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| Laundering dilemmas for the trust sector
| PAUL MATTHAMS
Partner, Carey Olsen |
The Proceeds of Crime (Jersey) Law 1999 came into force on 1 July 1999 and after five years it continues to have a significant impact on the manner in which local financial institutions can deal with client funds.
The law itself applies to everyone in the Island and any person, whether connected to a financial institution or not, faces prosecution in the event of the commission of one of the so-called money laundering offences set out in the law. The associated Money Laundering (Jersey) Order 1999 applies only to financial institutions and this requires such businesses to operate certain anti-money laundering procedures including the verification of customer identity, internal anti-money laundering training and the appointment of money laundering reporting officers.
The principal role of the money laundering reporting officer in an institution is to consider ‘internal’ reports where there is a suspicion that the institution may be holding funds which derive from criminal conduct. He or she must then to decide whether to file what is commonly known as a suspicious transaction report with the States of Jersey Police’s Joint Financial Crimes Unit.
Filing such a report may protect a financial institution against possible prosecution for committing a money laundering offence.
The Proceeds of Crime Law lists a number of offences which include assisting another to retain the benefit of criminal conduct, acquiring, possessing or using the proceeds of criminal conduct, concealing or transferring proceeds of criminal conduct and so-called tipping off, which broadly means telling someone that they are under investigation in circumstances that are likely to prejudice that investigation.
It is the first of these offences, that of assisting another to retain the benefit of criminal conduct, which can be of particular concern to trust companies and other financial institutions. They may commit this offence if they deal with an individual’s assets ‘knowing of suspecting that [the individual] is a person who is or has been engaged in criminal conduct or has benefited from criminal conduct…’
However, a financial institution may avoid the danger of committing this offence if before dealing with the assets it has made a disclosure to the police (for example by the filing of a suspicious transaction report) of a suspicion or belief that the relevant property was derived from criminal conduct and has then received the consent of the police to deal with the assets.
Difficulties arise for trust companies if the disclosure is made to the police but consent to deal with the relevant assets is not forthcoming and the institution is then asked to deal with them by the ‘customer’.
Cases concerning this issue have come before the local courts from time to time, most recently on 22 April 2004 in the case of Edmund Eyo Ani v Barclays Private Bank & Trust Limited and H M Attorney General.
The case was connected with the worldwide investigation into corruption by officials of the government of the late Nigerian dictator General Abacha, Mr Ani's father having been a finance minister in that government.
In his judgment the Deputy Bailiff, Mr Michael Birt, noted the difficulties faced by financial institutions in circumstances where a suspicious transaction report has been filed and the police will not give consent. In these circumstances, most lawyers will usually advise the relevant financial institution not to deal with the funds under their control because of the risk of committing a money laundering offence.
The Deputy Bailiff stated: ‘There is at present no clear guidance from the courts on the appropriate procedure to resolve matters where a customer is denied access to his funds by the bank because of a suspicion of money laundering coupled with a refusal to consent to distributions on the part of the police . . . it would seem on the face of it that a customer who wishes try and break the log-jam by obtaining access to funds which have been informally frozen by his bank, has at least two alternative courses. ‘Firstly, he could institute a public law action against the police seeking an order that their refusal to consent to payments be quashed and that they be ordered to consent . . . Alternatively the customer could institute a conventional private law action against the bank seeking an order that it pays him his funds.’
The Deputy Bailiff expressed the view that a public law action against the police to try to overturn the decision to refuse consent would face difficulties in succeeding. The issue would be whether the decision of the police was liable to be quashed on the grounds that such refusal was a decision to which no reasonable police officer could have come.
The other option would be for the individual whose funds had been frozen to take action against the financial institution itself. No financial institution wants to find itself facing litigation but it has been recognised by the courts that there are certain dilemmas which financial institutions have to face from time to time. In the case of a trustee who has received a request for funds from the beneficiary of a trust in circumstances where a suspicious transaction report has been filed and consent to proceed has not been forthcoming, the trustee must consider all relevant factors and act accordingly. A highly relevant factor – and one which will doubtless prey on the mind of trust company directors – will be the possibility of committing a money laundering offence and, accordingly, the institution would have to consider very carefully the nature of the circumstances which gave rise to its initial suspicion to see whether those circumstances still applied. For example, was the suspicion derived from knowledge of a criminal investigation elsewhere which has now been dropped? Trustees owe significant duties to beneficiaries but those duties do not extend to committing criminal acts on their behalf.
The nature of the trust relationship differs from that of the individual maintaining an account with the bank pursuant to a mandate as most trusts administered in Jersey are so-called discretionary trusts which, as the name suggests, gives the trustees discretion to decide whether or not to make distributions to members of the class of beneficiaries. In the case of a beneficiary claiming funds in circumstances where the beneficiary cannot evidence a particular need the trustees may be justified in refusing to make the requested distribution. It is a more difficult decision for trustees where the beneficiary can show such a need and where the trustees would have been perfectly willing to make the distribution were it not for the possible commission of a money laundering offence. Until a case comes before the courts where these issues can be adjudicated on in full and further guidance can be given the trustees’ dilemma will remain.
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