Offshore jurisdictions have for some considerable time been at pains to shake off the image that they may constitute black holes for illicit monies. While the offshore jurisdictions do not wish to be seen to be losing their reputation for confidentiality, they have accepted that their reputations could actually be enhanced if they are seen to contribute to, and cooperate in, the global battle against unlawful practices.
The courts have openly remarked that they must not allow the existence of black holes, given the opportunity for exploitation. This thinking has underpinned many judgments where orders to aid substantive proceedings in foreign jurisdictions have been granted, such as freezing and disclosure orders where there is little or no connection with the offshore jurisdiction other than the presence (or former presence) of assets. The result is that a fraudster would have to be very naive indeed to think that placing funds in a Channel Island bank account would be safe from seizure by the prosecuting authority in their own country.
In reputable offshore jurisdictions both legislation and infrastructure are in place that can be held up to compare favourably to those of the major onshore financial centres, including London.
One of the most recent developments in the Channel Islands last year related to UK residents using Channel Island accounts in branches of one of the high street banks. The decision in January last year of the UK Special Commissaries Tax Tribunal to permit tax inspectors to demand account information of customers with offshore earnings with high street banks is clearly aimed at discouraging UK residents from using such accounts for tax evasion purposes. Many offshore account holders will now be ‘invited’ to own up to HM Revenue & Customs about their deposits. Attention will focus on holders of credit cards linked to accounts in the Channel Islands and other offshore centres.
Another area that is being scrutinised is VAT fraud, and the Chancellor in his 2006 Budget pledged to tackle the VAT loophole that was being exploited, particularly where big businesses are importing CDs and DVDs VAT free from the Channel Islands.
The establishment in the UK of the Serious Organised Crime Agency during 2006 has been welcomed by the authorities in the Channel Islands, which already have their own organised crime groups and that will no doubt share intelligence with their UK counterparts.
Another area that hit the headlines in 2006 was the Labour Government’s legalisation and regulation of gambling as the best means to keep it crime-free and fair. Alderney, part of the Bailiwick of Guernsey, already has a highly regulated and developed online/remote gambling industry that was recognised at an international summit during 2006 as being a good example of how the sector could be regulated efficiently. Support was given by no less than Sports Minister Richard Caborn MP, who chaired the summit.
There are many examples during last year of how the offshore jurisdictions worked with bodies such as the UK Serious Fraud Office (SFO) to not only obtain convictions of fraudsters, but also to recover assets. In one case alone in Jersey, more than £2m of assets belonging to a convicted fraudster were recovered by providing assistance to the SFO.
Injunctions, search and disclosure orders
The Channel Islands, as with many other offshore jurisdictions, have developed the same remedies under their own statutory legislation as have been developed in the UK. For example, Guernsey has had in place a Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law 1999 (as amended) and the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations of the same year.
These laws and regulations have led to a significant growth in letters of request for restraint orders or external confiscation orders. They are applied for on the request of the foreign authority through HM Procureur (Guernsey’s equivalent of the Attorney-General) and can have far-reaching consequences.
In one case the initial order being granted on the request of a foreign authority resulted in the foreign individual, who had not yet been convicted of any offence in their own country, being subjected to having all of their assets confiscated and was therefore denied access to funds even to pay for their legal representation. Clearly, in any civil action, the courts would always be careful to ensure that the defendant would be permitted access to funds otherwise frozen, at least to pay legal expenses and most probably for essential living expenses.
Of course, offshore banks, like their onshore counterparts, can still find themselves caught between a rock and a hard place, especially because of the tensions that can arise where both the criminal and civil processes are applying at the same time. In one case proceeding before the courts, a bank found itself required to file a suspicious transaction report in respect of funds held in an account owned by a foreign national. The bank made the appropriate disclosures to the prosecuting authority, which then refused consent to the bank to operate the relevant bank account. Inevitably, the customer sought to operate the account and issued payment instructions even though the bank was unable to comply and so the bank found itself a defendant in civil proceedings issued by its customer who was seeking both damages and enforcement of the payment instructions.
In defending itself the bank felt obliged to plead the receipt of instructions from the prosecuting authority, therefore making the instructions public knowledge. Furthermore, the bank sought an order from the court that the civil proceedings should be stayed on the basis that the appropriate remedy is for the disgruntled customer to seek judicial review against the prosecuting body for refusing to give consent to the transfer of the funds. This would appear to have some considerable support now following the judgment of the English Court of Appeal in the case of K Limited v the NatWest Bank and HM Revenue & Customs & Ors (2006).
There will always be those wishing to bend or break the rules for financial benefit and every time the authorities close one loophole the potential fraudster will be using all of their considerable energies to find another. Nevertheless, offshore jurisdictions such as the Channel Islands have undoubtedly become an inhospitable place for the fraudster, and the most recent innovations, where the differing enforcement bodies are joining forces, or at the very least cooperating with each other (not only with their counterparts in other jurisdictions, but even with their colleagues in their own territory), will only add to the increasing difficulty for fraudsters.
–John Greenfield is managing partner at Carey Olsen