Gibraltar CHAPTER 20. Robert Vasquez QC. Julian Triay INTRODUCT ION. Partner, Triay & Triay, Gibraltar

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1 Practice (4th Ed), published by Bloomsbury Professional (October 2013), and is reproduced by kind permission of Bloomsbury Professional. For further information please visit: CHAPTER 20 Gibraltar Robert Vasquez QC Partner, Triay & Triay, Gibraltar Julian Triay Partner, Triay & Triay, Gibraltar Introduction 20.1 Legislation an overview Legislation to prevent the laundering of proceeds arising from Legislation to prevent the laundering of proceeds arising from all non-drugs crimes Civil liability Additional obligations of certain businesses to prevent money laundering Internal policies and reporting procedures Considerations arising out of the Data Protection Act The future INTRODUCT ION 20.1 Gibraltar is a United Kingdom Overseas Territory. Its constitution is governed by the Gibraltar Constitution Order 2006 ( the Constitution ) which modernised Gibraltar s legislative, executive and judicial framework, as well as Gibraltar s relationship with Great Britain. Sovereignty is vested in the British Crown, but the Constitution devolves legislative powers to Gibraltar s Parliament and executive powers to the Government of Gibraltar whilst making the United Kingdom Government (acting by the Her Majesty s Governor of Gibraltar 671

2 20.2 Gibraltar 20.2 Gibraltar s Parliament is elected every four years. It has legislative responsibility for all matters except for those for which the Governor remains responsible. Gibraltar s executive consists in the main of the Council of Ministers 1 on whose advice the Governor must act, save in those matters that only the United Kingdom Government is constitutionally competent. The Council of Ministers is made up from the majority party in Parliament. The Governor (acting on behalf of the United Kingdom Government) is the executive for matters relating to external affairs, defence, the police, and internal security, and all powers of making appointments conferred on him by the Constitution. 2 The Governor is said to have special responsibility in these fields, although he must act in consultation with the Chief Minister in relation to external affairs, and must fully inform the Chief Minister concerning the general conduct of his areas of special responsibility. He also retains full legislative powers in these areas. The Government of Gibraltar is made up, therefore, of the Governor and the Council of Ministers depending on which powers are exercised (although the Governor acts entirely on the advice of the Council of Ministers in relation to those matters over which it has responsibility) Gibraltar is within the European Union (EU) 3 as a European Territory for whose external affairs a member state (Great Britain) is responsible. It is excluded from the Common Agricultural Policy and the Customs Union. Hence there is no value added tax applied in Gibraltar. Gibraltar is bound by EU Regulations and is required to and does implement EU Directives, except for directives relating to freedom of movement of goods and value added tax form which it has a full derogation Common law and the rules of equity in force in England apply in Gibraltar, 4 so far as they are applicable to its circumstances and subject to such modifications thereto as such circumstances may require, and except in so far as they are modified by any Order in Council of the United Kingdom Privy Council, Act of the United Kingdom Parliament or any Act of Gibraltar s Parliament. English Judicial decisions based on Common Law are binding in Gibraltar. Those based on statute law are considered by the courts as highly persuasive where statute law is comparable. For example, English case law involving the interpretation of such terms as suspicion, including R v Montila, 5 R v da Silva 6 and R v El Kurd 7 will invariably be followed Gibraltar has various courts. Its main court of first instance is the Supreme Court, consisting of three judges who sit singly and hear criminal cases on indictment, with a jury, and civil cases, where trial is by judge alone (save 1 Constitution, s Constitution, s Treaty of Rome, Art 355(3) (on accession, Art 227(4)). 4 English Law (Application) Act. 5 [2005] 1 All ER [2007] 1 WLR [2007] 1 WLR

3 673 Introduction 20.9 for one exception in the case of libel). Gibraltar has its own peripatetic Court of Appeal (the President of which is also the President of the Courts), consisting of four judges drawn from the Senior English Judiciary of which three sit at hearings of appeals. A final appeal lies to the Privy Council in London, with the permission of the Court of Appeal or the Privy Council. The magistrates court deals with criminal matters and also has jurisdiction in sundry less complex civil matters requiring speedy and affordable justice, such as certain aspects of family law Gibraltar is a member of the Offshore Group of Banking Supervisors and was the subject of an independent review of its anti-money laundering regime by it in September 2002 for the Financial Action Task Force (FATF). The FATF report commented as follows; Gibraltar has in place a robust arsenal of legislation, regulations and administrative practices to counter money laundering. The authorities clearly demonstrate the political will to ensure that their financial institutions and associated professionals maximise their defences against money laundering, and cooperate effectively in international investigations into criminal funds. Gibraltar is close to complete adherence with the FATF 40 Recommendations. Once the appropriate changes are made to the few remaining deficient areas, these standards will be fully met. There has been progress on remedying those areas where Gibraltar s regime was considered deficient The International Monetary Fund (IMF) also produced an assessment of the regulation and supervision of financial services, initially in October 2000, followed by a further review in The 2007 review included a review of Gibraltar s anti-money laundering regime. In its 2001 executive summary, the IMF commented that the development of the financial sector in Gibraltar has been facilitated by its location, favourable tax regime, a stable government, its status within the EU, no exchange controls, a legal framework based on the English system, and the availability of a well-qualified labour force, particularly well-endowed with accounting and legal skills The 2007 IMF update commented on Gibraltar s successful transition from an economy 60% reliant on the maintenance of its British military base to one dominated by three pillars; tourism, ports and shipping, and financial services. Mention was also made of the rapid growth of the online gaming industry within Gibraltar In 2001, the IMF found that: Current anti money laundering measures as they related to the Basel Core Principles, the IOSCO Principles and the LAIS Principles appear to be effective, although as in other jurisdictions there is always scope for improving know your customer requirements. The Financial Services Commission (FSC) complies with 8 Available on the FSC website

4 Gibraltar accepted international standards of co-operation with the Foreign Supervisory Agencies with regards to the exchange of information and allows Foreign Home Supervisors to conduct on site reviews in Gibraltar In their 2007 update, the IMF commented that: The Gibraltar authorities have done a good job of implementing improvements to Gibraltar s AML/CFT [anti money-laundering /combating the financing of terrorism] regime in the main financial sector area of banking to keep abreast of evolving standards in AML/CFT. In other sectors of financial intermediation, the FSC is making considerable progress in enhancing the effectiveness of existing preventative measures The improvements that FATF and the IMF considered necessary have been either implemented or resolved or are well in hand The IMF identified Gibraltar s exposure to the risk of money laundering as being the following, locally well known and recognised, reasons: by reason of its location on drug trafficking and human smuggling routes by reason of its important finance centre and strong ties with London, the Channel Islands, Israel, Cyprus and other centres; by reason of its banking services being offered to expatriates in Southern Spain which had seen an influx of Eastern European criminal elements The International Association of Insurers evaluated Gibraltar s insurance regulatory standards, in relation to the Insurance Core Principles (ICPS) as part of its peer review of its members in In relation to ICP 28, requiring the supervisory authority to require insurance entities to take effective steps to deter, detect and report money laundering and the financing of terrorism in accordance with FATF recommendations, Gibraltar was said to have observed the requirements of ICP The Government of Gibraltar has at all times vehemently denied accusations levelled at Gibraltar by the Spanish Government that it is a centre for money laundering. These accusations are widely considered to be politically motivated by reason of Spain s claim to sovereignty over Gibraltar. The 4th Report of the Foreign Affairs Committee, 9 as well as reports prepared by the FATF and IMF strenuously support Gibraltar s stance. Following tri-partite talks, leading to what is now known as the Cordoba Agreement, relations with Spain had greatly improved and these accusations became less frequent. The current change of Government in Spain has seen a small reversion to the days of some antipathy on this subject and a reversal of its agreement to hold tri-partite talks. 9 Session

5 Legislation an overview The Foreign Affairs Committee Report (a Committee of the UK Parliament) dealt with, inter alia, Spanish allegations of Gibraltar s financial impropriety (in particular, money laundering) and tax evasion and recommended that: We conclude that the series of allegations which Spain makes against Gibraltar appear almost wholly to be without substance. In many cases it is not just the Government of Gibraltar but the British Government itself which is traduced. It is deeply regrettable that allegations are made that cannot be sustained by a basis of fact. If concrete evidence were produced the British Government should act promptly to deal with the problem. But so long as allegations are unsubstantiated, the British Government should continue to rebut them promptly and decisively The Drug Trafficking Offences Act 1988 was Gibraltar s first antimoney laundering legislation. In 1995, this was replaced by the introduction of the Drug Trafficking Offences Act In 1995, the Criminal Justice Act 1995 introduced all crimes money laundering legislation for the first time. After the terrorist attacks in the US on 11 September 2001, certain anti-terrorism measures, the Terrorism (United Nations Measures) (Overseas Territories) Order and the Al-Qa ida and Taliban (United Nations Measures) (Overseas Territories) Order 2002, 11 were also introduced by way of Order in Council of the United Kingdom Privy Council. The terrorist financing regime has been further strengthened by the Terrorism Act 2005, the Counter-Terrorism Act 2010 and Terrorist Asset Freezing Regulations 2011 referred to and further described below in some detail. Legislation an overview Gibraltar s anti-money laundering legislation is largely driven by EU directives which must be implemented by Gibraltar, as well as the recommendations of FATF and the IMF. Gibraltar s anti-money laundering legislation follows the legislation of the United Kingdom but is not identical, as largely it goes no further than the requirements of EU directives, whilst the United Kingdom Government has on occasion legislated beyond those requirements The primary legislation in Gibraltar is the: Terrorism (United Nations Measures) (Overseas Territories) Order 2001( TO ); 12 Al-Qaida and Taliban (United Nations Measures (Overseas Territories) Order 2002 (ATO); SI 2001/ SI 2002/ SI 2001/ SI 2002/

6 Gibraltar Terrorism Act 2005 ( TA ); Drug Trafficking Offences Act 1995 ( DTA ); Crime (Money Laundering and Proceeds) Act 2007 ( C(MLP)A ); Counter-Terrorism Act 2010 ( CTA ) and Terrorist Asst Freezing Regulations 2011 ( TAFR ) In addition, various regulations have been passed by the Government of Gibraltar under the DTA and by the Governor under the TO The anti-money laundering legislation contains appropriate confiscation provisions for property the subject of terrorist financing, drugs trafficking or other criminal activity. In addition provisions for confiscation can be found also in the Criminal Procedure Act and the Drugs (Misuse) Act In respect of international cooperation, the Evidence Act empowers the Supreme Court to assist foreign courts to obtain evidence in Gibraltar for both criminal and civil proceedings. The Fugitive Offenders Act 2002 contains provisions for the extradition of offenders to British Dependant Territories and designated Commonwealth countries. The Civil Judgments and Jurisdictions Act, the Mutual Legal Assistance (European Union) Act the Mutual Legal Assistance (International) Act and the Transnational Organised Crime Act 2006 all make provision for service of process, jurisdiction and other cross-border assistance. The European Arrest Warrant Act makes provision for the arrest and surrender of offenders to other countries. The DTA and C(MLP)A contain provisions for mutual assistance to overseas jurisdictions in respect of both information and enforcement of confiscation orders. The constraints of available space do not allow for a detailed explanation of these provisions The Financial Services Commission (FSC) is charged with the reduction of financial crime. 15 Financial crime includes money laundering, the financing of terrorism, fraud or dishonesty, misconduct in or misuse of information in financial markets, and handling the proceeds of crime. The FSC is authorised to issue rules of practice and guidance notes on any matter which the FSC regulates, subject to certain political controls. 16 The FSC has a general power of regulation that allows it to make rules and issue guidance notes. 17 In 2007 the FSC replaced existing guidance notes with the Anti-Money Laundering Guidance Notes ( AMLGN ). These became effective on 15 December SI 2001/ Financial Services Commission Act., s 7(2). 16 Financial Services Commission Act, s Financial Services Commission Act, s 6(K). 676

7 Legislation an overview The AMLGN apply to: banks and building societies whether or not operating in or from Gibraltar as a branch or as a locally incorporated institution; the Gibraltar Savings Bank; investment businesses and controlled activities conducted under an authorisation granted under the Financial Services Acts 1989 or 1998 (this includes investment services, company management, professional trusteeship, insurance management and insurance intermediation; other than general insurance intermediation); life insurance companies; currency exchangers/bureau de change; money transmission/remittance offices The Government of Gibraltar has produced its own guidance notes for businesses dealing in large cash payments for goods Whilst the AMLGN are not strictly legally binding on any person, when a person is tried for offences created by s 20 A(1) of the C(MLP)A for failing to comply with Part 3 of the C(MLP)A, 18 in deciding whether the defendant has committed the offence, a court must consider whether any guidance notes issued by a body that supervises, regulates or is a representative of any trade, profession, business or employment of the defendant was followed It is highly unlikely, except in very exceptional circumstances that a court will depart from the principles contained in the AMLGN, and the AMLGN can therefore be considered quasi-legislative. Furthermore, the FSC makes the following comment in the AMLGN: (a) the Notes are written in such a way that compliance with its terms is obligatory; (b) (c) if there is non-compliance with the Notes, a judge must take into account such non-compliance when determining whether a person is in breach of the provisions of section [Part 3] 20 the CJA; 21 the end result of the combination of (a) and (b) immediately above is that a judge, save in an exceptional case, must hold that a person who does not comply with the terms of the Notes is in breach of the provisions of the CJA. 18 C(MLP)A, Pt 3 imposes duties on certain businesses to maintain systems to prevent money laundering and terrorist financing See paras 20.29ff below. 19 C(MLP)A, s 20A(2). 20 Wording in brackets inserted by authors. 21 The guidance notes do not yet reflect the change of name of the C(MLP)A. 677

8 Gibraltar It follows that, if a person does not adhere to the provisions of the Notes, such person would be applying the standards of practice falling below best market practice and would not be held to have taken all reasonable steps and exercised all due diligence The rules of professional conduct prescribed from time to time by the Bar Council and Law Society of England and Wales must be observed by Barristers and Solicitors in Gibraltar, with such modifications as the Chief Justice might allow. 22 Money laundering is a matter of professional conduct. Consequently Gibraltar lawyers are bound by any anti-money laundering guidance notes issued by the Law Society of England and Wales and/or the Bar Council of England and Wales, with such variations as will be implicit due to any differences in legislation Licensed entities engaged in gambling (including on-line gaming) must abide by their own regime contained in the Gambling Act. Legislation to prevent the financing of terrorism The United Kingdom Privy Council enacted the TO 23 on 9 October It came into force on 10 October It introduced various offences relating to terrorism The word terrorism is defined 24 as the use or threat of action where the action: involves serious violence against a person; involves serious damage to property; or endangers a person s life other than that of the person committing the action; or creates a serious risk to the health and safety of the public or a section of the public; or is designed seriously to interfere with or seriously to destruct an electronic system; and the use or threat is designed to influence the government or to intimidate the public or a section of the public; and the use or threat is made for the purpose of advancing a political, religious or ideological cause. 22 Supreme Court Act, s SI 2001/ TO, reg

9 Legislation to prevent the financing of terrorism A terrorist action or threat of action is one involving the use or threat of firearms or explosives, regardless of whether the threat or action is designed to influence the government or intimidate the public This already wide definition is enlarged by the following: action includes action outside Gibraltar; a reference to any person or to property is a reference to any person or to property wherever situated; a reference to the public includes a reference to the public of the territory or country other than that of Gibraltar; and the government includes any other country s government The definition of funds is wide and includes: financial assets and economic benefits of any kind; cash; gold; and all financial instruments and debts The definition of government does not state whether the government must be a government formally recognised by the British government The definition of terrorism extends beyond what a layman might consider to be a terrorist act, and, clearly the defining characteristic of terrorism is that a criminal act is perpetrated in pursuit of a cause. The offences, created by TO, 25 are described in the next following paragraphs It is an offence to invite, receive or provide funds (including funds being given, lent or otherwise made available, whether or not for consideration) intending or knowing that they may be used for the purposes of terrorism. 26 The first limb of the offence is subjective (although determined on an objective standard), in that nothing short of intention or knowledge is sufficient, but it is enough that the funds may be used for terrorism. In other words, they do not actually have to have been employed in terrorism, an indication that they may be so used is sufficient It is an offence for any person who, except under the authority of a licence granted by the Governor, makes any funds or financial or related services available, directly or indirectly, to, or for the benefit of, a person who commits, attempts to commit, facilitates or participates in the commission of acts of terrorism, or to a person controlled or owned directly or indirectly by a person involved in terrorism, or a person acting on behalf or at the direction of that person. 27 The offence is a strict liability offence, so no knowledge or belief is required. Given the novelty of the TO, it is unclear how reg 4 will interact with 25 TO, reg TO, reg TO, reg

10 Gibraltar the provisions of reg 3 and, in particular, reg 3(3), which creates the offence of providing funds It is an offence intentionally to engage in activities whose objects or effect are to enable or facilitate the offences of collecting funds, making funds available, failing to comply with the Governor s directions, or failing to notify the owner of funds of a freezing direction It is an offence that a relevant institution fails to disclose to the Governor knowledge or suspicion that one of its customers is a person who is a terrorist, or is directly or indirectly controlled by or acts on behalf of a terrorist. The term relevant institution includes banks and building societies The Governor may freeze funds belonging to or controlled by terrorists and may identify affected persons. 30 Accordingly, the Governor has issued a list of persons and entities whose funds must be frozen, 31 other than in circumstances in which the authority of a licence has been granted by the Governor. It is an offence to breach a freezing order, whether knowingly or otherwise. 32 It is also an offence knowingly or recklessly to make a false statement to procure a licence and to breach any conditions attached to a licence. 33 Finally, it is an offence for the holder of funds subject to a direction to notify the owner of funds of the notice or revocation thereof The Governor is empowered to direct the furnishing of information from persons for the purpose of ensuring compliance or detecting evasion of the order, and it is an offence for a person: to fail to provide such information within a reasonable time; to furnish false information knowing it to be false; to furnish a document knowing or being reckless as to whether the information in it is false; otherwise to obstruct any person in the exercise of his or her powers under reg 9; or with intent to avoid the provisions of reg 9, delay, deface, secrete or remove any document The penalties for committing an offence are: Collection of funds, making funds available contravening a Governor s 28 TO, reg TO, reg TO, reg Legal Notice No 9, 2nd Supplement, Gibraltar Gazette TO, reg 5(9). 33 TO, reg TO, reg 5(10). 680

11 Legislation to prevent the financing of terrorism direction to freeze funds, facilitating a prohibited activity, failing to comply with the terms of a licence: convictions on indictment: imprisonment for up to seven years and/or a fine; summary conviction: up to six months imprisonment and/or a fine of 10,000. Making a false declaration to procure a licence; failure to notify owner of funds of a direction by the Governor, delays or obstructs a request for information: on conviction on indictment: up to two years imprisonment and/or a fine; summary conviction: a fine not exceeding 10, The ATO 35 was enacted by the Privy Council on 25 January 2002 and came into force on the same day. It applies to anyone within Gibraltar, including companies, and any British Dependent Territories or overseas citizens (British subjects or British nationals) or a British protectorate person overseas who is ordinarily resident in Gibraltar. It introduces various offences in relation to assistance being given to terrorists It is an offence to make any funds available to or for the benefit of a listed person. 36 The term listed person is defined in the Order and includes Osama Bin Laden and any person designated by the Sanctions Committee of the UN as a member of Al Qaida or the Taliban and any body or entity associated with these organisations. Provisions entitling the Governor to freeze funds in the same way as the UN Order are included also. Additionally, the ATO creates similar offences in relation to facilitation of activities and failure to disclose, knowledge or suspicion in relation to the activities of listed persons The penalty for these offences is seven years imprisonment and a fine for conviction on indictment and six months imprisonment and/or a fine of 10,000 on summary conviction The TA 2005 sits uncomfortably alongside the provisions of the TO. The definition of terrorism is wider in the TA 2005 than in the TO in that there is no requirement for terrorism to be in furtherance of a political religious or ideological cause. It is enough that the act or threat is designed to intimidate the public, compel the Government of Gibraltar to perform or abstain from any act, or destabilize or destroy the Government of Gibraltar, or the social or economic fabric of Gibraltar. The acts or threats of the TA 2005 coming within the definition of terrorism have been expanded, and include the following acts: 35 SI 2002/ ATO, reg

12 Gibraltar attacks on a person which may cause death, or endanger life, or involve serious violence; acts which damage property; acts which result in major economic loss to Gibraltar; acts involving the seizure of ships, aircraft or other means of public transport; acts constituting various offences relating to the keeping or using chemical or nuclear weapons under ss 3, 9, 10 and 43 of the Weapons of Mass Destruction Act; and acts involving the use of noxious substances, hoaxes in respect of noxious circumstances or hostage taking The TA 2005 creates various new offences relating to acts of terrorism. It also enacts similar offences to those contained in the TO of raising funds for terrorism, 38 use and possession of money or property for terrorism, 39 arranging funds for terrorism, 40 arranging for the retention of control of terrorist property. 41 These provisions differ from the provisions in the TO in the following ways: The required state of mind (mens rea) for the offences in the earlier provisions was subjective. In contrast, the mens rea for the offences in the TA 2005 contain an objective element. The mens rea is made out in each case if the defendant knows or has reasonable cause to suspect that the funds may be used for terrorist purposes. It is interesting to note the use of the word cause in this legislation. The DTA and the C(MLP)A use the word grounds in this context. It is not known whether the courts will make a material distinction between these different languages. The TA 2005 has no offence of tipping off. Rather disclosure to the Gibraltar Financial Intelligence Unit (GFIU) (see below) constitutes a defence. 42 Under the earlier provisions, disclosure should be made to the Governor. The absence of such an offence in this Act is academic for banks and building societies, given the provisions of reg 8 of the TO. The penalties are more severe on conviction on indictment, the maximum penalty being 14 years imprisonment, but the maximum fine on summary conviction is 4,000 and or six months imprisonment There is an offence of entering or becoming concerned in an arrangement facilitating the retention or control of terrorist property on behalf of another person, by way of transfer, concealment, removal from the jurisdiction or in any 37 TA 2005, ss 22, 23, TA 2005, s TA 2005, s TA 2005, s TA 2005, s TA 2005, s

13 Legislation to prevent the financing of terrorism other way. 43 The offence is a strict liability offence. The defendant has a defence if he proves that he did not know, and had no reasonable cause to suspect that the arrangement related to terrorist property It is a defence to undertake any of these acts with the express consent of GFIU. A disclosure of a person s knowledge or belief that money or other property is terrorist property, and the information on which the suspicion or belief is based, is a defence to these offences, unless having made a disclosure, the GFIU specifically forbid the action or arrangement to which the disclosure relates, and the person continues with it. 44 In relation to the offences under s 5(2) and (3) of the TA 2005 of receiving or providing property or money, or under ss 6 to 8 of the TA 2005, it is a defence to disclose after the commission of the act if the defendant shows he intended to make the disclosure, and there is a reasonable excuse for his failure to do so. Professional privilege is preserved in relation to disclosure. Disclosure pursuant to s 9 of the TA 2005 is not a breach of any restriction on disclosure pursuant to any statute or law The Export Control Act and Regulations made thereunder provide for the control and prohibition of goods and technical knowhow from Gibraltar inter alia to prevent terrorism, terrorist financing and serious crime. The provisions of this act are outside the scope of this chapter The CTA was passed in March 2010 and came into force on 29 April It is aimed at regulating financial businesses (as defined below) for the purpose of imposing counter measures on the activities of certain countries, territories, governments, organisations and individuals relating to terrorist financing, money laundering and the proliferation of weapons of mass destruction. Section 3 empowers the Minister with responsibility for Finance to give directions The conditions for making directions are one or more of: 45 that FATF has advised that measures should be taken in relation to a country because of the risk of money laundering or terrorist financing being carried on in that country, by the Government of that country or by persons or corporations within that country; the Minister believes that there is a risk that terrorist financing or money laundering is being carried on in that country, by the Government of that country or by persons or corporations within that country and this poses a significant risk to the interests of Gibraltar; the UK s Secretary of State for Foreign and Commonwealth Affairs has advised that the United Kingdom Government reasonably believes that the production of nuclear, radiological, biological, or chemical weapons in that 43 TA 2005, s TA 2005, s sect 3 CTA. 683

14 Gibraltar country or the doing of anything to facilitate the development or production of such weapons poses a significant risk to the interests of Gibraltar. Such powers are not exercisable against a European Union State The direction may be made to any particular person, any description of persons or all persons operating in the financial sector (the relevant person). 46 The term person includes natural or legal persons. The financial sector includes banks and other credit institutions, and investment businesses of all types. 47 The Act contains a small exemption 48 relating to businesses which operate in the financial sector on a limited, occasional basis, meaning that the business turnover from financial activity is less than 64, that no more than one transaction relating to any one customer exceeds 1,000 the financial activity does not exceed 5% of the turnover of the business; the financial activity does not consist of the remittal of money; the financial activity is not that of a credit or financial institution; and the financial activity is only offered to customers of the business s main activity Any direction made may impose requirements in relation to business transactions with any person doing business in the country or its Government, or resident or incorporated in it, and may be made in relation to a particular person, groups of persons or all persons in that country (the designated person) The directions must be proportionate having regard to the FATF advice or the interests of Gibraltar 50 and can impose the requirements outlined below A direction may require a relevant person to undertake enhanced due diligence either before the commencement of a relationship or if a relationship already subsists during that relationship 51 and may be either general in nature, or require a relevant person to undertake the measures specified in the direction, or both. 52 Customer due diligence means measures to identify the designated person, and obtain information about the designated person and his business, the source of their funds and 46 CTA s CTA ss 5, CTA s CTA s CTA s 8(7). 51 CTA s 9(1). 52 CTA s 9(2). 684

15 Legislation to prevent the financing of terrorism assess the risk of the person being involved in terrorist financing, money laundering or the development or production of weapons of mass destruction, or the facilitation of that development or production The direction may require a relevant person to undertake enhanced ongoing monitoring of any business relationship with a designated person. 54 Again this may be general or specific, and means that customer due diligence needs to be maintained up to date, and transactions undertaken during the relationship and the source of funds, to ascertain whether the transactions are consistent with the relevant person s knowledge of the designated person and their business A direction may require a relevant person to provide such information and documents as is specified in the direction relating to transactions and the business relationship with the designated person and may specify how the direction is to be complied with, including details of to whom the information is to be provided and the periods within which or the intervals at which it is provided. 55 The direction exempts information and document covered by legal professional privilege, 56 but the provision of information is not otherwise subject to any restriction on the disclosure of such information, whether imposed by statute or otherwise A direction under the CTA may also prohibit a relevant person from entering into a either a specified transaction or business relationship, or a specified description of transactions, or any transactions or business relationships with a designated person, or require him to desist from such transactions or relationships. 58 A direction to cease or desist does not apply where the Minister issues a licence exempting any such act. The exemption may be general or particular, or subject to conditions, and may have an indefinite period, or expiry date All directions addressed to a particular person must be sent to the addressee and published in the Gibraltar Gazette, and when they cease to have effect or are varied, such variation or revocation must also be published The Minister may appoint enforcement officers for the purposes of administering and enforcing the powers of requiring information or documents, undertaking inspections and making Court applications detailed below in ss of the Act. 61 There is detailed provisions allowing enforcement officers to: 53 CTA s 9(3), (4). 54 CTA s CTA s 11(1), (2). 56 CTA s 11(3). 57 CTA s 11(4). 58 CTA s CTA s CTA s CTA s

16 Gibraltar require information reasonably required by him in the exercise of his authority 62 Enter into premises which the enforcement officer believes to be used for a persons business (except premises used only as a dwelling) 63 and inspect them, observe the business being undertaken within them, inspect any document at the premises and require any person on the premises to explain any document so found, without a warrant, 64 on the grounds that the information or document sought is reasonably required in connection with the exercise of the Enforcement officer s functions. It should be observed that the exclusion of Dwellings from the provisions of the CTA might arguably be somewhat circular, in that if a dwelling is used solely as a dwelling, they are not premises at which business records will be ordinarily be kept, or business activities are undertaken as envisaged in the provisions of ss CTA, and if such records are kept or such activities are carried in dwellings, the dwelling would not be used solely as a dwelling for the purposes of the CTA. The power to inspect may also be exercised with a warrant from the magistrates court; 65 if there are reasonable grounds for believing that there are documents in premises which could be required under s 16 CTA, and if a requirement to produce were to be imposed, it might not be complied with or the document might otherwise be removed or destroyed, 66 or and such a requirement for production has been made and not complied with, 67 or if the relevant person has previously obstructed the Enforcement Officer, in a search of premises without a warrant. 68 The protection of legal professional privilege in relation to requirements for information and searches of premises is retained, but any other right of confidentiality is overridden by the CTA. 69 The enforcement officer may apply to court 70 if a person has failed to comply with a requirement for information, and the court may require that person to do the thing they failed to do within a specified period or otherwise take steps to remedy the consequences of any failure. The CTA does not specify the court to which the application should be made under this section. In the absence of any specification, the Interpretation Act defines a court as 62 CTA s CTA s 17(4). 64 CTA s CTA s CTA s 18(2). 67 CTA s 18(3). 68 CTA s 18(4). 69 CTA s CTA s

17 Legislation to prevent the financing of terrorism a court of competent jurisdiction, being either the magistrates court or Supreme Court. Presumably an order may be made by the court in which any prosecution has been bought, or in the Supreme Court if no prosecution has been brought, as the jurisdiction of the magistrates court is in criminal matters and civil matters in which a statute confers jurisdiction The CTA also gives the Minister power to impose civil penalties on any person who fails to comply with a direction, or any condition in a licence exempting relevant persons from any direction. 72 The concept of civil penalties is new to Gibraltar law but the CTA does not say what the amount of the civil penalties should be, and the only criterion to be considered when imposing them is that they be appropriate, meaning effective, proportionate and dissuasive. 73 The wording of the criteria suggests that they should be of a compensatory nature, but with an element of punishment added. Although the CTA provides for the preparation of guidance for the imposition of penalties 74 none has yet been issued. Penalties are decided on by the Minister after inviting representations from the interested party, 75 and the Minister therefore exercises a quasi-judicial function with an appeal of the interested party to the Supreme Court. No case has come to the courts whereby criteria for the imposition of civil penalties and their limits have been considered. Civil penalties can be recovered by the Government of Gibraltar as a civil debt Apart from, and in addition to the civil penalties the CTA imposes offences of: Failing to comply with the requirements of a direction. 77 The CTA allows for the defence of taking all reasonable steps and exercising all due diligence to ensure compliance with the requirement. 78 In deciding whether an offence has been committed the court must consider whether the person followed any relevant guidance issued by the Minister or supervisory authority. 79 Although provision is made for such guidance to be prepared, to date this has not been issued. It is an offence to provide false information or documents which is not what it purports to be in any material respect knowing or being reckless as to whether the information is false or the document is not what it purports to be Magistrates Court Act ss 21 and CTA s CTA s 21(2). 74 CTA s CTA s CTA s CTA s CTA s 25(2). 79 CTA s 25(3). 80 CTA s 26(1). 687

18 20.64 Gibraltar An offence is committed in Gibraltar under this Act by a person operating in the financial sector by conduct wholly or partly outside Gibraltar. 81 The CTA confers jurisdiction for the Gibraltar Courts to try an offence under the Act committed outside Gibraltar. 82 Proceedings can only be instituted with the consent of Her Majesty s Attorney General for Gibraltar (Attorney General). 83 The penalties on conviction for both offences are 12 months imprisonment and or a fine of up to 10, on summary conviction, and two years imprisonment and or an unlimited fine on conviction on indictment The FSC is designated as the supervisory authority, with responsibility for ensuring compliance with the CTA, 85 and for preparing guidance on the criteria for fixing civil penalties, and for issuing guidance on compliance with directions, 86 by reason of it being the designated supervisory authority pursuant to the CMLPA. 87 The Minister with responsibility for finance is empowered to make regulations concerning the issue of licences, to regulate any matter in connection with enforcement officers, to provide for supervision of transactions or business relationships, to implement international or EU obligations or for the better enforcement or implementation of the CTA The CTA binds the Crown in right of Gibraltar, 89 and is subject to the court s supervision through the possibility of an applicant with sufficient interest obtaining a Declaration to the effect that an Act of the Crown is unlawful under the Act, 90 but the Crown cannot be criminally liable Nothing in CTA derogates from the Governor s responsibility for defence, internal security and any other matter under the responsibility of the Governor pursuant to the Constitution. The Governor has the right to be consulted on any matter under this Act which affects the Governor s responsibilities under the Constitution The TAFR was passed in accordance with the requirements of EU Council Regulation 2580/2001 on specific restrictive measures directed at certain persons and entities with a view to combating terrorism, and of United Nations resolutions 1373 (2001) and 1452 (2002) adopted by the Security Council on 28 September 2001 and 20 December 2002 respectively. The TAFR empowers the Minister with responsibility for Financial Services to issue either 81 CTA s CTA s CTA s CTA s 25(4), 26(2). 85 CTA s CTA s CTA s CTA s CTA s 36(1). 90 CTA s 36(3). 91 CTA s 36(2). 688

19 Legislation to prevent the financing of terrorism final designations 92 or interim designations 93 to designated persons, meaning any natural or legal person group or entity as provided in Regulation 2(3) of EU Regulation 2580/ A final designation may be made where the Minister reasonably believes that a person is or has been involved in terrorist activity, 94 or if the person is a corporate entity, if the person is owned by a person so involved, or is acting on behalf of such a person, 95 and he considers it necessary for the purpose of protecting the public from terrorism that financial restrictions should be applied to that person. 96 Involvement in terrorism is defined as the commission, preparation or instigation of acts of terrorism, 97 conduct that facilitates the commission preparation or instigation of terrorism or is intended to do so, 98 or conduct which supports or assists persons known or believed to be involved in terrorism. 99 When a final designation is made the designated person must be notified in writing and steps must be taken to publicise the designation. 100 There is a curious repetition of the requirement for publicity in the provisions requiring a final designation, In reg 5(1)(b) there is only a requirement to publicise the designation, whereas regulation 5(2) requires the Minister to take steps to publicise the designation generally subject to certain exceptions described below. It is our view that the requirements for publicity mentioned in the two regulations are not separate requirements, or the whole effect of the ability to restrict publicity would be undermined. 101 The requirement for publicity does not apply where the designated person is under 18 years of age, or the Minister considers that the disclosure of the designation should be restricted in the interests of internal security, for reasons connected with the detection of serious crime or in the interests of justice. 102 It is of note that usually, when a Gibraltar Act requires publication, the provision usually requires that the Minister must publish a notice in the Gibraltar Gazette. The wider wording in the regulation implies that more comprehensive publicity is expected. Final designations have effect for one year 103 but may be renewed so long as the conditions pursuant to which it was originally imposed are still in place. 104 Again 92 TAFR r TAFR r TAFR r 4(1)(a)(i). 95 TAFR r 4(1)(a) (ii and iii). 96 TAFR r 4(1)(b). 97 TAFR r 4(2)(a). 98 TAFR r 4(2)(b). 99 TAFR r 4(2)(c). 100 TAFR r 5(1). 101 TAFR r 5(2). 102 TAFR r 5(3). 103 TAFR r 6(1) and (3). 104 TAFR r 6(1) and (2). 689

20 Gibraltar a renewal must be notified and publicised. 105 The expiry of a designation must also be notified and publicised. 106 The Minister may revoke or vary a designation at any time, subject to notification and publicity. 107 Interim designations may be made if the Minister reasonably suspects the person of being involved in terrorism or controlled or owned by persons involved in terrorism 108 (the definition being the same as above), 109 subject to notification and publicity (or restriction thereof) as a final designation. An interim designation lasts for 30 days from the day made 110 and can only be made once, but can be varied or revoked. 111 The Minister may make a designation confidential and if any person divulges such confidential information without lawful authority, he is guilty of an offence, except if the information is already in the public domain, and there is a statutory power to apply for an injunction to prevent breach. 112 The punishment is 6 months imprisonment and or a fine of up to 10,000 on summary conviction, and two years imprisonment and or an unlimited fine on conviction on indictment The effect of a designation is to create various offences in relation to dealings with the designated person s assets and resources. Persons are prohibited from dealing with the funds or economic resources of a designated person, and a person who contravenes the prohibition is guilty of an offence, and liability is strict. 113 Deal with means using, altering, allowing access to or transferring ownership, possession, character or destination of the funds, or in the case of economic resources exchanging them or using them in exchange for funds goods or services. 114 It is also an offence to make funds or financial services available directly or indirectly to a designated person 115 or for the benefit of a designated person. 116 It is an offence to make economic resources available directly or indirectly to a designated person 117 or for his benefit. 118 Funds means financial assets of every kind, including but not limited to cash, cheques and other payment instruments, deposits and debt instruments, interest, dividends or other value generated from assets, credit set off letters of credit, bills of lading and sale, documents proving evidence of an interest in funds and any instrument in export finance. 119 Economic Resources means all assets tangible or intangible, moveable or immoveable, which are not funds but can be used to obtain funds goods or 105 TAFR r 6(4). 106 TAFR r 6(5). 107 TAFR r TAFR r TAFR r 8(2). 110 TAFR r TAFR r TAFR r TAFR r 16(1), (2). 114 TAFR r 16(2). 115 TAFR r TAFR r TAFR r TAFR r TAFR r

21 Legislation to prevent the financing of terrorism services. 120 The mens rea for these offences is knowing or having reasonable cause to suspect that the funds, services or resources of a designated person. The offences carry a maximum sentence of six months imprisonment and or a fine of up to 10,000 on summary conviction and to imprisonment of up to seven years and an unlimited fine for conviction on indictment There are various exceptions to these offences, 121 including the crediting of interest or other earnings in a frozen account, and payments due under contracts or obligations concluded before an account was frozen. The prohibition from dealing with funds does not extend to the mere crediting of a frozen account, or if the payment is to be made to a non designated person, even if the payment is made in respect of a designated person, but banks or other institutions making such payments to a frozen account must inform the Minister. The TAFR again provides for the prohibitions not to apply if a licence has been issued allowing the conduct. 122 Licences must specify the activity permitted, made specific to a particular person or general to a category of persons, may have conditions attached, and may be for an indefinite or specified duration, 123 and may be amended or revoked at any time. 124 Licence holders must be notified of the grant, amendment or revocation of any licence, or in the case of general licences, such publicity as the Minister considers appropriate must be given. 125 Any person who for the purpose of obtaining a licence knowingly or recklessly provides false information or produces a document which is not what it purports to be, or fails to comply with a condition of a licence is guilty of an offence. 126 The maximum punishment is six months imprisonment and or a fine of up to 10,000 on summary conviction, and two years imprisonment and/or an unlimited fine on conviction on indictment It is an offence to participate intentionally with any activity the purpose or effect of which is to circumvent directly or indirectly any prohibition contained in the Regulations or which enables or facilitates such circumvention The Regulations provide that a financial institution must inform the Minister if they know or suspect that a person is a designated person, or if any offence under these regulations has been committed. 128 The disclosure must also state the basis of the knowledge or suspicion, and any information identifying the designated person must also be provided. 129 Although the draftsman of this legislation has omitted to include wording to limit the duty to disclose knowledge 120 TAFR r TAFR r TAFR r TAFR r 22(2). 124 TAFR r 22(3). 125 TAFR r 22(4). 126 TAFR r 22(5), (6). 127 TAFR r TAFR r TAFR r 24(10(b), (2). 691