The cartel crunch... white-collar crime and extradition

Guernsey resident directors of companies that operate across borders (even where they simply conduct transactions in different currencies) need to be aware of the long arm of foreign prosecutors.

Landmark Ruling

A fortnight ago the House of Lords delivered a landmark ruling arising out of the 2003 UK-US Extradition Treaty (the "2003 Treaty") in the case of Norris v Government of the United States of America. Ian Norris succeeded in having the US government's attempt to extradite him on allegations of running a cartel thrown out, although he still remains subject to other charges of obstruction of justice.

Mr Norris was the former chief executive of Morgan Crucible, a company involved in the carbon sector. Since his arrest in London in 2005 the US Department of Justice has been trying to bring him to trial in Pennsylvania on charges of alleged price-rigging and of obstructing investigations. The US alleges that he was part of a price-rigging cartel operative between 1989 to 2000.

The battle in the House of Lords focussed on the scope of the UK's extradition legislation and the need for the alleged offence in the US to be an offence in the UK also. This was the difficulty facing the US government because price-fixing was only made a criminal offence in England and Wales in 2002 when the Enterprise Act came into force (two years after the alleged cartel ceased operating).

Mr Norris successfully argued that because price-fixing was not a criminal offence in England and Wales prior to the 2002 Act, he could not be extradited. The US had attempted to 'repackage' the price-fixing charges into charges of conspiracy, in the hope that the boundaries of the crime of conspiracy might be sufficiently elastic to cover cartels. The charge against Mr Norris was therefore based on an allegation that he had entered into a conspiracy to defraud buyers of carbon products by entering into an agreement to fix, maintain and coordinate the price for the supply of carbon products in the US. Unfortunately for the US government the repackaging did not work: the essential ingredients of the alleged offence remained participation in a cartel. The House of Lords held that participation in a cartel, in the absence of any aggravating features such as dishonesty, was not a criminal offence in the UK at the relevant time either at common law or under statute. Mr Norris's case was sent back to the district court for consideration of the other offences. In relation to those offences the only remaining question was whether it was proportionate for Mr Norris to be extradited, having regard to the provisions of the Human Rights Act 1998.

Effect of the 2003 Treaty

Mr Norris' case is important on many levels. However, perhaps the most important dimension of the case is the consideration of the UK extradition legislation. The case highlights the significant concern felt by many businessmen in relation to the imbalance in UK extradition law brought about by the 2003 Treaty. For many years the UK legislation had required the US to establish a prima facie case for extradition from the UK to the US. The 'mirror' obligation on the UK was the requirement that if the UK wished to obtain extradition of a US national it had to demonstrate probable cause.

With effect from 2003 that position changed dramatically. Although the UK remained bound to establish probable cause, the obligation on the US was reduced in that it was only required to provide 'information' of a potential crime (rather than evidence). For many, the removal of the requirement to provide evidence represented the removal of a fundamental protection for those in the UK facing extradition requests from the US.

Nat West Three

The 2003 Treaty was also used by the US government in the extradition of the Nat West Three, where it was upheld in the face of a direct challenge. The decision in the Nat West Three case sparked widespread concern amongst the corporate community because even the most tenuous of links with the US (for example wiring money through the US telephone system) exposes UK directors of offshore companies. to the risk of extradition to the US on the basis of alleged criminal liability

White-collar arrests

In the last few years we have seen several highprofile arrests on suspicion of white-collar crime. David Carruthers, the chief executive of BetOnSports, was arrested last year while changing planes in Texas under US antigambling legislation. His co-director, Gary Kaplan, who founded the company, was arrested in the Dominican Republic on similar charges. Closer to home, in December 2006 the Londonbased husband and wife hoteliers Stanley and Beatrice Tollman lost their extradition appeal on charges of US tax fraud. The alleged proceeds of the fraud were processed through Guernsey bank accounts.

US spotlight on offshore jurisdictions

This use of offshore accounts to process funds which might otherwise have gone to the US taxman has not gone unnoticed in the US. On 1st August 2006 a US Senate permanent subcommittee issued a report which was extremely critical of offshore jurisdictions. The report was scathing of the role which offshore jurisdictions have to play in assisting individuals to evade the US taxman and service providers were particularly singled out for criticism.

The position in Guernsey

So where does Guernsey stand in relation to these issues? Guernsey has been extremely proactive in introducing legislation to counter white-collar crime and the regulatory framework and machinery is very well regarded. On the extradition front, the Guernsey government has been actively considering the introduction of new extradition legislation for some time. According to a schedule of proposed legislation as at 31st January 2008, a new extradition law is on the cards, although unlikely to happen in the next 12 months.

It might be asked why Guernsey has not hastened to follow the example of her sister island, Jersey, and speeded new legislation into force in response to the Treaty. Jersey had new legislation on the statute books by 2004, which essentially mirrored the provisions of the 2003 Treaty. However, given the challenges which the UK has faced with the 2003 Treaty, it is perhaps no bad thing that Guernsey is holding back and taking stock. In any event, the extradition legislation which currently applies in Guernsey (based on the UK Extradition Act 1989) seems adequate. Indeed - arguably it presents less scope for challenge under the Guernsey equivalent of the UK Human Rights Act in view of the continuing requirement for the government requesting extradition to provide evidence of conviction rather than mere information as to an alleged crime.


Local directors should certainly watch this space as it seems clear that new legislation will be coming along sooner rather than later. Even without new domestic legislation those doing business in or from Guernsey should take careful note of the increased attention of foreign authorities such as the US in relation to activities such as cartels, online gambling, "foreign corrupt practices" and the "proceeds of crime" relating to activity that might be regarded as criminal in one jurisdiction but not necessarily in others.

In a European context, businesses should bear in mind the recent introduction of a system to expedite extradition proceedings in Europe, by way of European arrest warrants. Any local business which operates in different jurisdictions, either physically or virtually, should ensure that they have reviewed the risks to their business arising from the criminal laws of the different jurisdictions in which they operate, and consider checking that their insurance policy provides adequate cover in respect of extradition proceedings.

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.