Jersey Unreported Judgments

Inferior Number Sentencing - Reasons for the Sentencing on 28th September, 2018.

[2018]JRC192

Royal Court

(Samedi)

17 October 2018

The Attorney General

-v-

Abu Dhabi Commercial Bank PJSC, Jersey Branch

D. J. Hopwood., Esq, Crown Advocate.

Advocate J. D. Kelleher for the Defendant.

JUDGMENT

THE BAILIFF:

1.        The Defendant was charged with intermeddling, contrary to Article 23(1) of the Probate (Jersey) Law 1998 ("the Probate Law"). By Article 23(1) of the Probate Law, a person guilty of an offence is liable to a fine or to imprisonment for a term not exceeding twelve months or both.  On 28^th September, 2018, the Court sentenced the Defendant to a fine of £25,000 and reserved its reasons for doing so.  Those reasons now follow.

2.        The deceased died on 1^st June, 2017, and at the time of his death he held a number of accounts with the Defendant bank.  One account was held with the Jersey branch ("the Jersey Account") with a balance of just over $400,000 at the date of death. 

3.        Following the death of the deceased, a court in the United Arab Emirates, which had jurisdiction over the estate of the deceased directed that all sums held by the Defendant in the name of the deceased were to be transferred to the Court's "Treasury" so that the deceased's estate could be managed in accordance with UAE probate law.  This judgment was issued on 5^th July, 2017, and put into effect by an order dated 5^th October, 2017 which was served on the Defendant on 12^th October.  The order of the Court did not differentiate between accounts held in the UAE and those held elsewhere. 

4.        When the Defendant was informed of the death of the deceased on 12^th October, 2017, a binding "no debit" instruction was attached to each of his accounts, including the Jersey account, to preserve the position.  Four days later, a member of the remedial risk department of the Defendant, that department being based in the UAE, issued instructions to a relationship officer, also based in the UAE, to prepare a manager's cheque representing all funds held by the Defendant for the deceased for the purposes of sending it to the Treasury of the UAE court pursuant to the order which had been made.  The relationship officer sent an email to two of the employees at the Jersey branch to inform them of this and it appears that those instructions were prepared either by those who did not know that the Jersey based funds would require a grant of probate or possibly did not notice that the transfer instruction which they had prepared affected the Jersey account - more likely the former, although that is not clear.  The transfer was made from the Jersey account on 17^th October, thus amounting to the offence of intermeddling in the estate. 

5.        On 14^th November, 2017, a senior officer of the Defendant noted that the deceased's account had been emptied and just over two weeks later the Defendant's branch manager in Jersey informed the Jersey Financial Services Commission that the monies had been paid to the UAE court by error and without obtaining the required Jersey probate.  The JFSC brought the matter to the attention of the Law Officers' Department.  During the investigation, the Defendant was asked to name the individual responsible for over-riding the "no debit" instruction, and transmitting the funds away from the Jersey account.  The Defendant asserted that no individual could be singled out and that the Defendant took collective responsibility for the release of funds. 

6.        It is not obvious, even as things stand, that those entitled to the estate will suffer any loss.  However Advocate Kelleher on behalf of the Bank made it plain that if the heirs did suffer any loss, the Bank would reimburse them.  Implicit in this undertaking was that the heirs should have taken all proper steps to acquire their share of the estate through the UAE court. 

7.        There is no doubt that the Defendant had a deceased customer policy which covered these circumstances.  Unfortunately it does not appear to have been followed.  Following this incident, the policy was updated and indeed we were told by Advocate Kelleher that there are now compulsory training courses for all staff in the Bank regarding the separate status of the Jersey branch, and that there is a planned computer enhancement designed to avoid human error, so that in circumstances such as these, no transfer of funds out of the branch will be made without the specific approval of the manager of the branch. 

8.        Those being the facts we had two quite contrasting descriptions of the nature of the offence.  On behalf of the Attorney General, Advocate Hopwood suggested that there were two serious and avoidable mistakes - lifting the "tab" on the account and subsequently making the transfer.  The size of the institution, the potential effect on the account holder and the potential effect on Jersey's reputation as a finance centre meant that this was a serious offence.  The Defendant bank was a regulated entity which has taken a significant deposit.  Furthermore, by not naming the official, the Attorney General could not prosecute that individual, and this aggravated the offence.  

9.        On behalf of the Bank, Advocate Kelleher by contrast said that this was an accidental oversight by bank employees who did not follow the Bank's policies and should have known better, but as far as they were concerned, they were following an order of the Court in Abu Dhabi.  He offered on behalf of the Bank an unreserved apology to the Court, and indeed said that it was an offence which was taken seriously, as shown by the presence of the Group General Counsel for the Bank in court.  He submitted there were two underlying reasons for the creation of the offence of intermeddling which had appeared for the first time in the Probate Law.  These were to avoid someone taking hold of the estate without paying the appropriate stamp duty and secondly to avoid dissipation of assets by those not entitled to them.  The Bank had already undertaken to pay the stamp duty in question - this had happened before the proceedings were issued.  As to dissipation of the estate, this was not a case of dissipation by a fraudster who had persuaded the bank to do the wrong thing.  That indeed was also significant in terms of the effect on Jersey's reputation. 

10.      Although this was a branch with a physical presence, it was a small office and at the relevant time, the compliance officer was relatively new and there was no full-time manager in place.  This affected adversely the strength of the Jersey office.  He characterised the offence as a mistake - negligence without any intention to break the law or any intention to make any gain from the offence in question.  There had been complete cooperation with the investigators, a guilty plea, no prejudice to the heirs, a first offence by the Defendant and indeed the offence only came to light at all as a result of the Defendant self-reporting to the Jersey Financial Services Commission.  The Defendant also later (in February 2018) reported the matter to the Registrar of Probate, copied to the Attorney General. 

11.      Prosecutions for the offence of intermeddling are fortunately extremely rare, and indeed neither counsel was able to find a previous occasion which would be helpful to us in considering the level of fine to be imposed.  Accordingly, Advocate Hopwood suggested in his conclusions on behalf of the Attorney General that it would be helpful to look at the range of civil penalties which can be imposed by the Jersey Financial Services Commission pursuant to Articles 21A and 21B of the Financial Services Commission (Jersey) Law 1998.  That legislation permits the Commission to impose a civil financial penalty upon a registered entity which has, to a significant and material extent, contravened a code of practice issued by the Commission under the Banking Business (Jersey) Law 1991, the Insurance Business (Jersey) Law 1996, the Financial Services (Jersey) Law 1998, the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 and Regulation 22 of the Alternative Investment Funds (Jersey) Regulations 2012.  Further provision for these penalties is made by the Financial Services Commission (Financial Penalties) (Jersey) Order 2015, which by paragraph 3 enables the Commission to impose penalties on registered persons only up to the maximum level set out in the table in the Schedule for the appropriate band of penalty, determined according to the nature of the contravention.  Under a further order made on 26^th July, 2018, (in force on 2^nd August 2018), the table appears to have been amended to provide that for a contravention committed negligently that caused or risked causing financial loss to the public, damaged or risked damaging the reputation and integrity of Jersey in commercial and financial matters, damaged or risked damaging the economic interests of Jersey or jeopardised or risked jeopardising the need to counter financial crime both in Jersey and elsewhere, the extent of the penalty could be 7% of relevant income up to a maximum of £4 million.  In this connection "relevant income" does not describe profit but describes income derived from the business activities in respect of which the registered person is licensed. 

12.      A methodology paper issued by the Jersey Financial Services Commission on 10^th September, 2018, sets out the basis upon which the Commission will determine the civil financial penalty to be imposed.  Applying this approach, the Crown assessed that there was a significant risk of loss to the public due to the incompetence and malpractice of the Defendant and an even more significant risk of damage to Jersey's reputation and integrity in commercial and financial matters.  Accordingly, having applied a discount for a guilty plea, albeit not the full one third, and having regard to the fact that the Defendant voluntarily reported the offence and cooperated in its investigation, made no profit from it and had taken proactive steps to prevent recurrence, the Crown considered that the appropriate sentence would be £125,000, approximately 2½% of the total banking income, plus a compensation order to reflect the loss of stamp duty on obtaining probate, and costs. 

13.      It was because the Crown took this approach that the Court reserved its reasons for sentencing, having imposed a fine of £25,000. 

14.      We note that under Article 21F of the Financial Services Commission Law, a registered entity may appeal to the Royal Court against the imposition of a penalty or the amount of a penalty on the ground that the decision of the Commission was unreasonable having regard to all the circumstances of the case.  We do not in these sentencing remarks intend to express any view on the approach which ought to be taken to an appeal under that Article, but it is obvious that on such appeals the Court may need to give guidance to the Commission as to appropriate levels of financial penalties for misconduct in the management of a financial services business. 

15.      It is relevant to have regard to the report which accompanied the introduction of the amendment legislation in 2015 to provide the Jersey Financial Services Commission with the power to impose civil financial penalties. This power was said to be conferred "For serious contraventions of the codes of practice issued by the JFSC under the regulatory laws".  In the overview, the Chief Minister, proposing the legislation, said that the draft law would "provide the Commission with the power to impose civil financial penalties on a regulated business that has, to a significant and material extent, contravened a code of practice" (emphasis added). 

16.      It was also said in the report that the power to impose fines would act as a deterrent to prevent businesses contravening the codes of practice, would encourage prompt and consistent remediation of contraventions, and in particular would provide some mitigation for compliant regulated businesses who would otherwise be subsidising through annual licence fees the costs of regulatory action taken against non-compliant regulated businesses.  Finally it was said that the granting of such powers to the Commission would respond to comments made by the International Monetary Fund in its 2008 assessment which indeed suggested that such a fining power be introduced by statute. 

17.      It is clear that there are various objectives behind the perhaps controversial policy to grant the Jersey Financial Services Commission the power to impose civil financial penalties.  Some of these are related to the financial arrangements underpinning the administration of the Commission.  Others are to respond positively to recommendations by international bodies visiting this Island.  Another policy objective is to ensure speedy remediation where there has been a breach of a code of practice.  The last policy objective is to discourage breaches of a code of practice.  This analysis is important because the first three of those objectives are not objectives of any criminal court.  A criminal court is not concerned in imposing a sentence to meet all those objectives.  Its concern is to impose an appropriate and proportionate penalty for the criminal or quasi-criminal behaviour which is the subject of a charge.  It is important that this distinction is not overlooked. 

18.      In the present case, we emphasise that the civil financial penalty is to be imposed for "serious contraventions of the codes of practice".  In this case, our assessment of the offending behaviour by the Defendant bank is that there was some negligent behaviour (in the sense that the need for a grant of Jersey probate was overlooked) by a regulated financial entity, some of that behaviour taking place in Jersey, but much of it taking place outside the jurisdiction on the direct orders of a court which had jurisdiction over those responsible for it.  It is very hard to see how anyone could reasonably treat this as seriously damaging the Island's reputation in financial matters.  There is clearly no damage to the Island's integrity in commercial and financial matters, because there was no intention to damage anyone, and no intention to benefit fraudulently or otherwise from the action that was taken.  It is clear there is no evidence of any loss or prejudice to the estate. 

19.      It is important to emphasise the features listed above.  The Jersey Financial Services Commission, quite rightly, has not so far considered whether or not to impose any civil financial penalty because this matter was coming to court.  Indeed we would not expect it to consider any such financial penalty at this stage because the Court has already indicated its view and imposed its sentence in relation to the same conduct.  In our judgement, the categorisation of this conduct by the Defendant cannot be said to come close to such poor conduct as to justify a level of fine, whether civil or criminal, anticipated by the 2015 amendments and the subordinate legislation made thereunder.  We do not consider that that legislation affords an appropriate basis upon which to consider criminal sanctions under the Probate Law.  Apart from anything else, to do so would almost certainly lead us to the conclusion that regulated entities were liable to pay far higher financial penalties for breach of the restrictions on intermeddling than a private individual would and it has never been the law of this Island that the seriousness of the offence depends not on the offence committed but on the identity of the offender.  Everyone is equal under the law.  That is a cardinal principle which we will uphold.  

20.      The Crown was right to look for some principled basis upon which to move its conclusions in this case.  In the light of what appears to be a complete dearth of authority, that was difficult.  We have similarly found it difficult to find the right level of penalty. 

21.      We accept the purposes of the offence of intermeddling were as Advocate Kelleher submitted, namely to prevent those who wished to avoid paying stamp duty on probate successfully doing so, and secondly to avoid dissipation of estates by those not entitled to them.  Had there been any attempt to achieve one of those objectives by this Defendant, the fine imposed would have been considerably higher.  As it is, neither was the case.  Nonetheless, this is a case where a regulated entity, which not only should have known better but did know better, allowed its employees to breach the Probate Law.  That will have caused the Defendant embarrassment, and indeed appearing before this Court will likewise have caused embarrassment.  Nonetheless the conduct should additionally be marked with a significant fine. 

22.      Had the Defendant been impecunious, we would have had to consider the extent to which the fine ought to be reduced.  That does not arise and, perhaps arbitrarily in the light of the absence of any case law, we take the view that a fine of £25,000 is an appropriate penalty to impose.  It is not significant in financial terms to a bank making considerably more profit than that per annum, but on the other hand, the offence amounted to a negligent mistake, without intention to break the law and without any intention to achieve a gain for the Bank.  There was no question of cutting corners to make more profit.  Furthermore there has been complete cooperation with investigators, and indeed the Bank self-reported the problem.  It has pleaded guilty and there is no prejudice to the heirs.  The offence arose as a result of an order of a competent court in a different jurisdiction.  Having regard to these features we consider that the fine of £25,000 is set at the appropriate level.  In addition we make a compensation order in favour of the Treasurer of the States in the sum of £2085.27 in respect of stamp duty which has been avoided. 

23.      The Crown sought a contribution towards costs in the sum of £5,000, which we did not award.  The reasons for so doing are that, firstly the Defendant in effect did all the investigative work for the Crown by the information which it produced and secondly, because the effect of the Crown's approach in seeking to rely upon the civil financial penalties sanction which was obtainable through the Commission has in fact caused the Defendant considerable expense with its own lawyers.  In the circumstances, no order for additional costs to the Crown seemed to us to be appropriate. 

Authorities

Probate (Jersey) Law 1998.

Financial Services Commission (Jersey) Law 1998

Banking Business (Jersey) Law 1991, the Insurance Business (Jersey) Law 1996

Financial Services (Jersey) Law 1998, the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008

Regulation 22 of the Alternative Investment Funds (Jersey) Regulations 2012

Financial Services Commission (Financial Penalties) (Jersey) Order 2015

Financial Services Commission Law