, which will have responsibility for supervising lawyers and ICAB-accountants for compliance with the AML/ATF Regulations. However, lawyers and ICAB -accountants will only be subject to AML/ATF supervision in relation to the carrying out of specified activities and not to the full range of professional services provided by them.

7. The Amendment Act now requires the FIA and any designated professional body to maintain a register of all persons or entities that come within their supervisory purview. The registration provisions will in both cases be similar to the existing registration requirements for non-licensed persons who are supervised by the BMA. No regulated entity will be entitled to carry on business if they are not registered with the relevant supervisory authority. However, an important feature of these new provisions is the transitional arrangement that will allow new regulated entities to continue to carry on regulated business without being registered, for a period of six months after they are added to Schedule 2.

8. An additional new provision enables the FIA to impose fit and proper requirements on some regulated non-financial businesses and professions, at the time of registration and on an ongoing basis. The provision requires that directors, controllers, senior executives and reporting officers of the specified regulated entities be evaluated against the fit and proper requirements. Whenever a new class of persons or entities is added to Schedule 2, the Minister will at the same time indicate whether or not that new class of person or entity will be subject to these fit and proper requirements under the Act. It is expected that these requirements will be imposed on sectors, such as corporate service providers, where the AML/ATF risk is deemed to have a potentially more significant impact, both from a domestic and an international perspective.

B. Proposed amendments to the Bar and ICAB Acts

1. The amendments to the Bar and ICAB Acts essentially mirror each other. Their purpose is to jointly establish a new Barristers and Accountants AML/ATF Board, which when designated by the Minister as a designated professional body, will be the supervisory authority responsible for monitoring and enforcing AML/ATF compliance by regulated professional firms. These provisions require the Board to appoint a Supervisor, who will carry out the day to day supervisory functions on behalf of the Board.

C. Proposed Amendments to the FIA Act

1. In order to give effect to the proposed amendments to SEA, an amendment to the FIA Act now prescribes the expansion of the duties of the FIA to include those new supervisory functions.

2. A further amendment of the FIA Act enables the Minister of Justice, by Regulations subject to negative resolution, to prescribe the registration and annual fees to be paid to the FIA by regulated non-financial businesses and professions. The fees fixed by these Regulations will be used by the FIA to defray the costs associated with the discharge of its related statutory functions.

3. Finally, the amendment includes new definitions for the terms ‘criminal conduct’ and ‘proceeds of criminal conduct’ for consistency with the Proceeds of Crime Act 1997. When included within the description of the FIA’s intelligence function under the Act, this now lends much needed clarity to the scope of the FIA’s responsibilities.

In closing, I wish to express my sincere thanks to all of those who were involved in the development and finalisation of this important legislative initiative. In particular, we would note the contributions made by the representatives of the Bar Council and the Institute of Chartered Accountants of Bermuda, as well as the various persons from the agencies who are part of the National Anti- Money Laundering Committee. The continued commitment to ensuring that Bermuda has a strong and robust framework to combat money laundering and terrorist financing once again demonstrates why Bermuda is considered to be a premier international financial centre.

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