Jersey Unreported Judgments

[2005]JRC165

ROYAL COURT

(Samedi Division)

25th November 2005

Before:

F.C. Hamon, Esq., O.B.E., Commissioner and Jurats de Veulle and Le Cornu.

The Attorney General

-v-

Caversham Fiduciary Services Ltd

And

Caversham Trustees Ltd.

And

Nicholas Bell.

Sentencing by the Inferior Number of the Royal Court, to which the accused was remanded by the Inferior Number on 25^th November, 2005 following a guilty plea to the following charges:

2 counts of:

Failing to comply with the requirements of Article 2(1)(a) of the Money Laundering (Jersey) Order 1999 contrary to Article 37(4) of the Proceeds of Crime (Jersey) Law 1999. (Count 1: Caversham Fiduciary Services Ltd and Nicholas Bell; Count 2: Caversham Trustees Limited and Nicholas Bell.)

Plea: Guilty

Details of Offence:

The Defendant Companies, members of the Caversham Group of companies, are regulated by the Jersey Financial Services Commission ("JFSC") in the provision of trust company business.  Mr Bell was a chartered accountant, director and at all material times an approved principal person of the Caversham Group of companies.  In 2004 a JFSC inspection visit identified the facts giving rise to this prosecution, namely:-

In December 2002 an English solicitor and sole practitioner contacted Mr Bell with a view to establishing a discretionary trust, explaining that Mr Gary Stevens as Attorney for Mr Lee had recently received monies from the sale proceeds of a sauna in London and they now wish to re-invest those monies.  He explained that Mr Lee is a non-resident who wished the monies to be kept offshore in the first instance.  The solicitor sent through certain documentation on Mr Stevens.  The identity of Mr Lee was not verified at all.  On 10^th December 2002 £850,000 was remitted from the solicitors' account to the First Defendant's account and then paid to the client account of the Second Defendant (this forms the basis of count 1).  Two days later (12^th December) a request was received by Mr Bell from the solicitor to pay away a total of £825,000 to four unknown entities with no connection with the requested discretionary trust.  The following day (13^th December) the trust was established, with Mr Stevens named as the sole beneficiary.  The next working day (16^th December) the payments away were made by Mr Bell as requested without the identity of Mr Lee being verified and without any systems of control or communication operating which would have ensured that evidence of identification of Mr Lee was obtained (this forms the basis of Count 2).  The Caversham group of companies was paid £2,600 for its services in December 2002.

It is not known if Mr Lee exists or not.

The Money Laundering (Jersey) Order 1999 and the Anti-Money Laundering Guidance Notes for the Finance Sector make it plain that assets are not to be paid away unless and until verification of identity as required by law has been carried out.

When the above facts were identified by the JFSC, the Defendant Companies' Compliance Officer, on request, delivered a copy of the Companies' files to the States of Jersey Joint Financial Crimes Unit and subsequently gave a statement to the Police, putting the Defendants' files into evidence.

Mr Bell was interviewed by the Police and gave "no comment" responses.

Not guilty pleas were entered and the trial took place on 13^th October 2005.  Following the close of the Prosecution case, the Defendant's Advocate made a submission of no case to answer based on a point of law.  After hearing argument, that submission was rejected by the Court.  The Defendants then entered guilty pleas.

The Crown accepted that the Defendant Companies' commission of offences was attributed to Mr Bell's negligence as opposed to consent or connivance.

Aggravating features of the case were put by the Crown as:-

 

a)     the amount of money (£850,000) potentially layered without knowing who Mr Lee was;

b)     the very short period of time (four working days) over which substantial funds were received by the First Defendant, paid to the Second Defendant and then paid away without knowing who Mr Lee was;

c)     the provision of effectively total anonymity to Mr Lee (if he exists) through the discretionary trust structure;

d)     payments away totalling £825,000 were made with no internal control or communication operating, despite the payments being to unknown entities and on their face without commercial purpose or apparent justification under the trust, failing to ensure that before doing so the identity of Mr Lee was known.

Details of Mitigation:

(1) The Caversham group of companies have offices in Jersey, London and Geneva and have been providing professional advice and financial services since 1977.  Licensed since April 2002.  It was argued substantial reputational damage and financial losses suffered by reason of the prosecution.  Companies largely co-operative with the JFSC and the States of Jersey Police.

(2) Mr Bell: Aged 49 years, chartered accountant and director of many years standing and approved principal person.  Owns 25.5% of the issued share capital in the Defendant Companies.  The prosecution has caused him to leave the business and related accountancy partnership and take up a new, more junior position with another regulated institution in the Island at much reduced salary.  Recently re-married, with seven children from his first marriage to whom he has substantial financial commitments.  Unclear whether he would be able to realise the capital value of his shares in Cavendish Group and what value those shares would carry.  He too had sustained substantial reputational damage with his professional body and with industry.  These were regulatory offences caused by negligence and no more.

Previous Convictions:

None.

Conclusions:

 

Count 1:	Bell:  £25,000 fine (or 6 months' imprisonment in default of payment). Caversham Fiduciary:  £25,000 fine.
Count 2:	Bell:  £40,000 fine (or 6 months' imprisonment in default of payment). Caversham Trustees:  £40,000 fine.

This is the first case of its kind in Jersey or elsewhere and the level of fines reflects this.  Jersey must preserve its reputation as a premier offshore finance centre.  Should there be further prosecution for such offences within the finance industry, substantially higher sentences will be sought.  Had actual money laundering been involved, a term of imprisonment would have been sought.

Application made for Prosecution costs to be paid by the Defendants.

Sentence and Observations of Court:

 

Count 1:	Caversham Fiduciary:  £25,000. Bell:  £15,000 fine. (6 months' imprisonment in default of payment).
Count 2:	Caversham Trustees £40,000. Bell:  £20,000 fine.  (6 months' imprisonment in default of payment, concurrent to Count 1).

Prosecution Costs to be paid by the Defendants, assessed if not agreed, with Mr Bell to pay a maximum of £10,000.

Caversham Companies' fines to be paid within twenty eight days.

Fines by Mr Bell payable at £1,500 per month.

These were very serious breaches of the Proceeds of Crime (Jersey) Law 1999.  There was a very serious breakdown in internal controls.  The Guidance Notes make plain institutions' statutory obligations.  It is clear that Mr Lee's identity was never verified.  Mr Bell was responsible for the breaches by reason of his autonomy which led to procedures being totally ignored.  The failures were not identified by Caversham but by the JFSC.  The Defendants have been co-operative but the guilty pleas were of little value as the Crown had much preparation to do for trial.  Defence counsel outlined the serious financial problem and even bankruptcy that would face Mr Bell, were the Crown's conclusions to be followed.  However, that is not applicable to the Caversham companies.

Jersey's financial reputation is capable of being destroyed in an instant.  If actual money laundering had taken place here, the sentence of this Court may well have been higher.  This case must serve as a warning to all financial institutions.  The seriousness has been explained by the Attorney General.  In particular, the Court endorsed the Guidance issued by the Financial Services Authority in England in Chapter 13 of the Enforcement Manual, which forms part of the FSA Handbook.

   

Her Majesty's Attorney General.

Advocate S.M Baker for the Defendants.

JUDGMENT

 

THE COMMISSIONER:

1.        The point of law raised by Advocate Baker, when the Defendants were convicted on the two counts on the 30^th October, 2005 was not successful.  At that point Advocate Baker withdrew his not guilty plea and entered pleas of guilty.  On the decision in law Advocate Baker has appealed and the Court of Appeal will hear his argument during the January sitting of next year.  If his appeal is successful, then in our view, and the view of the learned Attorney General, it is not likely that a re-trial will be ordered.  For that reason Advocate Baker has withdrawn his objection to sentencing today. 

2.        It is, as the Attorney General has said, a very serious breach of the law, which, although complex, is comprehensively explained in the guidance notes for the Finance Committee.  It is quite clear that in the present case the identity of Mr Lee, if he ever existed, was never followed up in any way.  This is, in our view, a very serious breakdown of internal controls on a company which has hitherto had an impeccable record. 

3.        Mr Bell, as director and the principle person, was responsible for the defects which the law has striven to make abundantly clear.  Mr Bell had an autonomy in the firm which the learned Attorney General has strongly criticised.  The procedures were in this case, in our view, totally ignored.

4.         It is perhaps ominous that no failures were identified within the Caversham business.  They were discovered by a routine inspection conducted by the Jersey Financial Services Commission.  But it is obvious that they clearly found no other defects as a result of their search.  Of course there has been co-operation, although I would say that the guilty plea is of little value and the Crown had much preparation to do to cover the not guilty plea that had been entered.

5.         Advocate Baker has outlined in very great detail the real financial problems that Mr Bell faces.  We have of course looked at the reference provided and the reputational damage that Mr Bell has suffered as a result of this offence.  He is now with another firm.  If it had not been for the very worrying personal financial problems that he faces, we would have followed without any hesitation, the conclusions of the learned Attorney General.  But, Advocate Baker has put it quite clearly, he would face bankruptcy at this level of fines and we're not prepared to allow that to happen.  We cannot however make the same concession for the Caversham companies. 

6.        Jersey is a finance centre whose reputation can be destroyed on the instant.  If money laundering had been an issue the fines might well have been substantially higher.  This is not alone pour encourager les autres; the decision of the Court must serve as a warning to all the finance centres in Jersey.  The Attorney General has itemised very clearly and in great detail the nature and seriousness of the offence, the circumstances surrounding the offence, the co-operation of the Companies once the Commission and the Police became involved.  But he has drawn our attention to the relevant guidance on sanction of the Financial Services Authority and we would adopt the wording of that Authority:

"The principal purpose of the imposition of a financial penalty is to promote high standards of regulatory conduct by deterring firms and approved persons who have breached regulatory requirements from committing further contraventions, helping to deter other firms and approved persons from committing contraventions and demonstrating generally to firms and approved persons the benefits of compliant behaviour."

7.        Taking into account all that we have said we're going to sentence as follows: Count 1, Caversham will pay a £25,000 fine, Mr Bell will pay £15,000 or 6 months' imprisonment in default of payment.  Count 2, Caversham will pay a £40,000 fine, Mr Bell will pay a £20,000 fine or 6 months' imprisonment in default of payment and those fines will be concurrent. 

8.        We have given some thought to the contribution of the cost to the Prosecution.  We are prepared to allow those costs, unless they are agreed, and if they're not agreed, then of course they must be taxed in the usual way.  We would say however that Mr Bell must not face more than a maximum fine in those circumstances of £10,000.  The Caversham companies to pay within twenty eight days.  Mr Bell to pay £1,500 per month, but if there are any problems that arise, obviously Mr Bell, through Advocate Baker, will go to the Viscount and come back to us.

Authorities

Proceeds of Crime (Jersey) Law 1999.

Money Laundering (Jersey) Order 1999.