tav0034 - Evidence on Tax avoidance and evasion

Evidence submitted by Isle of Man Government (tav0034)

Submission by the Isle of Man Government
UK Parliament Treasury Sub-Committee inquiry on tax avoidance and evasion

UK Parliament Treasury Select Committee inquiry on economic crime

May 2018

This submission is made by the Isle of Man Government, and is in response to the UK Parliament Treasury Sub-Committee’s call for evidence in respect of its inquiry into “Tax Avoidance and Evasion” and the Treasury Select Committee’s call for evidence in respect of its inquiry into “Economic Crime”.

The submission is made in the context of the Isle of Man’s constitutional status as a British Crown Dependency, and as such, no comment is made on the wider issues concerning UK policy.

INTRODUCTION

The Isle of Man (IoM) is not part of the United Kingdom (UK). It is internally autonomous and self-governing, with its own independent legal, administrative and fiscal systems. The IoM’s Parliament, Tynwald, legislates for the Island. It is a Dependency of the British Crown, with Her Majesty The Queen as Sovereign. The Lieutenant Governor is the personal representative of Her Majesty The Queen in the Island. The IoM is not represented in the UK or European Parliaments.

The UK Government, on behalf of the Crown, is ultimately responsible for the IoM’s defence and international relations. In recent years, reflecting differences in UK and Manx law and policies, the IoM has – in agreement with the UK and its international partners – represented its own interests internationally, notably by concluding a significant number of tax information exchange agreements, and double taxation agreements, under entrustment from the UK.

The signing of an international identity framework [1] between the UK and IoM Governments, in May 2007, was an important step forward in helping the Island represent itself internationally. The framework recognised that “the Isle of Man has an international identity which is different from that of the UK”, and that “the UK recognises that the Isle of Man is a long-standing, small democracy and supports the principle of the Isle of Man further developing its international identity”. This framework, reinforcing the IoM’s separate status within the context of its constitutional relationship with the UK, is a cornerstone of the IoM’s strategy to continue to develop its national identity.

UK legislation and international treaties are only extended to the Island with the prior consent of the IoM Government.

The IoM is not part of the European Union (EU) or European Economic Area (EEA) but it is part of the customs territory of the EU. The relationship between the IoM and the EU is set out in Protocol 3 to the UK’s Act of Accession by which the UK became a member of the EU and also in what is now Article 355(5)(c) of the Treaty on the Functioning of the European Union. The IoM’s relationship with the EU is dependent on the UK’s membership of the EU.

Under Protocol 3 (and section 2(1) of the European Communities (Isle of Man) Act 1973) certain EU legislation, in particular that concerning customs, trade in goods and agricultural matters, is directly applicable to the IoM, but the majority of EU legislation does not apply.

The IoM is financially autonomous and receives no financial assistance from either the UK or the EU. The IoM’s rates of direct and indirect taxation systems, together with its National Insurance system, fund a range of services for Island residents similar to those provided in the UK, e.g. National Health Service, Child Benefit, State Pension, and Social Care Services. The IoM taxation system also ensures the IoM Government is able to achieve a budget surplus each year, which is a requirement of our national law. This year Income Tax receipts are expected to be at least £224million, National Insurance receipts £197 million, and indirect tax receipts are forecast to be £369million, of which VAT is expected to be £276million.

The IoM and the UK, by virtue of their unique Customs and Excise Agreement (the 1979 Agreement) are treated as a single territory for Customs, Excise and VAT purposes. Under the 1979 Agreement, with few exceptions, the IoM keeps its laws and control functions, relating to the customs and excise revenues, correspondent with those of the UK. The standard rate of VAT in the IoM is 20%. Further information relating to IoM taxation and VAT is provided in Appendix 1.

The IoM has a modern regulatory system aligned to international standards in tax compliance and transparency, and in safeguarding and supervising the financial system.

Work in addressing Money LAUNDERING, Terrorist Financing and financial crime

The IoM has a strong record of meeting international standards in respect of addressing Money Laundering (ML), Terrorist Financing (TF), Financing the Proliferation of Weapons of Mass Destruction (PF) and Financial Crime and in being independently assessed against those standards. The IoM has repeatedly shown political commitment at the very highest level to meet evolving international standards in these areas.

In March 2016, a wide-ranging anti-money laundering (AML) and countering the financing of terrorism (CFT) review, called the National Risk Assessment (NRA), was published. The IoM was one of the first jurisdictions to undertake such an assessment and have the results published as a report. The IoM’s NRA is currently being reviewed and updated and key findings will be published later in 2018.

In January 2017, Tynwald approved the IoM’s Programme for Government 2016-2021 [2]. The Programme for Government states that the IoM will; “Maintain our robust, zero tolerance stance in relation to money laundering and the financing of terrorism.”

All IoM Government authorities and law enforcement agencies (see Appendix 2 for structure of operational oversight in respect of financial crime) have developed further actions and service delivery plans to support the Programme for Government and to implement its contents. Performance indicators have been set and are publically reported on by the IoM Cabinet Office each quarter. There will be annual updates on the Programme providing an opportunity for Tynwald to debate the progress and direction of government.

In addition the IoM has published a specific Financial Crime Strategy 2017-2020 [3] with the goals of:

Understanding the money laundering and financing of terrorism threat, risk and harm facing the IoM;
Ensuring that the IoM is a hostile jurisdiction for money laundering and the financing of terrorism;
Pro-actively identifying and pursuing offenders; and
Taking the benefit out of crime.

The IoM legislative framework for AML/CFT has been in place and effective since 1990. This legislation has been regularly updated to deal with new threats that have emerged and has strengthened the IoM’s defences against money laundering and international terrorism.

Following an assessment of the IoM’s AML/CFT regime (see Appendix 3 for further detail) the IoM introduced additional primary and secondary legislation, relevant to combatting money laundering, terrorist financing and other financial crime. This legislation is listed in Appendix 4. Further primary legislation is in the process of receiving Royal Assent [4] which will enhance the IoM’s compliance with global standards on anti-money laundering and countering the financing of terrorism.

The IoM also fully implements the international sanctions regime to prevent TF and PF. The policy of the IoM Government is that the Island will seek to maintain its list of persons and entities affected by the various financial sanctions regimes so that they match those adopted by the UK. The UK lists are maintained by HM Treasury. There are a number of sanctions regimes in operation on the Island (see Appendix 5 for further detail).

The Customs and Excise Division of the Treasury (CED) is responsible for the administration of various UN and EU trade and financial sanctions in the IoM, including the granting of necessary permissions and licences that may be allowed under the various orders and regulations. CED works alongside the Financial Intelligence Unit (FIU) which, under the Island’s legislation, receives all suspicious activity reports (SARs) including possible sanctions breaches. CED is also required to report annually to Tynwald detailing how the Treasury has exercised certain functions in relation to sanctions, under the Terrorism and Other Crime (Financial Restrictions) Act 2014.

CED liaises with HMRC and HM Treasury’s Office of Financial Sanctions Implementation (OFSI) and may disclose information to these agencies in order to facilitate or ensure compliance with the sanctions legislation.

In addition a number of other significant measures have been introduced to support the Island’s work in respect of ML, TF and Financial Crime which are detailed below.

It is essential for the IoM to maintain a strong oversight and regulatory regime for AML/CFT in order to continue attracting legitimate investors with funds and assets that are clean and untainted by criminality. This is undertaken by two regulators in the IoM the Financial Services Authority (FSA) and the Gambling Supervision Authority (GSA) providing a very joined-up approach.

Anyone in the IoM who assists in laundering the proceeds of crime or is involved in the financing of terrorism or proliferation, whether knowingly, unintentionally, or without regard to what they may be facilitating through the provision of their products or services, could face law enforcement investigation, the loss of reputation and the possibility of regulatory sanctions or criminal proceedings.

Financial Services Authority (FSA)

The IoM FSA was formed on November 1, 2015 as a result of the merger of the Financial Supervision Commission and the Insurance and Pensions Authority [5] (see Appendix 6 for detail).

Within the IoM’s legislative framework the IoM FSA has a broad range of statutory powers to supervise and monitor compliance with AML/CFT requirements, including powers of off-site reviews and analysis and on-site inspection visits. The IoM FSA has the power to enforce supervisory provisions in respect of a breach of the relevant regulatory Acts, or any regulation or binding guidance made under them, including those in respect of AML/CFT. There are various penalties available to the IOMFSA to use for enforcement and sanctions, enabling them to take appropriate and proportionate action as necessary.

The IoM FSA assesses the compliance by individual regulated entities with their obligations under the AML/CFT requirements through its programme of regular on-site inspections and information or intelligence received by it. These inspections may take the format of a routine AML/CFT focussed visit or desk based questionnaires enabling particular segments of the market to be simultaneously analysed with follow up inspections, meetings or remedial work being scheduled where required.

In 2017, the IoM FSA substantially enhanced the information it routinely gathers from industry through the creation of the first cross sector dedicated AML/CFT data return. Through the AML/CFT return, the IoM FSA seeks and receives detailed statistical information from all firms and entities within the regulated sector, including designated businesses overseen by the IoM FSA for AML/CFT purposes.

The IoM FSA also has responsibility for oversight of the Beneficial Ownership Act 2017 (see paragraphs 63 – 72 for further details). The IoM FSA verifies the information on the database against information already held on the IoM Companies Registry systems, as well as conducting inspections to ensure the information on the database is in line with the legislation. A report is issued after any inspection, documenting if further action is needed from the nominated officer. Since 1st July 2017, 47 inspections have been conducted under the Beneficial Ownership Act. These inspections covered a total of 141 different entities.

In addition, significant progress has been made in relation to financial flows. The IoM now routinely collects detailed jurisdictional information about the financial flows into, and out of, the financial system in the IoM and assesses the risks of these flows. This information, while informing the supervisory approach of the IoM FSA, is of equal importance to other agencies in carrying out their mandate and as an example, this information will be shared through the appropriate gateways with the FIU.
This joined up approach across key agencies in the IoM underpins the strong framework to dissuade in the first instance and thereafter detect money laundering and terrorist/proliferation financing.

Gambling Supervision Commission (GSC)

All gambling activities, including on-line gambling, are regulated and supervised by the IoM GSC. There is a separate and specific AML/CFT Code for Online Gambling and requirements for terrestrial gambling (betting shops, the casino etc.) are currently included in the general AML/CFT Code.

The IoM GSC has appointed a deputy director, who is a member of the senior management team, specifically to develop and lead on policy and supervision for AML/CFT purposes.

The IoM GSC has a broad range of powers to inspect and enforce compliance. If necessary the GSC has powers to sanction non-compliance; people can be excluded from the licensed sector, public warnings and fines can be issued and licenses can be suspended and revoked.

AML/CFT data is collected each quarter from licensees. This data shows the monetary flows into, and out of, the internal customer base of the GSC’s licensees, as well as the number of new customers and SARs that have been filed in the quarter. The IoM GSC’s licensees are inspected using a risk based approach which takes into account their size, their historic compliance record, their NRA risk-status, their product risk(s) and where appropriate their circumstances.

The deputy director for AML/CFT chairs a forum of MLROs drawn from the gambling industry.

Financial Intelligence Unit (FIU)

The IoM FIU was formally established as a separate statutory body in April 2016 [6]. The FIU had previously formed part of the IoM Constabulary’s Financial Crime Unit (FCU).

The FIU is the IoM’s national centre for the receipts and analysis of suspicious activity reports (SARs) and other relevant information and the dissemination of intelligence arising from those SARs both domestically and internationally. The FIU assists its international partners in tracing and identifying the proceeds of crime and other crime-related property which may become subject to restraint, freezing, seizure or confiscation. The FIU also sends and receives information to and from overseas jurisdictions relating to money laundering and the financing of serious organised crime, terrorism and proliferation.

Isle of Man Constabulary (IoMC)

The IoMC has an established Financial Crime Investigations Policy which sets out the approach to be taken by investigators in the Economic Crime Unit (ECU), (formerly the Financial Crime Unit, or FCU). The policy sets out the general guidance for management of ML or associated predicate offence investigations and investigations into serious and complex fraud or TF, in line with the ML risks identified in the IoM.

The policy supports the IoM Government Financial Crime Strategy 2017-2020 and should be read in conjunction with the Prosecutions Policy on Financial Crime [7] published by HM Attorney General and the IoMC ECU Standard Operating Procedures (SOP) which set out the types of investigation to be undertaken by the ECU.

ML is recognised as one of the five top priorities for the IoMC and this is referenced within the Constabulary’s National Threat and Risk Assessment 2017-18. The Economic Crime Investigations Policy addresses areas including: the management of resources; risk profile; an investigative policy statement; supervisory responsibilities; commencing and concluding an investigation; the Fraud Investigation Model; the roles of the FIU, the Attorney General’s Chambers and International Cooperation and Asset Recovery Team; and specialist investigatory support.

The Investigative Policy Statement notes that, in determining whether to commence a particular investigation, ECU supervisors will take into account the following objectives and considerations:

(a) Supporting the IoM Government’s commitment as set out in the Programme for Government 2016-2021 to “Maintain our robust, zero tolerance stance” in respect of money laundering and the financing of terrorism and proliferation.

(b) The IoM Government’s Financial Crime Strategy 2017-2020 and the role of investigations in achieving the objectives set out within that document, pro-actively identifying and pursuing offenders and taking the benefit out of crime.

(c) Investigations will be embarked upon even where it is clear that the predicate offence has taken place outside the IoM. If the threshold of ‘risk’ and ‘suspicion’ is met such investigations and standalone money laundering offences will be investigated with a view to prosecution.

(d) Support the standing and reputation of the IoM as an international finance centre and HM Attorney General’s priority strategic aims for prosecutions.

(e) Investigations conducted by the ECU should be consistent with the Island’s risk profile as an international finance centre. It is important to reiterate that financial crime is a priority for the IoMC and cases that fall below the acceptance threshold for the ECU will still be prioritised and robustly investigated.

International Cooperation and Asset Recovery Team (ICART)

In December 2016 HM Attorney General created within the Attorney General’s Chambers (AGC) a new unit, ICART. This brings together two key components: international cooperation which was already a well-established operation of the AGC; and a new lawyer-led Asset Recovery Unit with dedicated financial investigators and administrative support.

The strategic aims of ICART in relation to asset recovery are to:

Prioritise identification, restraint and recovery of assets resulting from serious and organised crime, with particular focus on economic crime, both in the IoM and overseas;
Pursue, through all available statutory powers, the assets of all who profit from crime wherever committed, when it is proper to do so;
Assist international law enforcement agencies by enforcing asset recovery in the IoM on their behalf and otherwise assist them when necessary; and
Improve the enforcement of domestic and international confiscation orders.

ICART has applied a “zero tolerance” policy. In the first 18 months of operation, funds in excess of £166.5M were restrained which are subject either to criminal restraint or civil property freezing orders. In the same period, Forfeiture and Confiscation Orders realised a total of £906,346.

Extensive use of the investigatory powers under the Proceeds of Crime Act 2008 continues, and many production orders are now granted by the Court administratively rather than with a hearing being required.

ICART processes Mutual Legal Assistance Requests (MLARs) received from other jurisdictions, including the UK. Where the IoM needs help in investigating matters, ICART will forward MLARs from the IoM to other countries. MLARs can be used: to obtain further evidence from the requested jurisdiction; to examine witnesses; to seek restraint of funds or property freezing; or to seek an investigative order. The IoM receives most of its requests for assistance from the UK (these may not always be in respect of financial matters). ICART aims to respond to all requests promptly, but prioritises according to an established policy.

Co-operation with the UK and other Jurisdictions

The UK is the IoM’s closest neighbour and largest trading partner and there are well established links with the City of London. Therefore, there are significant financial flows between the two jurisdictions, and worldwide. It is inevitable, despite the best efforts of the financial institutions involved, the relevant regulatory authorities (examples of co-operation provided above), and law enforcement agencies; that a proportion of this money will be illicit finance, or the proceeds of crime.

All IoM authorities therefore work extremely closely with counterparts in the UK to seek to address financial crime. There are numerous ways the IoM works closely with the UK, a number of which are which are outlined below.

Training for the IoMC is received from the UK (City of London Police Economic Crime Academy). ECU staff have been undertaking relevant training including in relation to fraud and associated offences via the ‘Specialist Fraud Investigators Programme’, the ‘Counter Fraud and Corruption in respect of AML’ and the ‘Managing Fraud Investigations Programme’ which are all provided by the City of London Police Economic Crime Academy who are lead specialists in fighting financial crime. The Director of the ECU is currently developing a memorandum of understanding with the City of London Police to support further investigative training and CPD to the investigation team.

Further training with the UK has been undertaken in respect of Terrorist Financing. For example, investigators and supervisors from the ECU and FIU attended a 4-day TF training course in 2017 run by the UK Metropolitan Police Service Counter Terrorism Command. The course encompassed many TF investigative techniques and typologies within investigations, enhancing the awareness and skill set of those undertaking such enquiries.

The IoM FIU has a very good relationship with the UKFIU with both parties regularly sharing relevant information, including in relation to suspected tax evasion. Representatives of the IoM FIU and the UKFIU also meet on a regular basis and are able to discuss matters of common interest.

The IoM FIU is a full member of the Egmont Group of Financial Intelligence Units, a body of 152 financial intelligence units which provides a network for enhancing cooperation among financial intelligence units in the areas of information exchange, training, sharing knowledge and expertise and fostering the implementation of domestic anti-money laundering and counter-terrorism financing programs.

In 2017, the IoM FIU disseminated 364 pieces of information to the UKFIU. The suspected criminality in relation to those disseminations is set out in Appendix 7.

The IoM also provides assistance in respect of predicate offences originating in the UK and the IoM ECU undertakes investigative work on behalf of the UK in respect of incoming requests for assistance, executing warrants, Production Orders and the submission of evidential material.

Tackling financial crime is an extremely complex and often lengthy process which is evident in respect of a number of ongoing investigations being undertaken in cooperation with the UK. Cases include a joint investigation into a multi-million pound VAT fraud with associated ML which is well advanced, and a joint investigation into the activities of a world-wide organised crime group. The details of the latter cannot be disclosed as investigations are continuing however, as recently as May 2018, a large number of NCA Officers joined IoMC and Customs officers to conduct searches of IoM premises in pursuit of evidence. Further examples of close co-operation can be provided, if required.

In respect of regulatory oversight, given the international focus of the IoM’s regulated businesses, together with a significant proportion that are members of groups established or operating elsewhere, the safe and effective sharing and communication of relevant information and intelligence between interested supervisory authorities and enforcement agencies remain an important and integral part of the effective supervision of internationally active entities.

The IoM’s legislative framework also allows the IOMFSA and IoM GSC to co-operate, not just with IoM Government Departments and other domestic regulatory organisations, but also internationally. These powers are supported by a number of bilateral Memorandum of Understandings (MoU) and Information Sharing Agreements (ISA) with regulatory authorities world-wide. These MOUs/ISAs assist the two way flow of information between supervisory authorities. They provide a framework which sets out the basis on which both parties can be confident that the information it exchanges with other supervisors is treated as confidential, together with the circumstances in which that information may be shared further, if it is appropriate to do so.

The IOMFSA has an MOU in place with the UK’s financial services regulators the Financial Conduct Authority (FCA) and the Prudential Authority (PRA). The IoM GSC has an ISA in place with the UK Gambling Commission.

The IOMFSA has given assistance to the UK FCA on eight occasions since 2016. This assistance has been in relation to five matters involving unlicensed regulated activity, two matters involving alleged insider dealing and one matter involving regulatory breaches.

In addition the IOMFSA is a full member of FIN-NET, a financial intelligence sharing network hosted by the FCA. This forum provides a framework for pooling and disseminating information between law enforcement agencies and regulators within the British Isles and facilitating the co-ordination of investigations at a member’s request. The scope of FIN-NET covers major financial crime including tax evasion, other serious criminal activity, acts of terrorism, national and international corruption and serious regulatory breaches passing through or making use of the financial systems of the British Isles.

The IOMFSA is also a full signatory to both the International Association of Insurance Supervisors (IAIS) Multilateral Memorandum of Understanding (MMOU) and the International Organization of Securities Commissions (IOSCO) MMOU. It is also a full signatory to the Group of International Finance Centre Supervisors (GIFCS) MMOU (many of whose members are also full signatories to the IAIS and IOSCO MMOUs). Further details can be found in Appendix 6.
The IoM GSC has ISA’s with the gambling regulators of: Estonia; Denmark; Malta; Alderney; and Jersey.

The IoM GSC is currently the co-chair, with France, of the AML/CFT working group of the International Association of Gambling Regulators, which is the only body of its type that draws together the globe’s hundred or so competent authorities for gambling. The IoM GSC also offers its AML/CFT experience to other countries’ gambling regulators. For example, following requests, the IoM GSC assisted the Seychelles and Tanzania to understand the application of regulation to gambling.

Beneficial Ownership Information

In line with our commitment to ensuring compliance with international standards the IoM has a leading position on the retention and sharing of beneficial ownership information.

Taking account of international standards and developments, the IoM has built upon its long-standing arrangements to exchange beneficial ownership information, including introducing additional requirements to ensure the information held on its Beneficial Ownership register is as up-to-date as possible.

In April 2016, the IoM signed an Exchange of Notes (EoNs) with the UK Government. Under the EoNs the IoM has an enhanced relationship for sharing information with the UK which is working well. The IoM has an accurate central register of Beneficial Ownership statutorily overseen by the independent authority, the IOMFSA, from which the IoM can share information with tax, intelligence and law enforcement authorities elsewhere.

In common with almost all other jurisdictions across the world that have such registers, other than the UK, this information is available to relevant law enforcement authorities rather than to the public at large. The IoM is able to share this adequate and accurate information in a timely manner with authorities in the UK, notably to the declared satisfaction of the UK authorities, including the UK National Crime Agency (NCA).

The IoM’s central register enables authorities in the IoM to exchange information with the UK within 24 hours for a normal request or within one hour if the request is considered urgent; for example, where there may be terrorist financing concerns. In addition, the IoM exchanges copious amounts of information each year to the declared satisfaction of law enforcement authorities, including the UK NCA.

A review of the operation of the arrangements agreed in the EoNs with the UK Government has just been completed. This review was conducted along with intelligence and law enforcement authorities for all relevant signatories. The review has confirmed that the arrangements are working effectively to get beneficial ownership information to those who require it, namely intelligence and law enforcement authorities for the investigation and prosecution of financial crime.
The commitments that the IoM made in the EoNs with the UK exceed current Financial Action Task Force (FATF) standards and places the IoM ahead of most jurisdictions, including many of the UK’s G20 partners, and some states in the United States.

However, the IoM continues to monitor closely international developments in this area to ensure that our systems continue to be robust and fit for purpose. Whilst, the IoM notes that the EU 5th Anti-Money Laundering Directive introduces a requirement for public registers of companies in the EU, that Directive has only recently been adopted by the Council and is yet to be published in the Official Journal. Whilst, this approach has not become an international standard, nonetheless the IoM has started considering its own policy position in the light of that Directive.

There is no impartial evidence that public registers assist in the prevention of financial crime. The critical factor for law enforcement purposes, as has been stressed by the recent work of the FATF and the OECD Global Forum, is that information contained on these registers is adequate, accurate and current.

The IoM has spent significant time developing submission and oversight systems to ensure adequate, accurate and current information is held on its central register, which can be electronically interrogated. In our view, this is the area where true value can be gained in the worldwide fight against financial crime.

WORK IN ADDRESSING tax evasion and avoidance

The IoM does not welcome those seeking to evade taxes and where there is evidence of any wrongdoing in this respect then the IoM will take the appropriate action necessary.

The IoM operates a responsible tax system and we have a long-standing policy of compliance with international standards as they are promulgated by bodies such as the FATF and the OECD Global Forum.

As with its work in addressing Money Laundering and Terrorist Financing the IoM works closely with counterparts in HM Treasury (HMT) and HM Revenue and Customs (HMRC).

OECD International Standards for Exchange of Information

The IoM is also an active participant in the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes. This body is a multilateral framework for tax transparency and information sharing, within which over 140 jurisdictions participate on an equal footing. The Global Forum monitors and peer-reviews the implementation of the international standard for the exchange of information on request (EOIR) and automatic exchange of information. The EOIR provides for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. All Global Forum members have agreed to have their implementation of the EOIR standard assessed by peer review.

The IoM’s Income Tax Division processes requests for information from other jurisdiction’s tax administrations (EOIR), including HMRC, in respect of both criminal and civil tax investigations in accordance with the international standard on EOIR. Details of these requests are kept confidential in accordance with this standard.

The IoM’s Second OECD Peer Review Report [8], which was published in November 2017, considered the effectiveness of the IoM at EOIR and concluded that the IoM continues to be compliant with the international standard on transparency and exchange of information upon request. It found that the IoM’s legal framework for the availability of ownership, accounting, and banking information is in place and legal obligations are subject to proper oversight.

The IoM has successfully implemented the Common Reporting Standard (CRS), which was developed by the OECD to put a global model of automatic exchange of information into practice. The IoM made an early commitment to the CRS and in 2014 signed the Multilateral Competent Authority Agreement. As an ‘early adopter’ of the CRS, the IoM completed its first exchanges of detailed financial account and ownership information in September 2017.

The IoM provided over 8.5 million lines of data to almost 40 jurisdictions in accordance with the CRS in September 2017, and is currently preparing to send data to more jurisdictions in September this year. This bulk data is sent and received annually in a standardised electronic format that enables the jurisdictions receiving the data to utilise it to best effect.

The IoM has been providing similar detailed financial account and ownership information to the UK (HMRC) since 2016 and to the US (IRS) since 2015. Prior to this, the IoM operated the EU Savings Tax Directive and exchanged information with all EU Member States (this system has been superseded by the CRS).

The IoM has a wide network of international tax agreements that provide the legal basis for various forms of exchange of information for tax purposes. The IoM has been a party to the OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters, as amended by the 2010 Protocol, since March 2014.

OECD Standards on Base Erosion and Profit Shifting (BEPS)

The IoM committed to meet the BEPS minimum standards at the earliest opportunity in June 2016. As a consequence of this commitment the IoM has introduced Country by Country Reporting, implemented spontaneous exchange of information on certain tax rulings and taken measures to ensure that treaty-related disputes are resolved in a timely, effective and efficient manner, and in line with the best practices.
In addition the IoM has taken steps to ensure that its small network of Double Taxation Agreements cannot be abused. In particular, the IoM is a party in its own right to the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting and was the second jurisdiction after Austria to ratify this new convention in October 2017.

EU Taxation Standards

The IoM has a history of working constructively with the EU on tax matters. As previously mentioned, until it was replaced by the CRS, the IoM operated the EU Savings Tax Directive that provided for automatic exchange of certain financial information. The IoM also amended its Income Tax system prior to 2006 to meet the requirements of the EU Code of Conduct on Business Taxation.
Most recently, in November 2017, the IoM committed [9] to address the concerns raised by the EU Code of Conduct Group in connection with entities operating without any substance and is working hard to ensure this commitment can be implemented on time.

National Insurance

Since 1948 the IoM and the UK have been party to a reciprocal agreement that has covered National Insurance contributions and the benefits that are funded from those contributions. This agreement has been modified several times over the intervening years with the latest one being agreed in 1977.

While both jurisdictions have their own legislation covering National Insurance contributions and benefits the effect of the agreement is to treat the IoM and the UK as one jurisdiction, this avoids for example the possibility of individuals either being charged National Insurance contributions twice or being able to make duplicate claims to benefits in both jurisdictions.

The agreement enables information concerning National Insurance and benefits to be exchanged between the two jurisdictions and for example in 2013 the IoM Treasury collected £3.2 million in unpaid National Insurance contributions on behalf of HMRC following a successful court case in the IoM against an IoM based employer.

VAT

In part, due to the longstanding customs and excise arrangements between the UK and the IoM, the IoM Government, and the CED of the IoM Treasury in particular, has always had a close and constructive working relationship with HMRC and HMT. For example the CED and HMRC hold quarterly governance meetings on a range of VAT, and other indirect tax, issues.

Unlike the other Crown Dependencies, the IoM has a Customs and Excise Agreement [10] with the UK. The current Agreement has been in place since 1979, when it replaced the previous “Common Purse” agreement.

The 1979 Agreement provides that the two territories are treated as one for VAT purposes and also regarded as one territory for customs and most excise duty purposes. The 1979 Agreement is given force of law by the IoM Act (of UK Parliament [11]) and equivalent legislation in the IoM. Under the 1979 Agreement, the IoM must keep its relevant customs and excise legislation and control functions correspondent with that of the UK.

The fact that the UK and IoM are regarded as one territory for VAT purposes means that the IoM forms part of the VAT territory of the EU. This is recognised by Article 7(2) of Council Directive 2006/112/EC on the common system of value added tax (the Principle VAT Directive) which states that; “transactions originating in or intended for the Isle of Man are treated as transactions originating in or intended for the United Kingdom”.

In addition, by virtue of the IoM’s Protocol 3 relationship, through the UK, with the EU, the IoM is also part of the customs territory of the EU. Under Protocol 3 EU customs legislation is directly applicable as part of the law of the IoM.

Just like HMRC, CED regularly conducts risk led audits of VAT registered traders aimed at testing the accuracy and efficacy of declarations made. Each year around 30% of all such declarations are reviewed and where necessary corrective action is taken including the raising of assessments and adjustments for under-declared and over-claimed VAT. Since 2011 some £65.3million in additional VAT has been assessed.

During the same period, CED has raised more than 30 assessments for under-declared or over-claimed VAT against businesses in the aircraft leasing sector, protecting approximately £4.7million of VAT.

In October 2017, as a result of allegations of abusive VAT avoidance made by media associated with the International Consortium of Investigative Journalists (ICIJ), the IoM Government invited HMT to conduct an assessment of the practice for the importation of aircraft and yachts into the EU through the IoM, with a focus on the VAT treatment of aircraft and yacht leasing arrangements. The UK Government confirmed that they aim to complete this assessment in spring 2018 [12].

This assessment supplements a review that was already underway by the CED and that will be continued and concluded post the completion and reporting of the HMT assessment.

Appendix 1

Isle of Man Taxation and VAT – further details

Personal income tax top rate is 20% with an income tax cap of £150,000 for 2018/19.

Standard rate of corporate tax is 0%. A 10% rate applies to income received by a company from banking business; a 10% rate applies to retail business with taxable income of more than £500k. Rate of tax on income from local property is 20%.

Employers and employees are required to pay National Insurance contributions on salaries. These contributions (and applicable rates) are similar to those payable by employers and employees in the UK.

VAT in the IoM follows the rates (zero, 5% and 20%) and rules in the UK with the exception of there being two additional reduced rates (5%) available for repairs to domestic property and for holiday accommodation.

VAT along with the other equal duties (principally being alcohol & tobacco, hydrocarbon oil and customs duty) is shared on the basis of actual consumption, use and enjoyment of goods and services in the IoM. The current method for determining the Island’s share is the Final Expenditure Revenue Sharing Arrangement (FERSA).

Under FERSA the Island must conduct consumption surveys to rebase its share every 5 years; intervening year’s shares are provisionally set by indexation and are subject to revision on a straight line basis backwards from the next survey year which is 2018/19. Other factors that impact on the Island’s VAT share such as the VAT gap are also assessed every 5 years. The VAT gap provides a useful tool for understanding the relative size and nature of non-compliance.

In 2013/14 when the last IoM VAT gap assessment was made, HMT agreed with CED’s findings that the Island’s VAT gap was 4.12%, this compared to 10.9% in the UK at that time. The lower VAT gap within the IOM is the result of several key factors, in particular:

The licencing and regulation of the Island’s corporate service providers (CSPs)
The near eradication of the shadow economy (largely through the introduction of the reduced rate for repairs and alterations to domestic property and working closely with the Island’s Office of Fair Trading and passenger carriers to identify and deter itinerant builders, etc.
The negligible occurrence of bootlegging of excise goods on the Island.
The non-existence of laundered HCO and negligible instance of the misuse of rebated fuel.
The eradication of missing trader (MTIC) fraud.
All postal packets are examined by IOMC&E and import duty/VAT charges raised.
With only one passenger seaport and one passenger airport the Island is essentially a revenue fortress.

It is perhaps also worthy of note that the 1979 Agreement paragraph 16 and the IoM Act section 10 provides that “No obligation as to secrecy or other restriction on the disclosure of information imposed by statute or otherwise” shall prevent HMRC and CED from sharing information relating to the protection of the shared revenues and the enforcement of prohibitions and restrictions on the movement of goods and persons into or from the IoM or the UK.

CED regularly liaises with local, national and international agencies to combat tax avoidance and evasion, sanctions busting, money laundering and the financing of terrorism and proliferation.

Appendix 4

Recent IoM legislation which is relevant to combatting money laundering, terrorist financing and financial crime

Title	Explanatory Notes	Date of coming into operation
Beneficial Ownership Act 2017	The Act repeals the Companies (Beneficial Ownership) Act 2012 & places all IoM corporate & legal entities under the same legislation regarding beneficial ownership. It creates a central database for the recording of beneficial ownership of legal persons. Guidance issued by the IOMFSA was approved at the June 2017 sitting of Tynwald and the central database went live on 1 July 2017. This legislation was developed in line with the IoM Government's commitment, made to the UK in 2016 to enhance agreements for the sharing of information about the beneficial ownership of corporate and legal entities.	21/06/17
Fraud Act 2017	This Act makes provision for and in connection with, criminal liability for fraud and obtaining services dishonestly and for connected purposes. Based on the Fraud Act 2006 (of Parliament).	01/11/17
Casino (Amendment) Act 2018	Amongst other matters addressed by this Act, it permits the revocation of a licence in cases of non-compliance with money laundering and financing of terrorism legislation	24/01/18
Gambling (Anti-Money Laundering and Countering the Financing of Terrorism) Act 2018	The Act provides the Gambling Supervision Commission with the necessary powers to conduct regulatory oversight of the gambling sector’s compliance with AML/CFT legislation and provide sanctions for non-compliance.	24/01/18
Customs and Excise Act 2018	The Act provides for the Treasury by order to delegate its functions to any organisation in the Island which is responsible either for the prevention of or the investigation into financial crime and the financing of terrorism. Clause 10 of the Act amends the Terrorism and Other Crime (Financial Restrictions) Act 2014 so that the FIU can be added as a body to whom suspicions of sanctions breaches can be reported.	01/03/2018
Anti-Money Laundering and Other Financial 21 Crime (Miscellaneous Amendments) Act 2018	This Act will address several recommendations made within the MONEYVAL Mutual Evaluation Report of the IoM. It also deals with a number of other matters which have been identified by various authorities in relation to anti-money laundering and the effective prosecution of financial crime.	This legislation has completed its passage of the Branches of Tynwald but has not yet had Royal Assent.
Anti-Terrorism and Crime Act 2003 (Cash – Specified Monetary Instruments) Order 2017	This Order amends the definition of “cash” in paragraph 1 of Schedule 3 to the Anti-Terrorism and Crime Act 2003. The Order aligns the definition with that contained in both the Customs and Excise Management Act 1986 (in Part VA of that Act, in respect of the need to declare or disclose sums of cash in excess of €10,000 entering or leaving the Island) and the Proceeds of Crime Act 2008 (in relation to the seizure of cash suspected of being the proceeds of unlawful conduct, or intended for use in unlawful conduct).	01/06/17
Anti-Terrorism and Crime Act (Compliance with International Standards) Order 2017	This Order criminalises the funding of unproscribed terrorist organisations for legitimate purposes and criminalises the financing of travel of individuals for the purpose of preparing, planning, or participating in terrorist acts, or providing or receiving terrorist training. Furthermore if a resident of the IoM commits a terrorist offence in another country or territory that would constitute a terrorist offence in the IoM, the offence can be treated as having been committed in the IoM and proceedings taken accordingly.	15/12/17
Customs and Excise Management Act 1986 (Enforcing Authority) Order 2016	This Order prescribes the FIU as an enforcing authority for the purposes of sections 174B and 174C of the Customs and Excise Management Act 1986. Sections 174B to 174D of that Act provide for statutory gateways that allow the disclosure of information and documents to and from the Customs and Excise Division of the Treasury where such a disclosure would enable either party to discharge their respective functions. The bodies able to use the gateways to exchange information and documents with the Customs and Excise Division are referred to as “enforcing authorities” and are specified in section 174D or prescribed in orders made under that section. The statutory gateways provided for by and under sections 174B to 174D are in addition to gateways provided in other legislation, such as the Income Tax Act 1970.	01/08/16
Customs and Excise (Cash Declaration and Disclosure) Order 2017	This Order prescribes the form that is to be used for the disclosure or declaration of cash in amounts of €10,000 or more (or the equivalent in other currencies) being brought into, or taken out of, the Island. The prescribed form caters for any situation where a declaration or disclosure is required for a movement of such cash by post or other means, in addition to circumstances where a declaration or disclosure is required from a person entering or leaving the Island and carrying such cash (or otherwise having it in their possession or control).	01/04/17
Designated Businesses (Disclosure of Information) Order 2017	The Order amends the law to enhance the exceptions from restrictions on disclosure of information under the Designated Businesses (Registration and Oversight) Act 2015. The amendments make it explicit that the IOMFSA is able to legally disclose restricted information received under the Act to the Cabinet Office and the Financial Intelligence Unit, and extend the existing information gateway to the IoM Office of Fair Trading.	01/11/2017
European Union (Information Accompanying Transfers of Funds) (Amendment) Order 2017	This Order amends the European Union (Information Accompanying Transfers of Funds) (Amendment) Order 2016 (“the principal Order”). The principal Order, came into operation on 26 June 2017 and applies Regulation (EU) 2015/847 of the European Parliament and of the Council of 20 May 2015 on information accompanying transfers of funds and repealing Regulation (EC) No 1781/2006 (“Wire Transfers Regulation II”) as part of the law of the IoM, subject to certain necessary modifications. Implementing Regulations have also been made and these were laid before the January 2017 sitting of Tynwald. This was necessary to permit the United Kingdom under EU law to continue to treat electronic transfers of funds between the Island and the UK in the same way as domestic electronic transfers within the UK. Without this derogation the UK would have been required to treat transfers between the Island and the UK in the same way as transfers between the UK and countries which are not EU Member States. The European Commission reviewed the Island’s legislation to apply and implement the Wire Transfers Regulation II, and confirmed that the UK could continue to operate the existing derogation.	23/06/17
Information Accompanying Transfers of Funds Regulations 2016	These Regulations provide for the implementation of Regulation (EU) 2015/847 of the European Parliament and of the Council of 20 May 2015 on information accompanying transfers of funds and repealing Regulation (EC) No 1781/2006 (“the EU Regulation”), as applied as part of the law of the Island, with appropriate modifications, by the European Union (Information Accompanying Transfers of Funds) Order 2016 [SD 2016/0349]. The Regulations provide that the IOMFSA is the competent authority for the purposes of the EU Regulation; sets out the duties of the IOMFSA and the powers of the IOMFSA to enforce the EU Regulation and these Regulations; establish that breaches of the EU Regulation are criminal offences and sets out the penalties on conviction for such an offence; and deal with offences by bodies corporate. The Regulations implement the option, as permitted by the second paragraph of Article 17(1) of the EU Regulation, not to lay down rules on administrative sanctions or measures for breach of the provisions of the EU Regulation which are subject to criminal sanctions.	26/06/17
Financial Services (Civil Penalties) (Amendment) Regulations 2016	The 2015 penalties regulations enable civil penalties to be imposed, inter alia, for breaches of specified rules in the Financial Services Rule Book (‘Rule Book’), which is the main operational legislation for licenceholders under the Financial Services Act 2008. In a recent update to the Rule Book (operative from January 2017) many of the rule numbers were changed, which means that the 2015 penalties regulations need to be updated so as to refer to the relevant rules. These changes to rule numbers are the principal reason for this measure, but the Financial Services (Civil Penalties) (Amendment) Regulations 2016 also reflect the change of the regulator’s name to the IoM Financial Services Authority (following the merger of the Financial Services Commission and the Insurance and Pensions Authority) and clarify that penalties for rule breaches do not apply to licenceholders that are not subject to the Rule Book.	20/01/17
Proceeds of Crime Act (Compliance with International Standards) (Amendment) Order 2017	The Order makes the failure to comply with a production order (an order to produce material) an offence. Penalties are provided for in cases where (i) a person, without reasonable excuse, fails to comply with a requirement imposed under a production order and (ii) a person purports to comply with an order but knowingly makes a false or misleading statement, or is reckless when making a statement which is false or misleading.	15/12/17
Terrorism and Other Crime (Financial Restrictions) Act 2014 (Designated Person) (Amendment) Order 2017	Under the Terrorism and Other Crime (Financial Restrictions) Act 2014 the funds and other economic resources of certain natural and legal persons (“designated persons”) which are considered to be linked to terrorism must be frozen. The term “designated person” is defined in section 3(1) of the Act. This Order updates and further clarifies part of the definition which refers to “a natural or legal person, group or entity”.	01/07/17
Terrorism and Other Crime (Financial Restrictions) Act 2014 (Amendment) (No.2) Order 2017	The Order permits a payment under a pre-existing contract, but only where this would not be contrary to some other UN or EU sanctions prohibition.	01/01/18
Regulated Activities (Amendment) Order 2017	This Order amends the Regulated Activities Order 2011 as follows — (a) to remove the exclusion for a person carrying on Class 3(11) regulated activity (acting as a manager, administrator, trustee, fiduciary custodian or custodian to an exempt or exempt-type collective investment scheme) where the activity is in relation to no more than one exempt or exempt-type collective investment scheme; as well as the related interpretation. This exclusion has been removed in place of an exemption which is to be included in the Financial Services (Exemptions) (Miscellaneous) (Amendment) Regulations 2017; (b) to amend a number of exclusions contained in Schedule 1 relating to Class 8 (Money Transmission Services) which reflect changes as a result of the implementation of the Payment Services Directive 2; and (c) to amend certain definitions in Part 1 of Schedule 2 to the Financial Services Act 2008, including extending the definition of “investment” to include personal pensions so that rights under a personal pension scheme become investments falling within the scope of regulation under that Act in connection with the provision of financial advice under Class 2(6) and (7). It also provides transitional arrangements for those persons advising on rights under a personal pension to be able to continue providing such advice provided that an application for a licence is made prior to 1 May 2018.	01/01/18
Financial Services (Exemption) (Miscellaneous Amendments) Regulations 2017	These Regulations amend the Financial Services (Exemptions) Regulations 2011 as follows — (a) to change the exemption for Class 2 nominee companies to require compliance with the rules relating to nominee bank accounts in the Financial Services Rule Book and the preparation of a Clients’ Asset Report in place of an auditors’ letter relating to compliance with the relevant rules in Part 3 and 4 of the Financial Services Rule Book; (b) to add additional conditions relating to acting as manager, administrator, trustee, fiduciary custodian or custodian to no more than one collective investment scheme which is an exempt or exempt-type scheme; (c) to clarify the sole or principle business of holding the freehold of property in relation to the domestic services exemption in Class 4 and expand upon certain definitions related thereto.	01/01/18
Financial Intelligence Unit (Tipping Off) Regulations 2018	These Regulations define tipping off as relating to the disclosure of information relating to an FIU request (under section 18 of the Financial Intelligence Unit Act 2016) to any person that may prejudice a civil, criminal or regulatory investigation. The Regulations clarify when a professional legal adviser may, or may not, be tipping off and make tipping off an offence punishable, on summary conviction, with a fine not exceeding level 5 on the standard scale. These Regulations also provide for a defence against an offence under these Regulations when it can be proven the person did not know or suspect the disclosure would be prejudicial in the way mentioned in regulation 3(1)(b).	01/03/2018
Customs and Excise Acts (Application) (Amendment) Order 2018	This Order makes an amendment to the Customs and Excise Acts (Application) Order 1979 analogous to amendments made in the United Kingdom. Article 4 applies paragraph 21ZA of Schedule 24 to the Finance Act 2007 (of Parliament) to the Island. This new paragraph was inserted in the United Kingdom by the Finance (No. 2) Act 2017. Paragraph 21ZA provides that a person cannot be liable for a penalty under paragraph 1 of Schedule 24 if they have already been assessed for a penalty under section 69C of the Value Added Tax Act 1996. Section 69C of the Value Added Tax Act 1996 is being inserted at the same time by the Value Added Tax Act 1996 (Amendment) Order 2018 [SD 2018/0024] and introduces a new penalty for participation in VAT fraud.	01/03/18
Value Added Tax Act 1996 (Amendment) Order 2018	This Order makes amendments to the Value Added Tax Act 1996 (“the Act”), to insert new sections 69C, 69D and 69E into the Act, and to make amendments to Schedule 12 to the Act and minor amendments to sections 26AAB and 79 of the Act. The amendments make changes that correspond to those made to the equivalent United Kingdom legislation (the Value Added Tax Act 1994). Article 3 introduces a new and more effective penalty against participation in VAT fraud into the Act. It will apply to businesses and company officers when they knew or should have known that their transactions were connected with VAT fraud. The new penalty will — a) be a fixed rate of 30% for participants in VAT fraud; b) apply to businesses but can also be applied to company officers; c) give the Treasury the option to name those that participate in the fraud; d) not include reductions for disclosure. Article 4 amends the Treasury’s powers to make regulations so that it may require businesses which are registered for VAT or liable to be registered for VAT to use digital tools to keep records and to provide VAT information and VAT returns through the use of digital tools. The amendment also allows for regulations to provide for exemptions to those obligations. In particular, if regulations are made providing for records to be kept or preserved digitally then VAT-registered persons with turnover below the registration threshold will be exempted. Regulations providing for digital record keeping cannot come into operation before 1 April 2019.	01/03/18
Terrorism and Other Crime (Financial Restrictions) Act 2014 (Amendment) Order 2018.	This Order amends Schedule 2 to the Terrorism and Other Crime (Financial Restrictions) Act 2014 to update references from United Nations Security Council resolution (“UNSCR”) 1737 (2006) to UNSCR 2231 (2015).	1 May 2018
Gambling (Anti-Money Laundering and Countering the Financing of Terrorism) Civil Penalties Order 2018	This Order prescribes the notice period for a civil penalty under section 22 of the Gambling (Anti-Money Laundering and Countering the Financing of Terrorism) Act 2018 and requires payment within a further 28 days. This Order also provides that an operator may respond to a notice by providing details of mitigating factors to be considered when the amount of the penalty is determined by the Gambling Supervision Commission.	21 May 2018

APPENDIX 5

Isle of Man Sanctions Regime – further detail

UN and EU sanctions are effected in the Island by:

UN sanctions orders - Orders in Council made in the UK under the terms of the United Nations Act 1946.
EU financial and economic sanctions - these apply directly to the UK; but not to the IoM. These require application to the IoM using the European Communities (Isle of Man) Act 1973. EU instruments do not contain offence and penalty provisions, and therefore enforcement regulations are also made under section 2B of the 1973 Act.

The sanctions regimes currently in operation on the IoM are:

Al-Qaida, the Taliban and ISIL (Da'esh) and other terrorism
Afghanistan
Belarus
Burma / Myanmar
Burundi
Central African Republic
Democratic Republic of the Congo
Egypt
Eritrea
Guinea
Guinea-Bissau
Iran
Iraq
Lebanon
Libya
Mali
North Korea
Somalia
Sudan and South Sudan
Syria
Tunisia
Ukraine/Russia
Venezuela
Yemen
Zimbabwe

APPENDIX 6

Isle of Man Financial Services Authority – further detail

The regulatory objectives of the IOMFSA are set out in section 2(2) of the Financial Services Act and are —

(a) securing an appropriate degree of protection for policyholders, members of retirement benefits schemes and the customers of persons carrying on a regulated activity;

(b) the reduction of financial crime; and

(c) the maintenance of confidence in the Island’s financial services, insurance and pensions industries through effective regulation, thereby supporting the Island’s economy and its development as an international financial centre.

The IOMFSA oversees all firms undertaking regulated activities under the Financial Services Act 2008, Insurance Act 2008 or Retirement Benefits Schemes Act 2000 and all designated businesses registered under the Designated Businesses (Registration and Oversight) Act 2015 for compliance with that firm’s AML/CFT legal obligations. The regime includes but is not limited to Banking, Insurance, Pension Schemes and their administrators, Trust and Corporate Service Providers, Funds and those providing administrative services to the Funds industry.

The Designated Businesses (Registration and Oversight) Act 2015, which came into force on October 2015, brought a series of designated non-financial businesses under the oversight of the Authority for AML/CFT compliance purposes. These businesses include accounting firms, lawyers, real estate agent, high value good firms, the businesses of a tax advisor, payroll agent, lending, financial leasing, providing financial guarantees and commitments, dealing in high value goods where the transaction involves accepting a total cash payment of euro 15,000 or more, safe custody facilities, specified non-profit organisations, and virtual currencies. The inclusion of the designated businesses within a formalised regime has further strengthened the IoM’s AML/CFT oversight of the perimeter.

At present the IOMFSA may delegate its oversight powers to the following professional bodies:

Institute of Chartered Accountants of England and Wales;
Association of Chartered Certified Accountants;
Isle of Man Law Society;
Institute of Certified Bookkeepers;
Institute of Financial Accountants; and
International Association of Bookkeepers.

These professional bodies are responsible for the oversight process and feedback information from their inspections to the IOMFSA. Registration and enforcement powers are retained by the IOMFSA. Ultimately the IOMFSA is responsible for the oversight of the designated businesses. The IOMFSA undertakes sampling of the delegated oversight by accompanying the external oversight body on some visits. This is to ensure that outsourced oversight remains at a satisfactory standard.

The IoM’s current anti-money laundering requirements are detailed in the Anti-Money Laundering and Countering the Financing of Terrorism Code 2015 (“the Code”) which applies to all regulated and designated businesses. The Code is made under Section 157 of the Proceeds of Crime Act 2008.

The IoMs anti-terrorism legislation can be found in the Anti-Terrorism and Crime Act 2003 (“ATCA”), the Anti-Terrorism and Crime (Amendment) Act 2011 and the Terrorism and Other Crimes (Financial Restrictions) Act 2014. Section 68 of the Terrorism and Other Crimes (Financial Restrictions) Act 2014 requires the DHA to publish a Code for the purposes of preventing and detecting the financing of terrorism (“FT”) and proliferation. The Code also has provisions in relation to this area.

Under the Anti-Money Laundering and Countering the Financing of Terrorism Code 2015 (“the Code”) every regulated and designated business must conduct customer due diligence on a risk based approach (including Enhanced Due Diligence “EDD” in high risk scenarios), have a Money Laundering Reporting Officer, maintain appropriate procedures and controls to deal with Politically Exposed Persons, conduct ongoing maintaining of business relationships, keep adequate records and have effective staff training in this area.

The definition of businesses included in the Code (“Relevant Persons”) goes much wider than only financial services and also includes; issuers of Virtual Currencies, Estate Agents, Bookmakers, Casinos and Local Authorities amongst others. For full details of which businesses are covered by the Code please see Schedule 4 to the Proceeds of Crime Act 2008 [13].

The IOMFSA also publishes detailed guidance and sector specific guidance for the following sectors and this is updated regularly to reflect current trends and practices.

Trust Service Providers and Corporate Service Providers
Banking
Life assurance
Funds / Investment Businesses
Money Services Businesses
Isle of Man Post Office
Payroll Agents
Advocates and Registered Legal Practitioners
Accountants and Tax Advisors
Estate Agents
Money Lenders
Specified Non-Profit Organisations
High Value Goods Dealers

Memorandums of Understanding (MOUs) and Multilateral Memorandums of Understanding (MMOUs)

The IOMFSA has entered into a number of MOUs and MMOUs (see table below), however, regardless of these it would have the ability to share information. The MOUs are important only to illustrate co-operation, but the power to co-operate does not rely on an MOU being in place. The legislation under which the IOMFSA operates permits sharing of ‘restricted information’ under statutory ‘gateways’.

These are for various purposes and include purposes such as:

“for the purpose of enabling or assisting the Authority to discharge its functions under any enactment with respect to a possible breach of AAML/CFT legislation”;
“to any constable for the purpose of enabling or assisting the Isle of Man Constabulary to discharge its functions”; and
“to a regulatory authority”.

The ability to share restricted information is broad, and does not rely on there being an MOU in place.

Memorandums of Understanding	Number
International¹	44
Domestic	7
AIFMD	28
TOTAL	79

* A number of international MoUs were entered into by both the ex-FSC and the ex-IPA with the same party.The above figures have been adjusted to show that one MoU is held between the now IOMFSA and each respective party.

The IOMFSA is committed to establishing new, and developing further its existing working relationships with other supervisory authorities to allow the appropriate and timely exchange of information to facilitate cross-border and cross-sectoral supervision of individual legal entities and their groups.

In addition, the IOMFSA believes that responsible and appropriate international co-operation can be an effective and powerful tool assisting both supervisory authorities and law enforcement agencies in the protection of global financial systems from those who wish to abuse them to launder money, finance terrorist activities or the proliferation of weapons of mass destruction.

APPENDIX 7

Suspected criminality in relation to disseminations from the IoM FIU to the UK in 2017

Criminality	Percentage
Corruption	3.85%
Drugs Related Activities	1.92%
Fraud, False Accounting or Forgery	15.38%
Immigration Related	0.27%
Money Laundering*	41.76%
Organised Crime / Mafia	0.27%
Other	3.85%
Paedophilia	0.27%
Tax Evasion	28.85%
Terrorism	3.57%
Grand Total	100.00%

*‘Money laundering’ is used where it is not possible to identify the likely predicate offence but there is nevertheless a suspicion of money laundering.

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May 2018

[4] Tynwald, the Isle of Man’s Parliament, passes its own Bills but as Her Majesty The Queen is the Island’s Head of State they require Royal Assent to become law.

[5] The Financial Supervision Commission was established in 1983, and the Insurance and Pensions Authority (previously the Insurance Authority) in 1986.