In 2016 Moneyval issued an evaluation report on the Bailiwick of Guernsey. This commented favourably upon the Island's regulatory framework and compliance regime, but also noted the "relatively limited number of cases involving third party [money laundering] by participants of the financial" before concluding that "the amounts of property...confiscated...indicates room for more effective application of third party [money laundering] before concluding that "the amounts of property...confiscated...indicates room for more effective application of [money laundering] provisions

The report also found that the powers of civil forfeiture had not been adequately tested by the authorities in their efforts to tackle serious economic crimes and encouraged the Guernsey authorities to utilise more fully the statutory powers available to them.

This article examines a recent effort on the part of HM Comptroller ("HMC") to forfeit funds within Guernsey that were said to represent the proceeds of relevant foreign criminal conduct and looks ahead to the impact of changes to Guernsey's civil forfeiture regime by the Forfeiture of Money, etc. in Civil Proceedings (Bailiwick of Guernsey) (Amendment) Ordinance, 2022.

Recent decision by the Royal Court of Guernsey

Royal Court proceedings were issued by HMC pursuant to section 13 of the Forfeiture of Money, etc. in Civil Proceedings (Bailiwick of Guernsey) Law, 2007 (the "2007 Law) in respect of €678,906.41 frozen in accounts with a bank in Guernsey (the "Funds").

In order to establish the case for forfeiture, HMC was required to prove that the Funds represented the proceeds of foreign unlawful criminal conduct that would, had it occurred within Guernsey, have amounted to a criminal offence as a matter of Guernsey law.

The relevant conduct related to specific South African companies law offences that the economic settlor of the relevant trust had pleaded to in the context of the financial collapse of a South African listed company. From a Guernsey perspective, the relevant South African offences had the appearance of an amalgam of elements of i) fraudulent trading offences (which can carry civil and criminal sanction if conducted in the Bailiwick); and ii) wrongful trading (which imports only civil liability as a matter of Guernsey law).

HMC's assertions were that the conduct in question would, had it occurred within the Bailiwick, have amounted to the common law offence of conspiracy to defraud and/or false accounting under the Theft (Bailiwick of Guernsey) Law, 1983.

In the alternative, HMC argued that the definition of "proceeds of unlawful conduct" was sufficiently broad so as to permit a case for forfeiture on the basis of a third party's unlawful actions where those had positively impacted upon the value of the source of funds that found its way to Guernsey (in this case the proceeds of a sale of listed equities). Put another way, HMC's alternative foundation for forfeiture was: where A obtains property by reason of B's unlawful conduct, B's conduct "represents the proceeds of unlawful conduct" such that any monies that are said to derive from that unlawful conduct are capable of forfeiture, regardless of whether A also engaged in any relevant unlawful conduct.

Under the 2007 Law, the burden of proof rested with HMC, who had to show, on the balance of probabilities, that the Funds (or a part thereof) represented "any person's proceeds of unlawful conduct..."

On 17 February 2023, after a three day hearing, Lieutenant Bailiff Marshall KC handed down her judgment in what is understood to be the Island's largest value forfeiture application to date.

In summary, LB Marshall KC, dismissed HMC's application:

  • Rejecting the primary argument on the basis that there was no evidence that the Funds were the proceeds of the economic settlor's unlawful conduct;
  • Noting that where allegations underpinning a forfeiture application are serious, more compelling and cogent evidence is required to make them good; and
  • Rejecting HMC's alternative argument that the Funds could be forfeited on the basis of unlawful conduct by an unconnected third party.

LB Marshall's judgment resulted in the Funds being released and the freezing order obtained under section 10 of the 2007 Law being discharged.

Walkers acted for the successful respondent in this matter and a copy of the judgment can be found here.

New Forfeiture Law / Summary Process

Guernsey recently introduced changes to its civil forfeiture regime through the Forfeiture of Money, etc. in Civil Proceedings (Bailiwick of Guernsey) (Amendment) Ordinance, 2022 (the "2022 Ordinance").

One of the notable changes brought about by the 2022 Ordinance is the reversal of the burden of proof. This means that in future civil forfeiture applications, a respondent will be required to establish the civil standard (balance of probabilities) that the funds in question are not the proceeds of criminally unlawful conduct.

The 2022 Ordinance also empowers the Committee for Home Affairs to make regulations (after consultation with other authorities) to introduce a procedure under which a forfeiture order can be reconsidered if new evidence comes to light.

Another significant change relates to the issue of costs. Prior to the 2022 Ordinance, a successful respondent to a forfeiture application could expect to recover their costs from the unsuccessful applicant. Now, however, Guernsey's authorities are insulated from adverse cost or damages orders in respect of civil forfeiture applications unless there has been an act or omission made in bad faith.

Finally, the 2022 Ordinance also introduces a summary forfeiture procedure for cases where the Guernsey Financial Intelligence Unit (the "FIU") has declined its consent to a transaction involving particular assets. This change enables the Royal Court to make a forfeiture order in respect of assets held in a Bailiwick bank account where a consent request has been made and refused at least 12 months prior. This is subject to the existence of reasonable grounds that the funds are connected to criminal behaviour, but the starting point may commonly be that the FIU's refusal to grant consent is founded upon a reasonable basis for suspicion.

The implications for trustees are twofold. Where trust assets are the subject of a summary forfeiture notice, it is likely to be the trustee as account holder who is served with a summary forfeiture notice. The trustee will then have to consider the following:

1.To what degree should he, she or it take part in the proceedings; and

2.The duties that the trustee has to all the beneficiaries of the trust: if the focus of the forfeiture order is a single beneficiary, do the interests of the other beneficiaries require a challenge to be made or would some other action (for example, exclusion) be appropriate in the circumstances.

Conclusion

Guernsey's commitment to regulation in accordance with developing international standards and enforcement cases will continue both before and after Moneyval's upcoming visit.

The decision cited above demonstrates that the Royal Court will, however, remain robust in its assessment of the use and limits of the statutory powers granted to Guernsey's financial authorities.

Notwithstanding, the 2022 Ordinance has the potential to significantly impact the forfeiture landscape and we anticipate an increased focus on civil forfeiture as part of the jurisdiction's preparations for the 2024 anti-money laundering evaluation by Moneyval

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.