As the number of foreign business executives extradited to the US to face alleged breaches of US law climbs, it is timely to look at the approach being taken to extradition, the likely direction of extradition reforms in Guernsey and some ways of managing (and hopefully minimising) the associated risks.
On 5 December 2006 London-based hoteliers Stanley and Beatrice Tollman lost another round in their fight against extradition to the US on tax fraud charges when senior district judge Timothy Workman ruled that their case should not be thrown out for ‘abuse of process’. The hoteliers join the three former NatWest bankers (the NatWest three) and former chief executive of Morgan Crucible Ian Norris as the latest UK-based individuals to be accused of US white-collar crimes and subsequently sought by US authorities under fast-track extradition procedures.
According to the complaint filed by the US attorney against Beatrice Tollman, she and her husband received in excess of $35m (£17.73m) in income from UK-based Travel Corporation and its companies through secret Guernsey bank accounts – income that they failed to report on their US tax returns. It is further alleged that Beatrice had extensive dealings with the accountants and bankers who managed the Tollmans’ secret accounts in order to further the tax fraud.
The US has not yet sought to extradite any Guernsey-based individuals in connection with the Tollmans’ case – however, individuals based in Guernsey should be justifiably concerned in light of the US Senate Permanent Subcommittee report released on 1 August 2006 entitled ‘Tax Haven Abuses: The Enablers, The Tools & Secrecy’. That report was extremely critical of offshore jurisdictions and their role in enabling individuals to avoid tax. US-based entity the Asset Protection Corporation has described the report as “Congress about to declare war on anything offshore”.
Service providers in offshore jurisdictions who facilitate the efforts of individuals to avoid tax received special mention in the subcommittee’s report. Reforms recommended by the report in order to rein in tax haven abuses included authorising “the Treasury Secretary to identify tax havens that do not cooperate with US tax enforcement efforts and eliminate US tax benefits for income attributed to those jurisdictions”.
Guernsey v UK
At the present time, extradition in Guernsey remains governed by the UK Extradition Act 1989. In contrast to the information-only based requests that are now available in the UK pursuant to the US-UK Extradition Treaty 2003, and Jersey pursuant to the Extradition (Jersey) Act 2004, the 1989 act requires a requesting country to establish a prima facie case before an individual will be extradited.
A prima facie case is one in which the evidence and testimony presented in court would be sufficient to convict the party of the crime if no defence was offered. This is to be differentiated with the less onerous ‘probable cause test’, which is sufficient evidence to indicate that a crime was committed and the party is likely to have committed it. Under the Fourth Amendment of the US Constitution, probable cause is necessary and sufficient for warrants and indictments.
Prior to the 2003 extradition treaty between the US and UK, the US had to present a prima facie case for extradition from the UK. The UK only had to establish probable cause for extradition from the US. Following the treaty, the US now only needs to provide ‘information’ as opposed to evidence. That information is limited to particulars of the conduct, a statement of the foreign law, evidence identifying the defendant and a warrant. On the other hand, the UK remains bound to establish probable cause, and it is this disparity that has many groups crying foul play.
Likely new extradition law
While there have been no statements suggesting that Guernsey has been ‘uncooperative’ with foreign law enforcement agencies, given the current environment it seems more than coincidence that the States of Guernsey are in the process of drafting a new extradition law that is likely to streamline extradition from Guernsey to the US and other jurisdictions.
Guernsey may appear to be lagging behind the mainland and its peer, Jersey, in the update of extradition legislation. However, as a result Guernsey has an opportunity to observe the legislation in practice, cherry-pick the best parts and tailor its legislation accordingly. It is widely believed that Guernsey is likely to adopt legislation similar to the Jersey Extradition Act 2004, which in turn is extremely similar to the UK Extradition Act 2003.
With Guernsey’s new law likely to be enacted in late 2007, it is critical that Guernsey-based executives and professionals providing services to US-based clients appreciate fully the risks they face and do not inadvertently bring themselves within reach of the long arm of the US authorities. The plight of David Carruthers, a UK executive of BetOnSports who was arrested while in transit at Fort Worth Airport, Dallas, highlights the risks associated with online gambling and will be of particular interest to any Guernsey-based individuals who may be involved with Alderney’s efforts to establish itself as a centre for online gambling operators.
Managing the risk
Given the anticipated streamlining of arrangements between Guernsey and the US, non-US companies and their executives based in Guernsey need to be aware of the increased risk of extradition to the US.
Given the limited defences one can put up to an extradition request and the wide range of offences that may form the basis of these requests, it is clear that executives need to exercise real care, as even the unwary can be caught. Recent UK cases have demonstrated that there is very little that can be done to resist an extradition request under the fast-track regime.
In the meantime, it is recommended that risk management should include compliance programmes to increase executives’ awareness of US laws and train them to recognise and avoid actions that may violate those laws.
The following steps may also help to minimise the risk of an extradition request being made in the future:
- ensure that internal controls are of the highest standard;
- ensure that due diligence standards meet international money laundering standards; and
- understand the relevant criminal laws in the jurisdictions in which the organisation does business.
For those doing business in the US, attention should be given to the variety of offences for which the US has shown a willingness to seek extradition. These include:
- price-fixing and cartel behaviour (see the case of Norris);
- bank fraud, wire fraud and mail fraud (the NatWest three);
- online gambling, including hosting servers used for such gambling (Carruthers); and
- money laundering, when any part of the alleged conduct occurs in the US.
Ensure that the company’s directors’ and officers’ liability insurance includes the cost of extradition proceedings and foreign proceedings, should they arise.
It remains to be seen whether Guernsey will afford the US ‘information-only status’ in line with the UK and Jersey. That may depend in part on the reaction in Jersey to an extradition request from the US, should one be received. No doubt the legislators in Guernsey will be watching any such request with interest.
–Alison Ozanne is a partner and Doug Hayter is an associate at AO Hall