Guernsey: Garnet - A New Investigatory Role For The Banks?

Last Updated: 16 February 2012
Article by Michael Adkins

The (as yet, unreported) decision of the Court of Appeal in the matter of The Chief Officer, Customs & Excise, Immigration and Nationality Service -v- Garnet Investments Limited could have wide ramifications for the banking industry and those regularly subject to the reporting regimes under the Criminal Justice (Proceeds of Crime) Bailiwick of Guernsey Law 1999 (the Proceeds Law).

The Court of Appeal in Garnet has set out its view that the burden of demonstrating whether or not the funds a bank holds are 'tainted' fall on the bank, rather than its customer or the Financial Intelligence Service (the FIS).


Guernsey, in response to its position as a major offshore financial centre and to maintain its regulatory reputation introduced the Proceeds Law to enable it to "deter criminals from attempting to use the Bailiwick for the purpose of laundering the proceeds of crime"1.

The relevant provisions of the Proceeds Law are sections 38, 39 and 40, which between them create a wide-ranging prohibition on money laundering the proceeds of crime.

These sections operate so as to make it an offence for an institution to transfer, convert or disguise any property which they know or suspect may be the proceeds of criminal activity or provide assistance or enter into arrangements where this may be the effect.

Under these sections a defence is available to the institution if it reports its suspicion or belief to the police and obtains consent for any proposed arrangement. It is this provision of consent by the police (or lack thereof) that is the subject of the decisions in Garnet.


Garnet Investments Limited was a company incorporated in the BVI in 1998. The beneficial owner of Garnet is Mr Hutomo Mandara Putra, the son of the former President of Indonesia. Between 1998 - 1999, shortly after his father resigned, Garnet received various payments totalling US$60million and £8million.

Following the resignation of his father corruption charges were brought against Mr Hutomo and in September 2000 he was sentenced to 18 months imprisonment and fined 30.6 billion Indonesian Rupiahs. He went on the run and in 2002 was convicted of murder, fleeing justice and illegal possession of firearms (although the corruption charges were quashed in 2001). He was sentenced to 10 years and was released in 2006.

In October 2002 Garnet instructed its bank (BNP Guernsey) to transfer funds of approximately €36.46 million from its accounts. BNP refused. It notified the FIS of the instructions and requested its consent to the transfer. The FIS refused consent to BNP to act on those instructions.

Further transfer requests were made by Garnet, some of which were refused, one of which the FIS consented to. As a result of the refusals to comply with the transfer requests Garnet issued proceedings against BNP. During the course of the proceedings BNP relied on (among other things) its disclosure under the Proceeds Law and the FIS's refusal; to defend itself against the proceedings (on the basis that to have acted otherwise would expose BNP or its employees to criminal liability).

In 2007 the Indonesian government joined the proceedings and obtained a freezing injunction in respect of the Garnet accounts. This was subsequently discharged by the Court of Appeal in 2009 and an application for appeal by the Indonesian government to the Privy Council was dismissed.

In 2009 Garnet made a further request for transfer of funds to BNP and wrote to the FIS detailing why the payment should be made. The FIS refused to provide consent to BNP to carry out the transfer.

In response to the FIS's refusal Garnet issued proceedings for judicial review of the FIS's decision.

At first instance, in February 2010 Lieutenant Bailiff Newman gave judgement in favour of Garnet, holding that the decision of the FIS to withhold consent amounted to a freeze of the assets without formal process and its continued refusal was therefore irrational and disproportionate, constituting an excessive interference with Garnet's property rights and a breach of Article 1 of Protocol 1 to the European Convention on Human Rights.

The FIS appealed the decision and the Court of Appeal allowed their appeal.


The Court of Appeal reversed the first instance decision on almost every point. The main issue, both at first instance and appeal, was the effect of the FIS's refusal to provide consent. Garnet argued that a refusal by the FIS to provide consent to a transaction allowed the FIS to effect an informal freezing order over funds, as no bank (or other institution) would transfer funds without this consent as it would otherwise be guilty of a criminal offence.

At first instance the Lieutenant Bailiff agreed with Garnet. However, the Court of Appeal found that "it is not the FIS denying Garnet access to its property and preventing judicial oversight, it is the impact of the width of the criminal law and its chilling effect upon the person holding the fund, namely BNP."

The Court of Appeal went on to state that the refusal of consent does not prevent judicial oversight by the courts as the "legality of any refusal to transfer funds may be challenged by a private law claim brought against the person holding the funds before the Courts of the Bailiwick"2.

"Garnet has not been put in the position of having no means whatsoever of dealing with its property, namely, the right to demand payment under the banking contract. The ability to enforce that contract is a matter of civil law. Put simply, only if the bank can establish a relevant defence will Garnet fail to obtain repayment of its funds. Doubtless the bank would defend the proceedings but the existence of the lack of consent under Section 39(3) would not be relevant as a defence to that claim. The parties would be joined on an issue or issues as to whether or not the funds were tainted and it seems to us likely as we have indicated above that the burden of proof - to the civil standard of balance of probabilities - would be upon the bank to show that the funds were indeed tainted." 3

The Court of Appeal did however find that, as a matter of principle, the decision of the FIS was subject to judicial review and that whilst the FIS were under not under a general duty to give reasons for their decisions in all circumstances, where it is possible there are important policy and practical reasons for reasons to be given.

However, it would appear that the threshold required by the FIS to reasonably refuse consent is not significant, the Court of Appeal commenting: "where there is a suspicion that has not been dispelled, the police must be entitled to refuse consent whatever period of time has elapsed" relying upon the comments of Tomlinson J4 "It seems clear... that the existence of a suspicion is sufficient to ground a proper refusal of consent".

It therefore appears that the Court of Appeal considers a suspicious transaction report by a bank to be sufficient grounds in itself for the refusal of consent by the FIS.

On this basis the Court of Appeal found that the decision of the FIS to refuse consent was not irrational or disproportionate and did not interfere with Garnet's rights.


The current anti-money laundering regime (quite rightly) promotes a caution when managing this risk to institutions and an 'if in doubt, report it' approach. This Judgment must not affect the reporting and risk management policies and procedures of those organisations when dealing with potential anti-money laundering issues.

However, the effect of the Court of Appeal's decision appears to:

  1. put banks and other service providers in an unenviable position of having to assert its own client's funds are tainted once a report has been made an consent refused; and
  2. potentially remove the FIS from final determination as to whether those funds are, or are not tainted, notwithstanding the FIS's own mandate to combat and prevent financial and economic crime, as the civil court determines this issue as a matter of contract law.

Unfortunately it was not addressed by the Court of Appeal but there is a question whether, without FIS consent, in paying out any money on the basis of a court order the bank is still committing a criminal offence as it is not a defence under the Proceeds Law to make a payment with the consent of the court, only a police officer.


Banks and other service providers should look to review their client mandates to ensure that they manage, to the extent possible, the risks posed by customer actions where FIS consent has been refused. In particular consider whether their mandates operate so as to provide the organisation with an ability to disregard instructions where the organisation has a suspicion under the Proceeds Law (and the FIS has refused consent).

In effect the Court of Appeal decision has placed the burden of proof in demonstrating that the funds are tainted on the reporting body (when it is being sued by its customer) or the customer (when he is seeking judicial review of the decision of the FIS).


No, not really. The Court of Appeal considered that Guernsey does not have the same level of fast moving transactional business that might be damaged by an absence of deemed consent (i.e. that a continued failure to provide consent (and take no other actions) could become increasingly unreasonable). Instead the Court believed Guernsey's financial system is more concerned with the stable administration of funds through third party managers or trustees. However, while apparently recognising this distinction it failed to deal with the practicalities of this system in its own judgment.

The circumstances of Garnet only involved two separate parties: BNP holding the funds which may or may not be tainted and maintaining its suspicions and Garnet demanding the funds. In this case, as the Court of Appeal envisaged, the party demanding the funds could issue proceedings against another party, i.e. Garnet had a cause of action under its bank mandate.

But what if the parties, unlike Garnet, did not have an absolute entitlement to the funds, for instance discretionary beneficiaries? In these circumstances the trustees would be in a position where they were required to instigate proceedings, either by artificially suing themselves (as the party with the right to the property and the party holding the property) or judicially review the decision of the FIS (as potentially the only party with standing) in circumstances where they are aware the threshold for the FIS to demonstrate reasonableness is low.


As an international financial centre Guernsey must rigorously maintain high standards expected by the international community and the Proceeds Law is one tool in the legislature to enable the various bodies to enforce this.

However, in adopting a more restrictive approach than in other, similarly principled jurisdictions (for instance lack of ability to disclose with consent, or deal with funds after the elapse of time) the current Proceeds Law also has the effect of restricting a bank's ability to manage its own risk, reducing its options (and to an extent those of the FIS) and increasing the likelihood these matters will end up at court.


1. Letter of 23 April 2002 attached to the Billet IX of 2002.

2. Emphasis added.

3. Emphasis added.

4. Metal Trading Limited -v- City of London Police Financial Investigation Unit and others [2003] EWHC 703 (Comm).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.