The Isle of Man is widely considered to be a well-regulated jurisdiction with a robust regulatory framework overseen by the Financial Services Authority (FSA). Businesses across a variety of fields are licensed, regulated, and overseen to undertake business by the FSA or alternatively are, since the introduction and implementation of the Designated Businesses (Registration and Oversight) Act 2015, regulated by the FSA in relation to compliance with the Island’s anti-money laundering (AML) and countering the financing of terrorism (CFT) legislation.
Businesses caught by the expanded level of regulation are not just financial businesses but a whole array of non-financial businesses and professions, such as lawyers and accountants as well as estate agents and tax advisors, to name just a few. With tighter regulation there are, however, more chances of breaches occurring within businesses. There also appears to be an ever-increasing number of regulatory offences hitting the statute books, many of which remain within the criminal courts and have custodial penalties. It is not only companies and businesses, however, that are at risk, directors and officers can be held personally liable for breaches in addition to the company or other legal structure.
The FSA message is that it is not sitting waiting to catch businesses out and its overall intention is to achieve compliance and foster good working relationships. However, if a breach occurs within your business you need to act in a careful and considered manner.
The FSA has publicly committed to working alongside regulated entities to ensure compliance and, where regulated entities are open and transparent with the regulator, they will not necessarily use the heavy powers of enforcement available to them. But, with international pressures from the Financial Action Task Force (‘FATF’) and MONEYVAL and the UK and Europe more generally, with regard to tighter regulation, will Isle of Man regulators really put their money where their mouths are? In January 2017, MONEYVAL published its initial mutual evaluation report on the Isle of Man which commented on the effectiveness of island-wide AML and CFT measures as well as the Isle of Man’s compliance with the recommendations by FATF. While the island was found to have robust legislation in place, there was some criticism made with regard to the enforcement of the same. Therefore, across industry, there was a concern the FSA may seek to take more regulatory action, simply to increase the enforcement numbers to satisfy international pressures. A number of amendments to the regulatory framework have also been implemented over the course of the last two years, to address other concerns and criticisms from MONEYVAL.
As anticipated, since the 2017 MONEYVAL report, there has been an increase in regulatory prosecutions coming before the court. Thus far, however, the success rate has been poor and the FSA was heavily criticised in its approach in the recent case of HMAG v MBC Limited and others. The prosecution withdrew the case against the four defendants in that case, following an application for a stay on the grounds of an abuse of process, arising from the unfairness of the FSA’s investigation into the company’s alleged breaches of the AML and CFT Code. The court similarly criticised the manner in which the FSA conducted itself in its investigation which was, it was said by the Deemster (Judge), to be wholly prejudicial to the company. Prior to any judgment being issued, the prosecutor applied to withdraw the case, although a significant costs application was made by the defendants.
More recently, the FSA initiated a prosecution against a company director for failure to report suspicions under the Proceeds of Crime Act 2008 – HMAG v Monk. The Deputy High Bailiff (Summary Court Judge) dismissed the case at the committal stage, on the basis of there being insufficient evidence to support a case. The prosecution was heavily criticised for the lack of evidence of money laundering, or any criminal offence, in fact, having been committed. The dismissal has recently been upheld on appeal.
Therefore, if there was any indication of a run on prosecutions to satisfy international bodies, the lack of success and public criticism that has followed, may well have poured cold water on the same and the FSA appears to have reverted to its cooperative compliance approach.
That said, there has been an increase in the number of restraint orders being sought under the Proceeds of Crime Act 2008, many of which are on an international cooperation basis. The process for obtaining such orders is carried out through the criminal courts and the Attorney General’s Chambers has now set up a separate arm of its prosecutions department to focus on international cooperation and mutual legal assistance requests and recover assets. There is no requirement for there to be a predicate criminal offence in the Isle of Man in order to obtain such an order. However, once again the court has heavily criticised the approach taken in these applications and in particular the lack of disclosure and transparency from the prosecutions department to the respondent. One big problem in the Isle of Man is the lack of legal funding available to challenge proceedings brought under the Proceeds of Crime Act 2008. The court, pursuant to the legislation, has a significant restriction on its powers to allow the restrained assets to be used to fund legal advice and representation in relation to the restraint order proceedings. Unlike in England and Wales, legal aid funding is not available for such proceedings in the Isle of Man, and this begs the question as to whether the Isle of Man is compliant with its international and local human rights obligations.
In September 2019, the FSA issued its new Enforcement Decision-Making Process and Settlement Procedure.
This, for the first time, documents the FSA’s approach to enforcement and how regulated entities are expected to work alongside the FSA in cases of breach. It is positive to note that this procedure continues to follow the same theme of cooperation and working alongside regulated businesses to achieve compliance. The key message from the FSA is that it is committed to further develop its culture of constructive, open, and transparent engagement with industry and other key stakeholders. There have been no known deferred prosecution agreements entered into in the Isle of Man as yet, but this step appears to be a move forward in relation to such approach, where of course the same would be appropriate. Additionally, legislation was introduced this year in order to introduce civil penalties to the enforcement powers of the FSA and there is further legislative change in progress to further widen the FSA’s enforcement powers.
Therefore, while regulation is being tightened and there appears to have been an initial flurry of activity, perhaps to satisfy external international bodies, the waters now appear to be calming and moving back toward mutual cooperation and assistance between regulated entities and the FSA, which can only be described as a positive move. There must be mutual confidence and respect between industry and the regulator to achieve good compliance across the board. Industry must have the ability to approach the regulator for assistance and report breaches, without fear of an iron fist. The recent steps taken by the FSA, if followed through in practice, should assist in such approach.
