Press Release - 2 October 2000
United States Internal Revenue Service approves Jersey's know your customer rules
Demonstrating to the United States Internal Revenue Service (IRS) that Jersey has a robust arsenal of legislation, regulations and administrative practices to counter money laundering will avoid significant increases in workload for Jersey's financial businesses.
Jersey, along with many other jurisdictions around the world, was invited to set out its detailed "know your customer" procedures in responses to 18 specific questions listed by the IRS. Approval of the Island's anti-money laundering procedures was necessary under the IRS's new rules concerning US withholding taxes. It demonstrates that the United States IRS is satisfied with the level and quality of Jersey's anti money laundering regime in this respect and means that the way is now clear for Jersey financial institutions to apply for "Qualified Intermediary" status under these new rules.
Only 16 other jurisdictions, including the United Kingdom, France, Germany, Guernsey and the Isle of Man have so far received similar approval.
The Island's application to the IRS follows the introduction of new US withholding tax regulations on 1 January 2001, which will affect anyone holding United States assets and receiving income from the US. This applies to those holding assets in their own name, or holding them for someone else. The purpose of the new rules is to allow the IRS to satisfy itself that its various exemptions from the requirement to pay US withholding tax are only enjoyed by those genuinely entitled to them. Unless the IRS approves a jurisdiction's "know your customer" procedures, each institution would have to disclose a considerable amount of customer account information directly to the IRS. The administration would have been very burdensome. The Island's approval now allows financial businesses in Jersey to enter into agreements with the IRS (becoming "Qualified Intermediaries"), which will greatly simplify customer documentation and reporting requirements.
Qualified intermediaries are not expected to disclose details of non-United States clients to the IRS, and are subject to simplified withholding and reporting requirements.
Commenting on the United States endorsement of Jersey's anti-money laundering legislation and procedures, Richard Pratt said:
"This further independent endorsement of Jersey's "know your customer" provisions - which are at the heart of our anti money laundering defences - is very welcome. Without this approval from the IRS, Jersey's businesses would have been subject to highly onerous reporting requirements. The Jersey Financial Services Commission has worked extensively with the industry and negotiated with the US IRS to achieve this result."
The report follows the Island's rating as a "Group 1" jurisdiction (defined as co-operative, with a high quality of supervision) in a survey of 35 onshore jurisdictions earlier this year by the G7's Financial Stability Forum (FSF); an FATF report in June that the Island should be regarded as co-operative in the fight against money laundering; and the results of a recent FATF style mutual evaluation conducted by United States, French and Maltese anti-money laundering experts which concluded that Jersey's high anti-money laundering standards are now close to "complete adherence" with international recommendations . All reports are entirely consistent with the findings of the 1998 Edwards Report, which placed the Island in the "top division" of offshore finance centres.