9 June 2003
14 May 2013
2 September 2013
9 August 2013
28 August 2013
28 August 2013
'Whichever way you vote' said a badge I saw when I was at university, 'the Government always gets in'. That, of course, was the beginning and end of the question for those who wore it (mostly anarchists, I gathered on inquiry). For the rest of us, the identity of those currently enjoying political power is a more interesting question. In other jurisdictions, the means by which a change of government may occur is a more interesting one still.
Offshore jurisdictions such as Jersey, Guernsey and Grand Cayman, for example, offer a reassuring level of political stability. They have prosperous, educated populations. Their politics are unaffected by autocracies or religious extremism. Their economies are closely tied to those of neighbouring stable countries. They are, in short, jurisdictions with low political risk. And like many such jurisdictions, they are prone to attract funds from others whose risk is at a higher level.
There are few political regimes that do not reserve the right to criticise the practices of their predecessors. What is acceptable wealth under one regime may be regarded as illicit gains by the next.
Corruption is a good, topical example of this. Everyone knows what a social evil corruption is. In AG of Hong Kong v Reid (1994), Lord Templeman called it "â¦an evil practice which threatens the foundations of any civilised society". Successive US governments have agreed with him (and have been considerably irritated by the tendency of some of their trade competitors to offer tax relief on bribes paid abroad to attract foreign orders). Thus we now have, in the wake of 11 September, legislation which confirms that the payment or receipt of bribes abroad to government officials is prohibited, even if the practice is approved of in the jurisdiction in which it occurs.
Of course, one can never be wrong to condemn bribery, but one needs to have an eye to some of the reasons for it occurring and the reasons why it can be alleged. The separation of commercial and governmental interests is assumed to be a relatively easy matter in a country with a large population sharing a broadly equivalent standard of education. Of course, this is not the case, as regular public scandals demonstrate. But it should be, and it is, a realistic expectation. There are enough people with the necessary skills to focus primarily on
one or the other.
This is far from the case in some other jurisdictions. Many have smaller populations from which ministers and governmental officials may be chosen, and the level of education is not yet as evenly spread. Furthermore, in such jurisdictions the appointment may be a result of the commercial power that the individual already possesses. Commenting on the Gulf, for example, both Gregory Gauss and Jill Crystal, well-known writers on the subject, explain how governmental office is often awarded as a recognition of the status and power that the appointee already has. The question is not what influence the incumbent acquires, but what influence they can realistically be expected to relinquish.
Some countries that are organised in this way have formal constitutions created at times when they were anxious to ensure continuing relations with the West. The constitutions, therefore, have an almost 'Western' feel to them. But they reflect only partly the local cultural expectations as to how those jurisdictions will be run. One of the things that a reader of these constitutions might expect is that no official of the government will receive money in the course of their duties. This makes perfect sense, of course, unless you are trying to form a government where those with business acumen may be reluctant to give up their commercial interests for a place in government. In order to secure the appointment, it may be necessary for the commercial activity (and any potential conflict of interest) to be approved.
The question of 'approval' of income is frequently something that the ruler of an incumbent regime will regard as their own right. But successor regimes may not agree. They may take the point that formal constitutional procedures have not been followed, or they may allege that the approval of the former ruler himself is tainted. These are, sadly, situations that confront the offshore jurisdictions from time to time and draw them into the political mire in a way that is often quite unexpected. Indeed, recent years have seen a spate of claims of this kind.
Perhaps bribery is an extreme example because it has been the subject of some determined attempts at harmonisation by the Office for Economic Cooperation and Development (OECD). One does not need to look so far to see how differing cultural expectations as to how funds may legitimately be generated can lead to litigation in the offshore jurisdictions. Or take, for example, the question of agents' commissions. In English law, the agent is a fiduciary. In order to make a legitimate profit from their position, they must obtain full and informed consent of the principal. This is a rule so deeply enshrined that it would be unthinkable to challenge it; and because it is part of the law of equity, those jurisdictions which borrow the trust device have it too.
The need for complete knowledge, though, is not recognised elsewhere. It is common in some overseas jurisdictions to know that the agent is making some kind of private profit, but not to know precisely what it is. Situations of this kind can lead to constructive trust claims in the offshore jurisdictions. It will be said that the law of the foreign jurisdiction is assumed to be the same as that of the offshore jurisdiction, unless proven otherwise - and it is often quite difficult for the defendant to prove 'otherwise'. It tends to be those jurisdictions with highly developed trust law that have addressed specifically the question of whether 'full and informed consent' of the principal is required to legitimise the commission. For many others, there is scope for argument as to whether this is in fact needed and what it actually means. Usually, that argument will have to await a contest of expert and factual evidence at trial. In the meantime, the claimant will often take advantage of the panoply of freezing and proprietary injunctions that are usually available in cases of this kind.
Holding funds from jurisdictions with high political risk can be an uncomfortable ride. Adjudication of disputes requires not just analysis of foreign law, but also places the court on the very boundaries of civil and public international law. If you take the funds, you take the controversies that may also relate to them.
Robert Hunter is head of the trust, asset-tracing and fraud group at Allen & Overy