Safehaven International Ltd, which was established in Guernsey in 1981 and received a full fiduciary licence in 2002, has been the subject of a fine, as have its officers, namely Richard Bach, Michael Good, David Whitworth, Stephen Dickinson and the MLRO Tracey Ozanne. The regulator has also issued two of them with temporary bans.

The Guernsey Financial Services Commission has decided to fine the company, which enables high-net-worth individuals to create companies to own and manage aircraft and luxury yachts, £100,000. It has also decided to impose £50,000 on Bach, the 100% shareholder and erstwhile managing director; £10,000 on Good; £10,000 on Whitworth, a director; £1,000 on Dickinson, a director (which would have been £10,000 if his personal circumstances had been better); and £5,000 on Ozanne. It will also make orders to prohibit Bach from being a director or manager for six years and to prohibit Ozanne from being a money-laundering reporting officer or MLRO for five years. Readers will be left to make up their own minds about the severity of these punishments.

The GFSC has long considered the firm to be one that offers services that are 'risky' in a money-laundering context because its clientèle:

• consists of ultra-high net worth individuals, many of whom are, in the regulator's estimations, 'highly risky' in themselves,
• are often Politically Exposed Persons or PEPs, and/or
• live in or operate businesses (some of a high risk nature) in countries that the regulator believes to be highly risky.

The fateful visit

The GFSC visited the firm in 2016 to look at the firm's AML policies, procedures and controls and found much to be desired. It looked all the way through 13 clients' files, finding breaches of the rules in nine of them.

Relationship risk assessments

Every firm must assess the "money-laundering risk" (defined as the risk that it might be used for money-laundering) of any business relationship that it is thinking of striking up with a HNW individual or company.

The regulator found problems in the way the firm handled various companies on behalf of its HNW clients. It administered Company 1, whose purpose was to own a €5-million yacht on behalf of a client from a highly risky country who was working with PEPs in his job of managing state-owned organisations linked to the military. Hardly anything could have generated more money-laundering warning signs or 'red flags,' but in fact the company did not identify the person as a PEP for ten years. Nor did it review him annually, despite its own procedures calling for such annual reviews.

Another company (2) was set up by the firm in 2009 to buy a £7-million motor yacht, which the HNW client sold for £3.7 million in 2015. Later that year, the client bought another luxury asset (details unknown) for £1.4 million, with media reports saying that the funds for this came from the sale of the yacht. The firm set up a holding company for this new asset.

In 2016 the firm read media reports that said that the client had been arrested abroad for a multi-million-pound fraud linked to organised crime. Plenty of mention was made of his taste for luxury vessels. He was sentenced to eight years' imprisonment in 2018.

According to the regulator, at no time in the relationship did the firm investigate the source of any of the funds for the purchase and maintenance of the assets mentioned so far. It did not investigate unexplained cash withdrawals from Company 2. It did not try to find out why funds from the chartering of the motor yacht were paid direct to the client's bank account and not into Company 2’s bank accounts. Most damning of all, there was documented attempt to explain the massive price differential between the vessel's purchase and its sale. This was, it is safe to surmise, especially alarming for the regulator because the firm knew that the original asking price was £6.9 million. Under-invoicing is a common form of money laundering.

The firm took over the administration of Company 3 (another motor-yacht holder) in 2010, with the clients who owned it being a HNW father-and-son team who also owned a large extraction company in a less-than-salubrious country. In 2014 the pair began to receive a bad press for alleged fraud and misconduct to do with an industrial accident. In 2016 the motor yacht was sold and in 2018 one of the clients went to prison in connection with the accident. Despite performing a risk assessment on the clients in 2014, the regulator says that the firm took no measurable action.

CDD and EDD

Regulations 4 and 5 of the Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations 2007 require every firm to identify its customer and the extra steps it has to take to establish the source of his funds/wealth if he is highly risky. When the firm asked the owner of Company 1 where his assets came from, he coyly replied 'own business.' According to its records, the firm did nothing to corroborate this as it should have done. Nobody at the firm checked the source of the funds that paid for the €5-million yacht. In 2016, ten years after taking the client on, the firm still did not have a certified copy of his passport, nor had it verified his address by unearthing so much as a gas bill that had been sent there.

The same failure to establish the source of funds occurred with the £7-million yacht owned by Company 2, or the funds that went into Company 3 (again, characterised by the HNW clients merely as 'own business'). The firm also failed to be "customer duly diligent" (to use an ugly term invented by the Basel Committee for Banking Regulation and subsequently used by the Financial Action Task Force) for six years in relation to Company 4, which a HNW client had also used to purchase a £4.6-million motor yacht. An HNW client who owned Company 5 described the source of his wealth as "own business mainly based in the Democratic Republic of the Congo." The firms' records showed the regulators no evidence that anyone had corroborated this claim.

Other failures

Regulation 11 and rules 274-278 of the GFSC's rulebook stipulate that firms should review identifying data for highly risky relationships or customers over time and that they should scrutinise transactions, especially if they appear unusual. This, according to the regulator, the firm signally failed to do.

One of the companies that belonged to Company 1 made three loans of approximately €500,000 to Company 1;  Safehaven International did not record the rationale for these transactions. In 2011-14, people withdrew amounts of €50,000, €30,000 and €80,000 in cash; the firm had no evidence of what they used these sums for. Millions changed hands when the HNW behind Company 2 chartered the vessel that it onwed; Safehaven did not consider the considerable money-laundering risks involved. In 2015, long after bad press had begun circulating about the owners of Company 3, the firm asked them for some background documents and waited patiently for them until March 2017, when they finally arrived. Safehaven also failed to look over the credentials of unknown third parties who paid monies into Company 4. The firm did not monitor its relationship with the HNW behind Company 6 at all.

On top of all this, the firm allegedly failed to obey an order from the GFSC to review its AML policies and procedures by a certain deadline, flouted Regulation 9 by not ending its business relationships with Companies 1 and 3 when it could not verify identities and broke Regulation 12(f) when it failed to keep up appropriate AML procedures and controls.

No longer on the blacklist

Meanwhile, the GFSC has just updated Appendix I to its rulebook as a result of the FATF's announcement that it has removed the Bahamas from its list of "jurisdictions under increased monitoring." That jurisdiction has now remedied the problems that the standard-setter spotted in October 2018.