Gibraltar: ISOLAS LLP Assists With The Drafting Of The Proceeds Of Crime (Miscellaneous Amendments) Act 2021

ISOLAS Partner Adrian Pilcher and Associate Michael Adamberry have assisted Her Majesty's Government of Gibraltar ("HMGoG"), the National Coordinator for Anti-Money Laundering and the Combatting of Terrorist Financing ("National Coordinator") and the Gibraltar Financial Services Commission ("GFSC") in drafting the Proceeds of Crime (Miscellaneous Amendments) Act 2021 (the "Act") passed by the Gibraltar Parliament on 5 February 2021. The Act is the culmination of 18 months of work conducted by a dedicated taskforce guided by the National Coordinator and the GFSC, and makes several amendments to Gibraltar's legislation related to anti-money laundering ("AML"), combatting financing of terrorism ("CFT"), and proliferation financing ("PF")' otherwise known as AML/CFT and PF.

The Act amends 17 pieces of legislation, namely:

• Charities Act
• Chemical Weapons (Sanctions) Order 2019
• Companies Act
• Democratic People's Republic of Korea Sanctions Order 2018
• Financial Services Act 2019
• Friendly Societies Act
• Gambling Act 2005
• Insolvency Practitioners Regulations 2020
• National Coordinator for Anti Money Laundering and Combatting Terrorist Financing Regulations 2016
• Private Foundations Act 2017
• Proceeds of Crime Act 2015
• Register of Ultimate Beneficial Ownership Regulations 2017
• Sanctions Act 2019
• Supervisory Bodies (Powers Etc) Regulations 2017
• Terrorism Act 2018
• Terrorist Asset-Freezing Regulations 2011
• Trustees Act.

These legislative changes were required to address improvements identified as necessary in the fifth-round mutual evaluation report on Gibraltar, adopted by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures (better known as "MONEYVAL") at its 59th Plenary Session in December 2019¹.

The Proceeds of Crime Act 2015, being the principal statute governing AML, CFT and PF in Gibraltar, is the most widely amended piece of legislation. Changes include minor modifications focused around clarification and consolidation of existing provisions, as well as more substantial alterations to regulatory powers and customer due diligence ("CDD") obligations, including the rules surrounding simplified customer due diligence ("SDD") and enhanced customer due diligence ("EDD"). Other industries, such as the gambling sector, have seen an increase in the regulatory powers conferred on its supervisory authority. The non-profit sector, in particular, has seen a significant overhaul of the regulatory and information sharing powers granted to its supervisory authorities, again the context of AML/CFT and PF. An overview of some of the key changes are as follows:

• PF is now defined under the Terrorism Act 2018, signifying its equal importance alongside money laundering and terrorist financing ("ML/TF"). There is also a new requirement to include PF as part of any new training programmes.

• CDD, SDD and EDD measures have all been amended for clarification purposes, as well as the hierarchy to be followed in determination of the "ultimate beneficial owner" of a customer.
• The determination of politically exposed person ("PEP") status for both new and existing clients has been clarified as a mandatory exercise.

• Consideration of the National Risk Assessment ("NRA") has been given more prominence throughout POCA.

• Record keeping requirements have been amended so as to ensure that records permit the "reconstruction" of transactions, to ensure that useful evidence can be provided in criminal proceedings.

• Procedures for relying on third-party regulated entities have been strengthened.

• Overseas branches of Gibraltar-regulated entities have now been included within the scope of local scrutiny.

• Following Brexit, countries within the European Economic Area ("EEA") are no longer to be considered prima facie low-risk, and the NRA will need to be considered when determining geographic risk.

• Significant changes have also been made to the Register of Ultimate Beneficial Ownership Regulations 2017 ("RUBOR") in order to ensure that nominee shareholder arrangements are reportable, and a (private) register of nominators is maintained by the Registrar under RUBOR. Further, the concept of an "appointor" of a director has been introduced, with similar reporting obligations. Defaulting on reporting obligations are punishable by civil and criminal sanctions. Transitional arrangements for existing appointments/nominations have been put into place for 180 days from publication / commencement of the changes.

• The International Sanctions regime has largely been amended in respect of the confiscation of criminal property under joint ownership.

• Some penalties under the Companies Act have been increased.

Further guidance on the changes has also provided by the National Coordinator².

Adrian and Michael have previously assisted HMGoG on different aspects of Gibraltar's implementation of the Fifth Money Laundering Directive ("5AMLD"), having been directly involved in the drafting of the Proceeds of Crime Act (Amendment) Regulations 2020 ("5AMLD Regs"). The team also worked with the GFSC with respect to the Legislative Reform Programme, which came into force on 15 January 2020 and which considers, amongst other things, relevant articles from 5AMLD amending existing European Directives concerning Solvency II and CRD IV.

Partner Adrian Pilcher commented:

"These legislative amendments are a substantial move for Gibraltar, and a further step in the right direction for AML/CFT and PF regulation.

We are confident that these changes not only provide the additional clarity requested by MONEYVAL, but also allow our regulatory and law enforcement authorities to effectively prevent the abuse of the financial system and assist their counterparts in the fight against AML/CFT and PF worldwide. This includes the fight against the ever-increasing threat of the proliferation of weapons of mass destruction.

It has been a significant challenge, but one that could have only been achieved by the coming together of industry and lawmakers. It has been our pleasure to have had the opportunity to work so closely with Finance Centre, ATCOM, the National Coordinator, the GFSC and Government Law Offices, as well as a large number of other parties We add our thanks, to those of many others, to this group in assisting Gibraltar plc in getting this over the line".

Footnotes

1 Read Gibraltar's MONEYVAL report here: https://www.fatf-gafi.org/publications/mutualevaluations/documents/mer-gibraltar-2019.html

2 Find the National Coordinator Guidance here

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