Louvre Trust (Guernsey) Limited, Derek Paul Baudains, Jonathan Ross Bachelet, Haidee Louise Stephens, Julian Dai Lane, Charles Peter Gervais Tracy

The Financial Services Commission (Bailiwick of Guernsey) Law, 1987 (the “Financial Services Commission Law”);

The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law, 2000 (the “Fiduciaries Law”);

The Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007 (the “Regulations”);

The Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing (the “Handbook”)

Louvre Trust (Guernsey Limited) (the “Licensee” or the “Firm”)

Mr Derek Paul Baudains (“Mr Baudains”)

Mr Jonathan Ross Bachelet (“Mr Bachelet”)

Ms Haidée Louise Stephens (“Ms Stephens”)

Mr Julian Dai Lane (“Mr Lane”)

Mr Charles Peter Gervais Tracy (“Mr Tracy”) (together “the Directors”)

On 18 June 2019 the Guernsey Financial Services Commission (“the Commission”) decided:

• To impose a financial penalty of £70,000 on the Licensee under section 11D of the Financial Services Commission Law;

• To impose a financial penalty of £8,400 on each of Mr Baudains and Ms Stephens under section 11D of the Financial Services Commission Law;

• To impose a financial penalty of £7,000 on Mr Lane under section 11D of the Financial Services Commission Law;

• To impose a financial penalty of £5,600 on each of Mr Bachelet and Mr Tracy under section 11D of the Financial Services Commission Law; and

• To make this public statement under section 11C of the Financial Services Commission Law.

The Commission considered it reasonable and necessary to make these decisions having concluded that the Licensee and the Directors had failed to ensure compliance with the Regulations, the Handbook, the Code of Practice - Corporate Service Providers, Instruction 6 of 2009 and the minimum criteria for licensing set out in Schedule 1 of the Fiduciaries Law.

BACKGROUND

In 2007, the Licensee was established in Guernsey.  It was licensed under the Fiduciaries Law on 3 April 2008. 

Mr Baudains is a director of the Licensee and was appointed from 20 December 2007.

Ms Stephens was a director of the Licensee from 20 December 2007 to 3 September 2018. 

Mr Bachelet is a director of the Licensee and was appointed from 1 January 2014.

Mr Lane was a director of the Licensee from 27 October 2011 to 5 September 2018.

Mr Tracy was a non-executive director of the Licensee from 20 December 2007 to 5 December 2016.

The Commission conducted an on-site visit to the Licensee between 25 April 2016 and 5 May 2016 (the “2016 visit”). 

The purpose of the 2016 visit was to carry out a financial crime risk assessment of the Firm.  In doing so the Commission reviewed (among other things) a selection of customer files.  

During the 2016 visit and the subsequent investigation the Commission identified serious failings in respect of the Licensee’s and the directors’ compliance with applicable anti money laundering / countering the financing of terrorism related regulations. 

The issues fell broadly into the following categories:

1. The Licensee did not always identify all high-risk factors when risk assessing its clients;

2. The Licensee did not always adequately risk assess a client relationship at the outset and/or failed to carry out the periodic ongoing client risk assessment required by the Regulations and the Handbook; 

3. The Licensee failed on multiple occasions to obtain adequate due diligence on client business relationships, including high-risk relationships;

4. The Licensee did not always adequately monitor customer relationships;

5. The Licensee failed to comply fully with Instruction 6 of 2009;

6. The Licensee failed to maintain adequate board minutes, records of its customers, and the rationale that supported a decision to approve a high-risk transaction;

7. The Licensee failed to have adequate policies, procedures and controls to forestall, prevent and detect money laundering and terrorist financing;

8. The Licensee unintentionally misled the Commission in its written response to the findings of the 2016 onsite visit;

9. The Directors, during the periods when they were directors of the Licensee, failed to consider the appropriateness and effectiveness of the Licensee’s compliance with the Regulations and the Handbook or review the Licensee’s compliance with the Regulations and the Handbook at appropriate intervals; 

10. The Directors also failed to ensure that the Commission was advised of material failures to comply with the provisions of the Regulations and the rules in the Handbook, and of any serious breaches of the Licensee’s policies, procedures or controls;

11. The Licensee and the Directors failed to comply fully with the minimum criteria for licensing under the Fiduciaries Law.

FINDINGS

The Commission’s investigation found:

The Licensee did not always identify all high-risk factors when risk assessing its clients

The Licensee failed on a significant number of occasions to identify all high-risk factors in high-risk client relationships, such as high-risk countries and high-risk activities.  Identification of these high-risk factors would have led to a more accurate enhanced due diligence focus. 

The Licensee did not always adequately risk assess a client relationship, and/or failed to carry out periodic ongoing client risk assessment

The Licensee failed on a number of occasions to identify client relationships as high-risk.  The Licensee also failed on occasion to conduct periodic ongoing reviews of its client risk assessments, including a high-risk client that was not reviewed for almost three years. 

These failures in respect of client risk-assessments meant that the Firm was not able to ensure that its policies, procedures and controls on forestalling, preventing and detecting money laundering and terrorist financing were appropriately and effectively implemented, having regard to the appropriate risk-rating.

The Licensee failed on multiple occasions to obtain adequate due diligence on client business relationships

As a result of the 2016 onsite visit, the Licensee reviewed its entire client base and identified subjects that required customer due diligence (the “verification subjects”).  The Licensee concluded that 28% of its verification subjects required remediation.  The Firm also identified that just over a quarter of the high-risk verification subjects required remediation.  This evidences that there were large-scale systemic failings in the Licensee’s duty to have adequately conducted and reviewed client due diligence and enhanced due diligence prior to the 2016 onsite visit. 

The Licensee did not always adequately monitor customer relationships

Since 2008 the Licensee has failed to always effectively monitor its business relationships, with insufficient consideration being given to the potential risks that the legal structures could be used to launder money or finance terrorism.  In particular:

• the Licensee failed to conduct additional scrutiny of a transaction that, on the same day, saw assets being on-sold through a legal arrangement which, increased the value of the assets involved in the transaction by €4.5million;

• the Licensee failed to effectively scrutinise the movement of millions of US dollars between jurisdictions via generic consultancy agreements and interest-free loans, whilst also failing to identify this as a high-risk relationship;

• the Licensee failed to effectively scrutinise the source of funds for a transaction involving a high-risk business relationship prior to its decision to authorise the transaction.  At the time of the transaction the Firm had concerns that the source of funds may be linked to a sanctioned entity, but due diligence to confirm the legitimate source of funds was not received until after the transaction had taken place; and

• the Licensee failed to raise the risk assessment of a client from medium to high-risk until after the 2016 onsite visit, despite knowing since 2008 that the client was under investigation for criminal matters and had been charged in 2013 with conspiracy to defraud investors.

The Licensee did not always correctly risk rate its client risk assessments.  A number of client business relationships were rated as medium-risk at the time of the 2016 onsite visit, yet re-rated to high-risk after the 2016 onsite visit, following the Firm’s review of its customer risk assessments as part of a remediation programme.  The Licensee’s failure to identify these clients as high-risk prior to the 2016 onsite visit led to a failure to adequately monitor these business relationships as required under a risk-based approach.  This reduced oversight increased the potential for money laundering and terrorist financing to occur undetected, and increased the reputational risk to the Bailiwick of Guernsey as a finance centre.

The Licensee failed to comply fully with Instruction 6 of 2009

In 2009, the Commission issued Instruction Number 6 requiring licensees to review policies, procedures and controls in place in respect of existing customers to ensure that the requirements of regulations 4 and 8 of the Regulations and each of the rules in Chapter 8 of the Handbook were met.  Licensees were required to satisfy themselves that customer due diligence information appropriate to the assessed risk was held in respect of each business relationship by close of business on 31 March 2010.  Where a licensee could not meet the regulations by the deadline they were required to terminate the business relationship. 

The large volume of the Firm’s verification subjects that had customer due diligence deficiencies (28% of its customers), indicates that the Firm had failed to comply with Instruction Number 6.

The Licensee failed to maintain adequate records

The Firm failed to keep adequate records, including (but not limited to) failing to:

• keep customer due diligence and enhanced due diligence as required by the Regulations and the Handbook;

• record or retain any documentation recording its compliance officer’s rationale for a decision to approve a dividend payment in a high-risk business relationship;

• keep accurate records of board minutes for a client company that the Firm administered.

The Licensee failed to have adequate policies, procedures and controls to forestall, prevent and detect money laundering and terrorist financing

The Directors failed to establish effective policies and procedures for assessing the adequacy and effectiveness of the Licensee’s compliance with the Regulations and the Handbook.  The Firm failed to have a formal Compliance Monitoring Programme (“CMP”) in place until January 2014.  The CMP introduced in 2014 still required significant improvements to be made to it as late as March 2017, almost 10 years after the introduction of the Regulations that required the Licensee to have an effective CMP in place.  The Licensee’s failure to have an effective CMP restricted the Firm’s ability to monitor its capacity to forestall, prevent and detect money laundering and terrorist financing. 

The Directors failed in their duty to review the Firm’s compliance with the Regulations and the Handbook, and ensure that the Licensee had appropriate and effective policies, procedures and controls in place.  

The Licensee misled the Commission in its written response to the 2016 onsite visit

The Licensee and the Directors unintentionally misled the Commission surrounding the timing of the Firm’s receipt of bank statements used to ascertain whether funds were sourced from a sanctioned entity.  The Licensee and the Directors provided documentation that was misleading to the Commission for the purpose of justifying the Firm’s actions in respect of authorising a dividend payment.  In so doing the Licensee and the Directors acted without due diligence and sound judgement. 

The Licensee failed to comply fully with the Fiduciaries Law

The Commission concluded that the Licensee had failed to comply fully with the Fiduciaries Law, specifically paragraphs 1(1)(a), (b) & (c) and 3(2)(a), (b) & (e) of the minimum criteria for licensing set out in Schedule 1 to that Law.  The Licensee failed to act:

• with prudence, integrity, professional skill appropriate to the nature and scale of its activities, and in a manner which will not tend to bring the Bailiwick into disrepute as an international finance centre; and

• with diligence, competence, soundness of judgement, or with a knowledge and understanding of the legal and professional obligations to be undertaken.

The Commission also concluded that the Directors all failed to comply fully with the Fiduciaries Law, specifically paragraphs 3(2)(a), (b) & (e) of the minimum criteria for licensing set out in Schedule 1 to that Law.  The Directors each failed to act with diligence, competence, soundness of judgement, or with a knowledge and understanding of the legal and professional obligations to be undertaken.

Aggravating factors

The contraventions and non-fulfilments of the Licensee and the Directors in this case are serious, and expose the Firm and the Bailiwick to a significant risk of financial crime. 

Through its systemic failings the Licensee had potentially enabled specific structures that it administered to be involved in money laundering or terrorist financing. 

The potential to facilitate the movement of substantial amounts of funds, unhindered around the globe over a long period is of serious concern to the Commission.  The Firm has acted in a manner that could bring the Bailiwick into disrepute as an international finance centre.

The Licensee’s and the Directors’ omission to instigate a formal CMP until January 2014, and the improvements required to be made to that formal programme when it was introduced, meant the Firm was unable to identify the serious systemic failings in its policies, procedures and controls prior to the 2016 onsite visit.  It is an essential role of the board of a regulated entity to implement effective policies, procedures and controls to forestall, prevent and detect money laundering and terrorist financing in order to protect against financial crime, which can have a serious detrimental effect on the reputation of the Licensee and the Bailiwick as an international finance centre. 

Mitigating factors

At the request of the Commission the Licensee instigated a Risk Mitigation Programme, which amongst other matters, reviewed and made fundamental changes to the policies, procedures and controls for forestalling, preventing and detecting money laundering and terrorist financing. A complete customer due diligence review was also conducted.  An updated CMP has been operating since October 2017, and as of August 2018 training had been completed for all staff on the effective completion of client risk assessments.  Since the investigation began the Licensee has strengthened its risk and compliance team and undertaken additional risk-rating. 

At all times the Directors and the Licensee co-operated fully with the Commission.  The Licensee and the Directors agreed to settle at an early stage of the process, and this has been taken into account by applying a 30% discount in setting the financial penalty.

The financial penalties imposed on each of the Directors have been calculated to take account of the periods during which each person was a director of the Licensee, and their respective responsibilities. 

End