Country Update – Bermuda: AML

Bermuda is a leading international financial centre and maintains a comprehensive body of primary legislation relating to money laundering and terrorist financing, supported by a range of general and sector specific guidance notes (for, amongst others, insurers, money service businesses and corporate service providers) issued by the Bermuda Monetary Authority (BMA). Guidance notes for the legal and accounting sectors are separately issued by the Barristers & Accountants AML/ATF Board (AML/ATF Board).

The legislation and guidance notes together comprise a comprehensive code aimed at the prevention, discouragement, detection and prosecution of money-laundering and terrorist financing related offences in Bermuda.

Key directives/legislative framework

The central framework for Bermuda's anti-money laundering (AML) and anti-terrorist financing (ATF) regime is comprised of (each as amended from time to time): the Proceeds of Crime Act 1997 (the POCA), the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008 (the Regulations), the Anti-Terrorism (Financial and Other Measures) Act 2004 (the ATF Act), the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing Supervision and Enforcement) Act 2008 (the SE Act) and the Financial Intelligence Agency Act 2007 (the FIA Act).

This principal legislation is supported by a range of additional legislation, including the Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing Supervision and Enforcement) Designation Order 2012, the Anti-Terrorism (Financial and Other Measures) (Business in Regulated Sector) Order 2008 and the Charities (Anti-Money Laundering, Anti-Terrorist Financing and Reporting) Regulations 2014.

The POCA is primarily aimed at preventing offences relating to the proceeds of criminal conduct including drug trafficking and certain other indictable offences in Bermuda. In addition to creating offences relating to money laundering (or the giving of assistance in such activities), the POCA also confers expansive information gathering powers on the police relating to investigations into drug trafficking, money laundering, whether a person has benefited from criminal conduct and the whereabouts of any proceeds of criminal conduct.

Pursuant to these powers, a police officer may apply to the Bermuda Supreme Court (the Court) for a production order, search warrant, monitoring order or a customer information order. Additionally, the Director of Public Prosecutions or the Attorney-General can also apply to the Court for a disclosure of information by a Government Department order. The POCA also contains provisions empowering the Court to make confiscation orders, forfeiture orders and freezing orders and to impose other penalties with respect to the proceeds of crime. The POCA also permits the enforcement of foreign orders relating to confiscation and recovery in certain circumstances.

The ATF Act deals specifically with the financing of terrorism and terrorist organisations, complimenting the broader AML legislation (similarly, the Misuse of Drugs Act 1972 focuses specifically on curbing the financing of drug trafficking). In addition to establishing a series of offences relating to involvement in arrangements for facilitating, raising or using funds for terrorism purposes, the ATF Act also confers information gathering powers on the police and empowers the Court to make orders and impose penalties in relation to investigations relating to terrorism offences (similar to the provisions applicable to money laundering offences set out in the POCA).

The Regulations specify the obligations, procedures and arrangements that certain in-scope AML/ATF regulated financial institutions must implement and maintain in their operations in order to prevent money laundering or terrorist financing.

The FIA Act establishes an independent agency to receive reports of suspicious transactions from regulated financial institutions and other persons and to collate, analyse and, if appropriate, disseminate information to law enforcement for investigation.

Guidance Notes

General and sector specific guidance notes on the Prevention of Money Laundering and Combating Terrorist Financing are available from the BMA website.

The BMA is the supervisory authority for AML/ATF regulated financial institutions and, pursuant to the SE Act, has a duty to effectively monitor on a risk sensitive basis the relevant persons and financial groups that it supervises, and take necessary measures to secure compliance with powers to impose penalties on institutions which fail to comply. These include the power to cancel the registration of a non-licensed AML/ATF regulated financial institution or regulated non-financial business or profession, and the power to impose civil penalties on regulated institutions.

The purpose of the guidance notes is to provide an outline of the regulatory framework for AML/ATF as well as to interpret the requirements of the relevant AML/ATF legislation and regulations indicating good industry practice procedures through a proportionate, risk-based approach. The guidance notes also assist with the process of designing and implementing the systems and controls necessary to mitigate the risk of institutions being used in connection with money laundering and terrorist financing.

It is not intended that the guidance be applied unthinkingly as a checklist of steps to take but rather that AML/ATF regulated financial institutions encourage their staff to "think risk" as they carry out their duties within the AML/ATF regime. The BMA expects AML/ATF regulated financial institutions to address their management of risk in a thoughtful and considered way, and to establish and maintain systems and procedures which are appropriate and proportionate to the risks identified.

The Barristers & Accountants AML/ATF Board is the supervisory authority for professional legal and accountants, and guidance notes for the legal and accounting sectors can be located via their website.

The Courts take account of any relevant guidance issued by a supervisory authority (such as the BMA) and thus the guidance notes provide a sound basis for assisting financial institutions in meeting their legislative and regulatory obligations. Any departures from such guidance, and the rationale for doing so, should therefore be documented and financial institutions will have to stand prepared to justify such departures to their supervisory authority.

Regulators and monitoring authorities

The BMA is the supervisory and enforcement authority for AML/ATF regulated financial institutions. The BMA is responsible as part of its regulatory function, to monitor compliance with the Regulations.

FIA Contact

The FIA is contactable at info@fia.bm.

Reporting requirements/obligations

The principal money laundering offences (see Offences below), apply to all "persons", whereas the obligations and specific requirements under the Regulations apply only to, among others, AML/ATF regulated financial institutions, independent professionals, casino operators, registered dealers in high value goods and real estate brokers and agents, each acting in the course of business carried on by them in or from Bermuda.

"AML/ATF regulated financial institutions" are defined as persons who:

• carry on deposit-taking business within the meaning of the Banks and Deposit Companies Act 1999;
• carry on investment business within the meaning of the Investment Business Act 2003;
• are insurers (but not reinsurers) registered under the Insurance Act 1978 carrying on certain kinds of long-term business;
• are insurance managers, insurance brokers or insurance marketplace providers registered under the Insurance Act 1978 but in relation to an insurance broker or insurance marketplace provider only in so far as they act as a broker or a provider in connection with certain kinds of long-term business (other than reinsurance business);
• carry on the business of fund administrator within the meaning of the Investment Funds Act 2006;
• carry on money service business within the meaning of the Money Service Business Act 2016;
• carry on corporate service provider business within the meaning of the Corporate Service Provider Business Act 2012;
• carry on trust business within the meaning of the Trusts (Regulation of Trusts Business) Act 2001 and are not otherwise exempted under the Trusts (Regulation of Trust Business) Exemption Order 2002;
• are operators of investment funds within the meaning of the Investment Funds Act 2006;
• are a licensed undertaking carrying on digital asset business within the meaning of the Digital Asset Business Act 2018;
• carry on the business of a credit union within the meaning of the Credit Unions Act 2010; or
• carry on for or on behalf of a customer the business of providing certain financial activities specified in the Regulations.

"Independent professionals" are professional legal advisers or accountants (being a firm or sole practitioner) who by way of business provides legal or accountancy services to other persons when participating in financial or real property transactions concerning:

(a) buying and selling real property;

(b) managing client monies, securities or assets;

(c) managing bank, savings or securities accounts;

(d) organising the contributions for the creation, operation or management of companies;

(e) the creation, operation or management of legal persons or arrangements, and buying and selling of business entities.

AML/ATF regulated financial institutions and independent professionals are required to ensure that their employees are periodically trained on the content of the Bermuda AML/ATF legislation, and the procedures instituted in order to ensure compliance with the duties imposed thereunder.

Offences

Under the POCA, five principal money laundering offences are defined:

1. concealing or transferring criminal property;
2. assisting another to retain criminal property;
3. acquisition, possession or use of criminal property;
4. failure to disclose knowledge or suspicion of money laundering; and
5. tipping-off.

Predicate offences

A money laundering offence is committed if the funds in question represent proceeds of criminal conduct: "Criminal conduct" is defined as drug trafficking or any relevant offence. "Relevant offence" is defined as (a) any indictable offence in Bermuda other than a drug trafficking offence; (b) any act or omission which, had it occurred in Bermuda, would have constituted an indictable offence other than drug trafficking; or (c) any criminal act or omission in relation to any tax lawfully established in a jurisdiction outside Bermuda which, notwithstanding certain provisions of the Taxes Management Act 1976, would have constituted an offence of criminal tax evasion under Taxes Management Act 1976, had it occurred in Bermuda.

Penalties and reporting requirements

Depending upon the specific offence, penalties can range on a scale of up to 20 years imprisonment or an unlimited fine or both. For further information regarding penalties and reporting requirements for AML/ATF offences, see the Compendium referred to under Statutes below.

Statutes

Conyers has prepared a compendium of the Bermuda Anti-Money Laundering and Anti-Terrorist Financing legislation. It can be found here. It includes the key legislation and related statutes, statutory instruments, rules and statutory appointments, incorporating all amendments to date.

The AML and ATF regime is a key part of a wider ecosystem of business crime supported by exchanges of information with other countries (which is outside the scope of this note) and includes corporate fraud, insider dealing, market abuse, sanctions and other offences, a number of which may constitute predicate offences to money laundering.

This high-level overview is not comprehensive and should not be regarded as legal advice. Specific legal advice should be sought in every case.

This Country Update was originally published by Thomson Reuters Regulatory Intelligence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.