Understanding anti-money laundering regulations

Christopher Pryce, Contributor

Based on recent reports and vox pop news segments about the linkages of the lotto scam to money laundering, it is apparent that there is confusion, if not uncertainty, about the nature of such crimes and the global approach to confronting them.

That law-abiding citizens get agitated and 'ignorant' when their bank, insurance company or cambio asks them for personal information that seems to be at once unnecessary and downright intrusive. This further makes the point that there is a lack of understanding of the context within which domestic commerce and law enforcement must operate. An overview of the international and local implementation of anti-money laundering (AML) regulations may be helpful.

Money laundering has been recognised as a crime in virtually all jurisdictions across the world, and several international groupings have taken steps to address its prevention, detection, reporting and, ultimately, its prosecution. Several international organisations are in the forefront of this effort, e.g., the Basel Group, the Wolfsberg Group, the Egmont Group, the OECD, World Bank, International Monetary Fund and the United Nations.

The main global umbrella entity that provides directives for AML regulation is the Financial Action Task Force (FATF). There are regional affiliates of the FATF such as the Caribbean Financial Action Task Force, which has coverage for Jamaica.

Key approach

A key approach to AML regulation is to focus on financial institutions to ensure that they do not allow tainted funds to enter or pass through their operations. The intense focus on AML regulations and requirements targeted at financial institutions is based on the logic that if the tainted funds can be choked off from getting into the financial system in the first instance, it will make it harder for the funds to be disguised and for the criminals to operate and launder money with impunity.

FATF and other international bodies have essentially succeeded in having all jurisdictions pass laws to criminalise money laundering. In Jamaica, the principal AML statute is the Proceeds of Crime Act (POCA). POCA has regulations which provide some specifics on how the act is to be interpreted.

POCA allows for the following:

• The designated authority, which is the Financial Investigation Division;
• Competent authorities, which are the Bank of Jamaica and the Financial Services Commission;

The mandatory filing of reports for aggregated cash transactions in excess of a prescribed amount and for the filing of reports on any transaction that appears to be unusual or suspicious. These reports must be filed confidentially and only to the designated authority.

While the designated authority is charged with conducting criminal investigations with emphasis on money laundering offences, it is the competent authorities that are charged with providing operational guidance and oversight to regulated financial institutions such as banks, securities dealers, insurance companies, pension-management companies, building societies, and cambios. As of now, the designated authority has no jurisdiction over the affairs of professionals such as accountants, lawyers or real estate brokers.

Guidance and advisories

In order to guide the entities that they regulate, the competent authorities issue guidance and advisories on the prevention, detection and reporting of money laundering and terrorism-financing activities. Compliance by the entities with these guidance and advisory notices is compulsory. The guidance and advisories are granular and specific, and direct the entities on what information they must request from their customers, and how they should treat with such information. To a great extent, much of the agitation faced by customers of financial institutions is a function of the required enhanced due diligence, which is directly driven by the imposition of regulations.

And what of the future? Regulatory intrusion is expected to intensify, driven by local considerations and international imperatives. Already, the US PATRIOT Act has extrajurisdictional reach and has found its way into local regulations.

More recently, the US Foreign Account Tax Compliance Act (FATCA), which goes into force in January 2013, will also have an extrajurisdictional impact on all financial institutions in Jamaica. While FATCA is not an AML measure per se, the due diligence aspect of how personal information is to be obtained and treated with will impose risk controls which will complement existing AML measures.

It is in the best interest of all of us as citizens, private- and public-sector participants, members of the judiciary and the legislative branches of government to ensure that we fully grasp the impact that such international developments will have in our local context.

To be informed is to be forewarned, and to be forewarned is to be forearmed.

Email feedback to columns@gleanerjm.com and christopherjmpryce@yahoo.com.