The background of the matter concerned a request by the principal beneficiary of a discretionary trust, to terminate the trust. Owing to concerns about the provenance of the funds settled in the trust, the Financial Intelligence Service (FIS) in Guernsey refused to provide consent to the Trustee to terminate the trust, which resulted in an informal freeze of the funds under the AML legislative regime, until such time as the FIS provided consent. Various unsuccessful attempts were made to satisfy the Trustee, and ultimately the FIS, with respect to the provenance of the funds settled on trust. Following those attempts, the Plaintiff commenced a private law action against the Trustee seeking a declaration that the funds settled on trust were not the proceeds of crime.
This action involved for the first time under Guernsey law, consideration of (i) what “suspicion” meant for the purpose of reporting financial crime, (ii) whether the trustee had the requisite suspicion, and (iii) finally, if (ii) was satisfied, who had the burden of proving the funds were not the proceeds of crime. The Judge found that the trustee had the requisite suspicion and that the burden then shifted to the Plaintiff to discharge the evidential burden in relation to the source of the funds. The Judge found that the Plaintiff had discharged her burden in respect CAD$16.81m.
Unlike the position in the UK, the Guernsey regime does not provide for a moratorium period within which the disclosure must be investigated by the Authorities and acted upon. Until consent is provided by the FIS, the subject funds are effectively informally frozen. In the Garnet case, which dealt with a judicial review application, the Guernsey Court of Appeal described the position as the “chilling effect” of the “impact of the width of the criminal law”. Indeed as postscript to the Liang decision, the Court suggested that the circumstances of this case exposed the difficulties faced by the parties, and suggested that those in political power may consider it sensible to review the effect of the regime in order to strike the appropriate balance between the “free flow of trade, particularly in the financial services sector” and the enforcement of the money laundering regime.
Following recent revisions to the GFSC’s Handbook on Countering Financial Crime and Terrorist Financing, this case provides a timely illustration of the complexities for parties involved in transactions where the origin of the funds is uncertain. As the financial services sector faces a stricter anti-money laundering regime, such cases will undoubtedly become far more commonplace. Therefore, advice from lawyers experienced in this area is as invaluable as ever in order to assist clients to navigate the legal minefield.
As family arrangements become more complex, trustees and beneficiaries are frequently being drawn into disputes which lead to court proceedings. Appleby’s talented, experienced and solution driven Trust Disputes Team is committed to delivering the highest possible level of client service and regularly work together across their global locations to provide expert multi-jurisdictional advice.