The directors’ battle with the Guernsey Financial Services Commission over the enforcement action taken in 2022 was accepted by the Royal Court in 2023 and celebrated by many in the industry as having the potential to force a new approach to regulation.
But within nine months the commission had won its case in the Court of Appeal and though it was ordered to reconsider the cases against the three directors, the case then proceeded to its enforcement conclusion, with fines levied last month.
The commission has now brought the process to an end with a £450,000 fine on the business, and fines of £125,000 on Ian Domaille, who founded Artemis in 2001, £40,000 on former director Ian Clarke, and £22,500 on Margaret Hannis.
Proposed industry bans for the directors have been dropped. The three individuals had originally faced fines of £280,000, £90,000 and £30,000 respectively.
The GFSC said that the business and its senior officers failed to identify red flags on potentially serious client activities; failed to identify and address conflicts of interest; and had failed to address action points raised in previous file reviews.
The three individuals had failed to show that they acted with soundness of judgment and professional skill.
It said it found ‘serious and systemic failings’ where the business had failed to monitor and manage financial crime risks.
‘The breaches exposed the licensee and the Bailiwick to the very real risk of being used to facilitate financial crime and thereby damaging the reputation of the Bailiwick as a finance centre.’
The commission noted the company’s previously poor compliance history, but also gave it credit for completing a risk mitigation process from 2018, which included appointing a third party to review the effectiveness of its new procedures and to assist with compliance, appointing four new directors, a non-executive director, and creating the post of CEO, held by a person independent of the ownership of the company. It highlighted the involvement of Mr Domaille, as major shareholder, and Mr Clarke in this process.
It also expanded its compliance resources and hired a new money laundering reporting officer and money laundering compliance officer.
In hearing their appeal in 2023, the Royal Court agreed that the directors had a case to answer and that practices at the firm had been lax, but noted they had since carried out remediation.
Nobody had lost money as a result of their actions and there was no reputational damage, the directors said.
They particularly opposed the findings that they acted with a lack of probity, which appear to have been dropped in the final statements.
The company and former managing director and co-owner Robert Sinclair had settled with the commission at an early stage of the enforcement process. Mr Sinclair was fined £196,000 and banned from senior roles in the industry for more than five years back in January 2022.
The commission noted that he cooperated with its enforcement action and agreed to settle at an early stage, but it said that he had been willing to override internal policies, procedures and controls at the request of a client.
The company had about 600 clients at the time it was taken to enforcement and about a third of them were rated as high risk.
Libya trust client
In its early days in business, the licensee established a business relationship with a Libyan national, who was involved in high risk business activities, often working with the country’s government. The relationship involved a trust and acting as secretary for several companies held by the trust.
The client requested changes which would have helped to effectively erase its history following the death of Colonel Gaddafi, which the licensee agreed to. The commission said that the timing of the requests ‘amounted to a serious indicator of potential impropriety’.
Further family links to the trust were of concern, and no action was taken when adverse media reports about the client and his brother started to circulate.
Transfers of millions of pounds, dollars and euros were made from the trusts into bank accounts in Turkey in the original client’s name, even though he was no longer supposed to be a beneficiary, without any scrutiny being exercised.
The commission said that the licensee did not have a complete and clear understanding of the client and the business relationship and it was not effectively monitored.
Russian PEP
The company established a business relationship with a foreign company owned by a high net worth individual from Russia who was also a politically exposed person. Media reports soon emerged linking the client to organised crime in Russia.
Artemis was unaware of a change of legal ownership of the company and did not know why it had happened. Further changes in ownership appeared to disguise the client’s role in the company and seek to hide his assets.
In 2018 the individual became subject to US sanctions but the licensee failed to take action.
The commission said that the history of the relationship was one of a lack of ongoing and effective monitoring.
Charitable trust
The licensee became the trustee of a charitable trust which promoted education, health, culture and spiritual development of communities in Africa, India and Europe.
Donations were made by the trustees on the recommendation of the trust’s settlor.
In 2017 the licensee contacted an individual, who was not a beneficiary of the trust, about a donation to be made towards a school project, but before payment was made, the settlor interjected and said that the payment was a birthday gift towards one of his friends.
The licensee still made the payment to a non-beneficiary.
The trust also paid university fees for an individual linked to the settlor’s company which was mining in Guinea, a high risk country.
A director recognised that the direct payment of university fees could be considered as disguised remuneration and a breach of the trust deed, but then suggested an alternative method of paying the fees.
The commission said that the licensee did not appear to comprehend the nature of a discretionary trust and allowed the settlor to influence them without exercising its functions as discretionary trustee.
Further incidents highlighted by the GFSC
There were several instances recorded where the licensee failed to take reasonable measures to establish the source of fund and wealth of high risk customers; incidents where the licensee had failed to review customer risk assessments; and where it failed to take measures to understand the ownership and control of customers.
The commission also held that the licensee failed to establish and maintain appropriate and effective procedures and controls to ensure compliance with requirements to make disclosures; failed to demonstrate that it understood its existing business; and failed to avoid, manage or minimise conflicts of interest in a case where senior staff were rewarded for a listing of a company on a stock exchange with shares, which were logged as gifts but with no recognition of the risk of a position of conflict.
Relationships with the GFSC
In 2016 the commission conducted a full risk assessment of the licensee which found that there were a significant number of outstanding action points, a number of which related to anti-money laundering and countering the financing of terrorism issues. The commission implemented a risk mitigation programme which required the licensee to provide a plan to the commission detailing how it would reduce the number of outstanding action points to a manageable level and to regularly update the commission.
In October 2017, a director told the commission that outstanding action points had been reduced to a manageable level, and based on this information, the commission concluded that there was no longer an ongoing requirement to keep it updated on the issue of outstanding action points.
However, it conducted another full risk assessment in December 2018 when it found that the director had failed to explain the full extent of the issues the licensee faced, and there remained a serious issue with the level of outstanding action points.
It reviewed the compliance reports from March 2016 to September 2017 which showed that there were still a significant number of action points outstanding. It discovered that the report had been just of action points outstanding for a month or more, rather than the total number.
‘The number of action points and the amount of time taken to reduce the number was extremely concerning and amounts to a repeat failing from a previous full risk assessment,’ it said.
You need to be logged in to comment.