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A tighter grip

The terrorist atrocities in September provoked a raft of responses, including the need to apportion blame. The finger was pointed at the financial world in general – and offshore centres in particular.

Accusations of handling terrorists&#39 finances flew thick and fast as well as some ill-informed judgements about what was and was not permissible in various international financial centres.

For those centres with nothing to hide, the increased scrutiny is perhaps no bad thing – for the centres themselves, for local businesses and for those IFAs who transact business there.

This might seem an odd thing to say. After all, suffering baseless accusations – even being denounced as crooks in some quarters – has not been easy for the well regulated offshore centres, such as the crown dependencies, to take. However, it has presented an opportunity to differentiate between those offshore centres on the ball when it comes to combating international crime and those that are not.

IFAs whose clients are getting jittery after reading the accusations can relax in the knowledge that they have plenty with which to reassure them. That is, of course, assuming that the clients have their money in a reputable centre such as the Isle of Man, and not where regulation is maybe not so robust.

Much of the finger-pointing that has been taking place over the last few months has come from countries which are not in a position to be so critical. Many leading economies have standards below that of offshore centres. For example, the financial action task force, an international body set up by the G7 group of countries, pointed out gaps in the anti-money-laundering regulations of a number of big economies, including the US.

Regulation in the Isle of Man was already strict but will be tightened even further following September 11, with the introduction of more counter-terrorist finance measures.

This is to ensure that business conducted through the Isle of Man is legitimate and that those who invest in the island&#39s institutions are protected. The clear and unequivocal message from the Isle of Man is that it is only open to genuine and serious investment – not to the proceeds of criminal activity.

With this in mind, the Isle of Man Government has implemented all UNSCR sanctions including 1267 (Taliban), 1333 (Bin Laden) and 1373 (Terrorist Financing). It has mechanisms for vigorously enforcing them and has applied all relevant EC sanctions against Afghanistan.

The Isle of Man has agreed to adopt the UN Convention for the Suppression of Terrorist Financing and will be implementing its obligations through changes in domestic law as soon as possible. This raft of legislative changes should persuade even the most nervous client that the Isle of Man is serious about combating money laundering.

One of many problems which has come to light since September 11 is that of legitimate funds used for criminal activity. Previously, money-laundering legislation covered “dirty” money – the proceeds of illegal acts. The prospect of “clean” money being used for “dirty” purposes has now prompted a change in legislation across the globe.

Terrorist organisations could obtain funding through what appears to be legitimate means – such as a financial gift from a wealthy benefactor who supports a terrorist cause. It was important that this loophole was closed.

On the Isle of Man, new legislation has also been enacted which will mean corporate service providers are now licensed. This means the island now has tighter regulation on CSPs than any other jurisdiction, including the UK.

To be granted a licence, applicants and their directors, controllers, managers and key staff must meet the Isle of Man Financial Supervision Commission&#39s fit and proper test. Three criteria are considered – integrity, competence and solvency.

No licences have yet been granted, although the FSC has already made its decision on a number of applications. This is because the FSC agreed during consultation with industry prior to introduction of the legislation that as many licences as possible would be issued on the same day, in order to avoid any disadvantage to individual organisations.

Once the licence has been granted, there are detailed requirements to be met under the corporate service providers&#39 general requirements and clients&#39 money codes.

These cover matters such as know your customer (anti-money laundering rules), financial resources, internal systems, staff training and competence, provision of directors, contents of client agreements, complaints procedures; professional indemnity insurance, disaster recovery; and advertising. CSPs are also required to meet the requirements of the anti-money-laundering code.

The FSC is currently considering a licensing regime to include trustee services providers. New legislation is likely to come into force during 2002. One possibility is to extend the existing CSP legislation to cover TSPs.

In addition, the Isle of Man has stolen a march on its peers in the international marketplace by being the first centre to introduce a financial ombudsman scheme. This will cover complaints about financial advice and products across the range of personal finance, including banking, credit, insurance and investments.

The Financial Services Ombudsman Scheme will start early in 2002 and the legal framework has already been granted royal assent. The scheme will have the power to make binding awards of up to £100,000 against firms, as well as instructing companies to put the matter right.

Clients are right to seek reassurance about the location in which their money is held, whether at home or abroad. However, with a little research, it is easy to see that quality offshore centres are some of the safest places to hold money. This is not because there is a “no questions asked” policy but rather because the questions asked are so thorough. These centres have built systems to tackle the problems of money laundering and other international crimes. While leading offshore centres and institutions do value their clients&#39 privacy they have absolutely no hesitation in cooperating fully with criminal investigations.

In short, if clients&#39 money is legitimate, they have everything to gain by dealing with a reputable centre with a record of client protection and excellent prudential regulation.

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