Joint risk statement to the financial services industry: Customer relationships associated with Russia and Belarus
Since the invasion of Ukraine by Russia, a series of actions have been taken against Russia and Belarus by the United Kingdom (UK), United States of America (USA), the European Union (EU), and other international partners. This has included a severe package of sanctions and other economic measures.
The Minister for External Relations and Financial Services (“the Minister”) has confirmed the Government of Jersey’s policy of fully aligning its sanctions regime with that of the UK, and to “take targeted measures to prevent Jersey services providers or structures being abused”.
The Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, made a public statement on 3rd March 2022 concerning the situation in Ukraine, noting:
“The FATF notes that all jurisdictions should be vigilant to the possibility of emerging risks from circumvention of measures taken in order to protect the international financial system from the ML/TF/PF risks resulting from Russia’s aggression against Ukraine.”
The actions of Russia, and economic measures taken by the international community in response, materially heighten the risk of the financial system being used to circumvent such measures, including the sanctions already imposed. Generally, money laundering (“ML”), terrorist financing (“TF”) and proliferation financing (“PF”) risk is heightened where activities take place cross-border, and services are offered to non-resident clients. As a jurisdiction with a significant global international finance centre, Jersey must be particularly vigilant of these emerging threats.
Recently, the UK Government announced that part of its strategy is to hold President Putin to account and send a clear message that the invasion will come at a huge economic cost to Russia. In line with this strategy, UK firms have been urged to consider their investments in Russia and how they may be used to support the Putin regime. Commitments from UK firms to divest away from Russian assets have been welcomed.
Russian and Belarussian businesses and those businesses related to their assets are now at a higher risk of being used to support President Putin’s regime. As such, they are at risk of being considered supportive of ML/TF/PF activities.
Sanctions and other economic measures brought against Russia and Belarus are wide ranging and include asset-freeze designations and trade and financial services restrictions. All persons in Jersey, including financial services and other companies, must comply with these restrictions. There are legal obligations in place obliging you to report to the Minister any connections with designated persons or suspected breaches of sanctions measures, including attempts to breach or circumvent such measures.
More generally, the Government of Jersey and the Jersey Financial Services Commission (JFSC) consider that, currently, there is a significantly increased level of ML/TF/PF risk in providing services to customer relationships associated with Russia and Belarus.
Regulated entities are required to carry out due diligence on a risk basis and this obligation is ongoing. Therefore, those customer relationships are expected to be subject to a higher level of due diligence. Regulated entities should determine appropriate measures to be applied based on their risk assessment process for those customer relationships.
These may include, but are not limited to:
- non-Jersey resident Russian/Belarussian individuals and organisations;
- those who have any source of income from Russia/Belarus; and
- individuals and organisations who regularly conduct business in Russia/Belarus or conduct business with individuals or organisations from those countries.
In identifying whether a person is a non-Jersey resident Russian/Belarussian person or entity, regard should be given to the JFSC Beneficial Owner and Controller Guidance. This applies regardless of the individual or organisation being subject to sanctions, and entities should familiarise themselves with common indicators of sanctions evasion. In accordance with JFSC Guidance, firms should actively consider the adequacy of their risk management arrangements in respect of any relevant customer relationships.
Transactions and mandate decisions should be subject to senior management approval and there should be appropriate oversight in place by the Board, supported by compliance monitoring.
Where a firm is considering exiting a customer relationship with a person or entity that is not subject to sanctions but is associated with Russia/Belarus, there may not necessarily be a prohibition against providing services to facilitate the transfer of the client relationship. In this situation, regulated entities should apply a high level of due diligence to ensure that they do not assist the evasion of sanctions and ensure that those firms who are party to such transactions are not subject to sanctions.
Given the substantially heightened risk and changing measures, the Government of Jersey and the JFSC consider that at the current point in time, if a regulated financial services business was considering a new ongoing Russia or Belarus-associated customer relationship, it may not be possible to adequately mitigate the risk of sanctions evasion. Regulated entities should discuss any matters of this nature with the firm’s supervisor where there is any concern. It is recognised that advisors, including those from the legal sector, may be required to assist the exit of these customer relationships, for which a high level of due diligence should be applied.
The JFSC has published associated guidance on dealing with higher risk relationships relevant to the current situation, and industry will be notified of their publication.
This evolving situation will be kept under review, and further statements will be released as required.