Post by Sapphire Capital on Aug 31, 2018 6:20:19 GMT 4
29 August 2018
Article by Colette Wilkins and Nick Dunne
Walkers
When Somerset Maugham described the French Riviera as a “sunny place for shady people”, he could just as well been referring to public opinion of the offshore world after the release of the Panama Papers in 2015 and the Paradise Papers in November 2017. The narrative that followed these disclosures was, almost without exception, one where the sound of the sea gently lapping on the golden sands was interrupted only by the sound of ill-gotten gains being buried under a convenient palm tree, well away from prying eyes.
That description would, if true, offer little by way of encouragement to the asset recovery lawyer. It would be all too easy to subscribe to the common and long-established view that the offshore world is surrounded by an impenetrable wall, impervious to the most determined efforts of government and attorney alike to identify assets and enforce against them. As is so often the case, however, received wisdom and reality have only a fleeting acquaintance: that description long ago ceased to apply in the major offshore jurisdictions, and with the passage of time it recedes further into the distance. The current trend in legislative reform and judicial thinking, some examples of which are identified in this article, is firmly set against the abuse of offshore entities and has created a favourable climate not only for a beach holiday, but also in which to pursue assets.
The decline and fall of secrecy
In the Cayman Islands, the most striking change has been the 2016 repeal of the long-standing “secrecy law”, the Confidential Relationships (Preservation) Law, which abandoned at a stroke the controversial extraterritorial effect of the previous statute and its criminal sanctions for breach, and replaced them with a more familiar confidentiality regime, differing little from that which applies elsewhere in the common law world. The bark of the law in this regard had in any event long been worse than its bite, with not a single prosecution instituted at any time during the 40-year lifespan of the statute; however, the move towards a more conventional approach is welcome, as is the creation of an express exemption to the duty of confidentiality in the case of disclosures of wrongdoing that are made in good faith.
These changes in the confidentiality regime have reflected the approach of the Grand Court, which has repeatedly shown itself unwilling to permit the use of confidentiality as a shield against legitimate investigatory and enforcement actions emanating from overseas, with disclosure of confidential information permitted in a broad range of civil and criminal contexts, including proceedings before a US Grand Jury.
Gathering information and freezing assets
Both Mareva and Norwich Pharmacal orders are well established and frequently utilised across the Caribbean, local courts having for many years enthusiastically adopted the approach of the English courts to such orders. However, far from simply tracking developments in the law in this regard; the offshore judiciary has shown a willingness to expand the frontiers of the jurisdiction where it is necessary to do justice. In UVW v XYZ (2016), Wallbank J, sitting in the High Court of the British Virgin Islands, held that relief was not only available post-judgment in aid of enforcement of overseas judgments, but also that all that was required was a “reasonable suspicion” that the debtor was wilfully evading liabilities and that a registered agent was mixed up in that conduct. Direct evidence of misuse of the BVI vehicle was not necessary, “reasonable suspicion” being a somewhat less rigorous standard. The decision in UVW throws the differences between public perception and reality into relief, demonstrating a level of flexibility and pragmatism that is fundamentally at odds with what might be expected in what is often alleged to be a “secrecy” jurisdiction.
Even where the target is a “brass plate” company, recent legislative modernisation has significantly enhanced the effectiveness of the Norwich Pharmacal jurisdiction. Since mid-2017 the Cayman Islands has required the vast majority of companies to maintain a register of beneficial ownership, identifying all individuals exercising significant influence or control over the entity. That, of course, is likely to be of significant interest in any asset recovery attempt, as is much of the information that will ordinarily be held by the registered office. The almost invariable use of US dollars for the payment of fees will often yield bank transfer details which in turn, because of the involvement of US-based correspondent banks, can provide a gateway to seeking additional disclosure in the United States under USC 1782. The lack of a physical presence on the ground is far from fatal to useful information gathering exercises within the Islands.
Innovation has not been limited to the investigatory sphere but has also extended to the freezing of assets, particularly in addressing a lacuna in the law in relation to the ability to provide assistance to foreign courts where no substantive cause of action exists in the relevant offshore jurisdiction. The Cayman Islands dealt with that issue by way of amendment to the Grand Court Law and insertion of a specific power to grant interim relief, including injunctions and the appointment of receivers in support of any foreign proceedings capable of giving rise to a judgment that would be enforceable in the Islands.
However, perhaps more revealing in relation to modern judicial attitudes to asset recovery and the misuse of offshore vehicles is the approach taken in the British Virgin Islands in the line of cases following the 2009 decision of Bannister J in Black Swan. That case used the general power of the Eastern Caribbean Supreme Court to grant injunctions in all cases where it appeared to be just or convenient to open up the possibility of relief against any party subject to the in personam jurisdiction of the Court, irrespective of whether or not there was a local cause of action, at least where there were assets within the jurisdiction against which to enforce. That approach was in turn both endorsed and expanded upon by the Court of Appeal in Yukos CIS Investments, finding that the jurisdiction was not only available so as to freeze assets against which an applicant would be able to enforce a foreign money judgment, but also in respect of other judgments as well, and later decisions clarified that shares in a BVI company amounted to assets in the jurisdiction.
That approach has also been adopted in Bermuda, with Kawaley CJ (also a member of the Court of Appeal which heard Yukos) citing Black Swan with approval in ERG Energy Resources, confirming the jurisdiction of the Bermudian courts to grant injunctive relief in support of foreign proceedings wherever there is personal or territorial jurisdiction over the defendant and that relief would assist the foreign court. The judicial activism that flowed from Black Swan, taking an approach which elsewhere had been regarded as little short of heretical, is the clearest possible illustration of the assistance that the courts are now willing to lend against wrongdoers and the lack of residual sympathy for considerations of secrecy.
Confiscation
Although of less direct importance to asset recovery, all of the mature offshore jurisdictions have well developed criminal confiscation regimes similar to those in force in the United Kingdom, and a track record of cooperation with foreign jurisdictions in securing the seizure and return of the proceeds of criminal conduct- for example, in Guernsey, the attorney general announced in December 2017 that as a result of assistance rendered to the United States in respect of the tracing, restraint and forfeiture of the laundered proceeds of an internet gambling fraud, almost US$30 million had been successfully recovered. When coupled with the robust civil orders available and the strongly pro-compliance business culture which now prevails, the attractions of the Islands as a destination for “dirty money” are extremely limited.
The future
Notwithstanding the realities of the modern offshore world, the UK Parliament amply illustrated the residual power of public perception in May 2018 when backing an amendment to the Sanctions and Anti-Money Laundering Bill requiring the government to order the overseas territories to establish publicly accessible registers of beneficial ownership of companies by the end of 2020, failing which such a register would be unilaterally imposed through an order in Council. That move was controversial, not only because of the potentially serious constitutional ramifications of an unprecedented encroachment onto the islands’ domestic policy, but also for the dichotomy that would be created between the overseas territories (such as Bermuda, the Cayman Islands and the British Virgin Islands), which would be obliged to introduce a register and the crown dependencies (Guernsey, Jersey and the Isle of Man) which would not.
The dust continues to settle on this development, and it is far from clear where it will ultimately come to rest. However, the suggestion by one of the amendment’s parliamentary sponsors that it represented a “remarkable, important and really world-changing measure in relation to the fight against corruption” substantially overstates the matter. The existing beneficial ownership regime, in tandem with the various legislative and common law gateways that exist to access information, is in many ways both preferable and more rigorous than the proposed public register. To that extent, this latest initiative may be best seen as less of a radical change and more a further increment in an already well-established direction of travel.
From an asset recovery perspective however, a public register may prove to be, like the curate’s egg, good only in parts. While it would offer convenient access, its actual usefulness would of course be entirely contingent upon its accuracy, and the experience of the UK’s own experiment in this regard, which relies on self-reporting, is not wholly encouraging. Second, the progress that has been made in the major jurisdictions in recent years has not been reflected across the entirety of the offshore world, and there remain a number of dark corners where the old ways endure, with offerings based largely on opacity. Increased costs, both financial and administrative, increase the risk of a drift of business away from established compliance-based regimes, which in turn may significantly increase the difficulties faced in the recovery process.
Anybody tempted to the “sunny and shady” view of the offshore world would be well advised to pay heed to another of Maugham's aphorisms – “tradition is a guide, and not a jailer”. The theme of the past 20 years in the islands has been one of constant change and modernisation, and the jurisdictions are now much changed from their historical selves. That is to the distinct advantage of asset recovery efforts and the challenges that now exist are barely removed, if at all, from those which are familiar onshore. The islands themselves may be distant, but the assets within them are often well within reach.
Article by Colette Wilkins and Nick Dunne
Walkers
When Somerset Maugham described the French Riviera as a “sunny place for shady people”, he could just as well been referring to public opinion of the offshore world after the release of the Panama Papers in 2015 and the Paradise Papers in November 2017. The narrative that followed these disclosures was, almost without exception, one where the sound of the sea gently lapping on the golden sands was interrupted only by the sound of ill-gotten gains being buried under a convenient palm tree, well away from prying eyes.
That description would, if true, offer little by way of encouragement to the asset recovery lawyer. It would be all too easy to subscribe to the common and long-established view that the offshore world is surrounded by an impenetrable wall, impervious to the most determined efforts of government and attorney alike to identify assets and enforce against them. As is so often the case, however, received wisdom and reality have only a fleeting acquaintance: that description long ago ceased to apply in the major offshore jurisdictions, and with the passage of time it recedes further into the distance. The current trend in legislative reform and judicial thinking, some examples of which are identified in this article, is firmly set against the abuse of offshore entities and has created a favourable climate not only for a beach holiday, but also in which to pursue assets.
The decline and fall of secrecy
In the Cayman Islands, the most striking change has been the 2016 repeal of the long-standing “secrecy law”, the Confidential Relationships (Preservation) Law, which abandoned at a stroke the controversial extraterritorial effect of the previous statute and its criminal sanctions for breach, and replaced them with a more familiar confidentiality regime, differing little from that which applies elsewhere in the common law world. The bark of the law in this regard had in any event long been worse than its bite, with not a single prosecution instituted at any time during the 40-year lifespan of the statute; however, the move towards a more conventional approach is welcome, as is the creation of an express exemption to the duty of confidentiality in the case of disclosures of wrongdoing that are made in good faith.
These changes in the confidentiality regime have reflected the approach of the Grand Court, which has repeatedly shown itself unwilling to permit the use of confidentiality as a shield against legitimate investigatory and enforcement actions emanating from overseas, with disclosure of confidential information permitted in a broad range of civil and criminal contexts, including proceedings before a US Grand Jury.
Gathering information and freezing assets
Both Mareva and Norwich Pharmacal orders are well established and frequently utilised across the Caribbean, local courts having for many years enthusiastically adopted the approach of the English courts to such orders. However, far from simply tracking developments in the law in this regard; the offshore judiciary has shown a willingness to expand the frontiers of the jurisdiction where it is necessary to do justice. In UVW v XYZ (2016), Wallbank J, sitting in the High Court of the British Virgin Islands, held that relief was not only available post-judgment in aid of enforcement of overseas judgments, but also that all that was required was a “reasonable suspicion” that the debtor was wilfully evading liabilities and that a registered agent was mixed up in that conduct. Direct evidence of misuse of the BVI vehicle was not necessary, “reasonable suspicion” being a somewhat less rigorous standard. The decision in UVW throws the differences between public perception and reality into relief, demonstrating a level of flexibility and pragmatism that is fundamentally at odds with what might be expected in what is often alleged to be a “secrecy” jurisdiction.
Even where the target is a “brass plate” company, recent legislative modernisation has significantly enhanced the effectiveness of the Norwich Pharmacal jurisdiction. Since mid-2017 the Cayman Islands has required the vast majority of companies to maintain a register of beneficial ownership, identifying all individuals exercising significant influence or control over the entity. That, of course, is likely to be of significant interest in any asset recovery attempt, as is much of the information that will ordinarily be held by the registered office. The almost invariable use of US dollars for the payment of fees will often yield bank transfer details which in turn, because of the involvement of US-based correspondent banks, can provide a gateway to seeking additional disclosure in the United States under USC 1782. The lack of a physical presence on the ground is far from fatal to useful information gathering exercises within the Islands.
Innovation has not been limited to the investigatory sphere but has also extended to the freezing of assets, particularly in addressing a lacuna in the law in relation to the ability to provide assistance to foreign courts where no substantive cause of action exists in the relevant offshore jurisdiction. The Cayman Islands dealt with that issue by way of amendment to the Grand Court Law and insertion of a specific power to grant interim relief, including injunctions and the appointment of receivers in support of any foreign proceedings capable of giving rise to a judgment that would be enforceable in the Islands.
However, perhaps more revealing in relation to modern judicial attitudes to asset recovery and the misuse of offshore vehicles is the approach taken in the British Virgin Islands in the line of cases following the 2009 decision of Bannister J in Black Swan. That case used the general power of the Eastern Caribbean Supreme Court to grant injunctions in all cases where it appeared to be just or convenient to open up the possibility of relief against any party subject to the in personam jurisdiction of the Court, irrespective of whether or not there was a local cause of action, at least where there were assets within the jurisdiction against which to enforce. That approach was in turn both endorsed and expanded upon by the Court of Appeal in Yukos CIS Investments, finding that the jurisdiction was not only available so as to freeze assets against which an applicant would be able to enforce a foreign money judgment, but also in respect of other judgments as well, and later decisions clarified that shares in a BVI company amounted to assets in the jurisdiction.
That approach has also been adopted in Bermuda, with Kawaley CJ (also a member of the Court of Appeal which heard Yukos) citing Black Swan with approval in ERG Energy Resources, confirming the jurisdiction of the Bermudian courts to grant injunctive relief in support of foreign proceedings wherever there is personal or territorial jurisdiction over the defendant and that relief would assist the foreign court. The judicial activism that flowed from Black Swan, taking an approach which elsewhere had been regarded as little short of heretical, is the clearest possible illustration of the assistance that the courts are now willing to lend against wrongdoers and the lack of residual sympathy for considerations of secrecy.
Confiscation
Although of less direct importance to asset recovery, all of the mature offshore jurisdictions have well developed criminal confiscation regimes similar to those in force in the United Kingdom, and a track record of cooperation with foreign jurisdictions in securing the seizure and return of the proceeds of criminal conduct- for example, in Guernsey, the attorney general announced in December 2017 that as a result of assistance rendered to the United States in respect of the tracing, restraint and forfeiture of the laundered proceeds of an internet gambling fraud, almost US$30 million had been successfully recovered. When coupled with the robust civil orders available and the strongly pro-compliance business culture which now prevails, the attractions of the Islands as a destination for “dirty money” are extremely limited.
The future
Notwithstanding the realities of the modern offshore world, the UK Parliament amply illustrated the residual power of public perception in May 2018 when backing an amendment to the Sanctions and Anti-Money Laundering Bill requiring the government to order the overseas territories to establish publicly accessible registers of beneficial ownership of companies by the end of 2020, failing which such a register would be unilaterally imposed through an order in Council. That move was controversial, not only because of the potentially serious constitutional ramifications of an unprecedented encroachment onto the islands’ domestic policy, but also for the dichotomy that would be created between the overseas territories (such as Bermuda, the Cayman Islands and the British Virgin Islands), which would be obliged to introduce a register and the crown dependencies (Guernsey, Jersey and the Isle of Man) which would not.
The dust continues to settle on this development, and it is far from clear where it will ultimately come to rest. However, the suggestion by one of the amendment’s parliamentary sponsors that it represented a “remarkable, important and really world-changing measure in relation to the fight against corruption” substantially overstates the matter. The existing beneficial ownership regime, in tandem with the various legislative and common law gateways that exist to access information, is in many ways both preferable and more rigorous than the proposed public register. To that extent, this latest initiative may be best seen as less of a radical change and more a further increment in an already well-established direction of travel.
From an asset recovery perspective however, a public register may prove to be, like the curate’s egg, good only in parts. While it would offer convenient access, its actual usefulness would of course be entirely contingent upon its accuracy, and the experience of the UK’s own experiment in this regard, which relies on self-reporting, is not wholly encouraging. Second, the progress that has been made in the major jurisdictions in recent years has not been reflected across the entirety of the offshore world, and there remain a number of dark corners where the old ways endure, with offerings based largely on opacity. Increased costs, both financial and administrative, increase the risk of a drift of business away from established compliance-based regimes, which in turn may significantly increase the difficulties faced in the recovery process.
Anybody tempted to the “sunny and shady” view of the offshore world would be well advised to pay heed to another of Maugham's aphorisms – “tradition is a guide, and not a jailer”. The theme of the past 20 years in the islands has been one of constant change and modernisation, and the jurisdictions are now much changed from their historical selves. That is to the distinct advantage of asset recovery efforts and the challenges that now exist are barely removed, if at all, from those which are familiar onshore. The islands themselves may be distant, but the assets within them are often well within reach.