Senior finance staff failed to act as $265m. in assets which became tainted by association with tax evasion flowed out of Guernsey without the proper checks in place.
Now, some seven years after the deals were done, two former Standard Chartered Trust (Guernsey) employees have been fined and one banned from holding senior positions for four years by the Guernsey Financial Services Commission.
Trevor Kelham was Chief Executive Officer and Managing Director at the time - he was fined £45,000 and banned.
Sarah Sarre, who was at different times the Head of Compliance and Money Laundering Reporting Officer, was fined £13,500.
Both exposed Guernsey “to the risk of severe reputational damage as an international finance centre,” the GFSC said in a public statement announcing the penalties.
Initially there were issues in 2013 with how the transfer of $590m of assets into Guernsey from another company in the group was handled, with breaches of regulations not addressed for two-and-a-half years.
This meant that during the delay it was not known if the assets might involve money laundering, terrorist financing or other financial crime.
Then from October 2015, the licensee was given instructions to either transfer structures to another Group company in a different jurisdiction or to terminate them, by 31 December 2015.
This involved around £1.4bn of assets held by trust and company structures.
Guernsey had been an early adopter of the Common Reporting Standard, which was designed to limit the opportunity for foreign clients to circumvent paying taxes in their home country.
From 1 January 2016, it meant the automatic exchange of tax information between Guernsey and other jurisdictions, but tellingly not the one that the licensee was being asked to transfer the assets to.
Staff raised concerns that the requests were an attempt to avoid tax or delay having to declare tax information. They also feared it was because the clients were intending to participate in a tax amnesty.
Suspicions were heightened by the “implausible rationale” being given for the requests and the undue haste the clients were the moves made.
“Mr Kelham, as Managing Director and CEO, and Ms Sarre, as director and Acting MLRO, failed to ensure that the concerns raised by employees were properly investigated and addressed at the time, including at Board level, and prior to the transfers or terminations being implemented,” the GFSC said.
“Mr Kelham and Ms Sarre failed to give proper consideration to the fact that, if the desire to avoid CRS was the or a motivating factor behind the requests, then it followed that there was a real risk that the AUM could well consist of funds tainted by tax evasion and/or other financial crime.”
In November 2015, Mr Kelham addressed concerned trust officers and gave the impression that they should not take a decision to raise suspicious activity reports lightly and that it could expose them to personal liability.
Some were made, but not investigated or acted upon promptly by Ms Sarre.
Ms Sarre also learnt that month that some clients had said they would participate in a proposed tax amnesty.
The GFSC said she failed to look into this properly.
The transfers and terminations went ahead, following “an ad-hoc process which did not comply with internal controls”.
Mr Kelham and Ms Sarre failed to ensure that no transfers or terminations took place until they were confirmed as being regulatorily compliant.
Mr Kelham also signed off tax confirmation letters in respect of the majority of the transfers despite concerns of an employee that there was not enough information to do so.
At the time, 14 of the 36 client structures were subject to internal suspicious activity reports and seven to external ones.
“In due course, all the structures identified in the letters signed by Mr Kelham had external SARs raised in relation to the suspicion of tax evasion.”
The GFSC added: “At least $265 million of the $1.4 billion of AUM [assets held by trust and company structures] that formed part of the transfers to Company B subsequently participated in the Amnesty, meaning that such funds (previously administered by the Licensee and transferred in the circumstances set out above) went on to be declared as part of an amnesty process for funds tainted by tax evasion.”
It said that both Mr Kelham and Ms Sarre co-operated with the Commission throughout the investigation.
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