Jersey Unreported Judgments

Hearing (Civil) - Forfeiture of assets.

[2019]JRC141

Royal Court

(Samedi)

23 July 2019

Before     :

J. A. Clyde-Smith OBE., Commissioner, and Jurats Olsen and Dulake

 

IN THE MATTER OF A REPRESENTATION OF HER MAJESTY'S ATTORNEY GENERAL

AND IN THE MATTER OF THE FORFEITURE OF ASSETS (CIVIL PROCEEDINGS) LAW 2018

AND IN THE MATTER OF IAN JOSEPH ELLIS

Advocate M. T. Jowitt for the Representor.

Advocate P. G. Nicholls for the Respondent.

judgment

the COMMISSIONER:

1.        In this case, the Attorney General applies for an order under Article 11(4) of the Forfeiture of Assets (Civil Proceedings) (Jersey) Law 2018 ("the Forfeiture of Assets Law") forfeiting a bank account in Jersey in the name of the respondent on the grounds that it is "tainted property".

2.        Before setting out the facts upon which the Attorney General relies in seeking this order, it is helpful to set out the material provisions of the Forfeiture of Assets Law.

Forfeiture of Assets Law

3.        Articles 10 and 11 of the Forfeiture of Assets Law provide for a "summary procedure" for the forfeiture of accounts held at a bank in Jersey, in other words a procedure conducted with less formality for the speedy disposal of the matter.  Under Article 10(1), the Attorney General may give notice to a Jersey bank account holder where the conditions set out in Article 10(2) are satisfied.  Those conditions are as follows:-

"(2)     The conditions mentioned in paragraph (1) are that -

(a)       the Attorney General has reasonable grounds to believe that property held in the bank account is tainted property;

(b)       in relation to the bank account or any property in the bank account, a consent request has been made to an authorized officer;

(c)       an authorized officer refused the consent requested; and

(d)       notification of the refusal was given to the person making the request at least 12 months before the date on which the notice is to be served."

4.        "Tainted property" is defined under Article 2(1) as follows:-

"2       Meaning of "tainted property"

(1)       For the purposes of this Law, "tainted property" means property (as further defined by paragraphs (2) to (7)) which is or, by the Attorney General or any officer on whom powers are conferred by this Law, is reasonably suspected to be or have been -

(a)        used in, or intended to be used in, unlawful conduct; or

(b)        obtained in the course of, from the proceeds of, or in connection with, unlawful conduct."

5.        An immediate anomaly arises, in that Article 10(2)(a) requires the Attorney General to have "reasonable grounds to believe" that the bank Account is "tainted property", whereas, within the definition of "tainted property" Article 2(1) provides for the lower test of "reasonable suspicion" on the part of the Attorney General.  "Reasonable grounds to believe" requires both an honest belief and reasonable cause for that belief (see Sophianou v Defence Committee [1987-88] JLR Notes - 17a).  Bearing in mind the draconian nature of this legislation, we think it right to apply the higher test of "reasonable grounds to believe" .

6.        "Unlawful conduct" is defined under Article 1(1) in this way:-

"unlawful conduct" means conduct -

(a)       constituting an offence against a law of Jersey; or

(b)       which, if it occurs or has occurred outside Jersey, would have constituted such an offence if occurring in Jersey;"

7.        The definition of "tainted property" in the Forfeiture of Assets Law is the same as that used in the Civil Asset Recovery (International Co-operation) (Jersey) Law 2007, the parameters of which were considered by the Court in Doraville Properties Corporation v Attorney General [2016] (2) JLR 44.  Quoting from paragraphs 123 and 124 of that judgment:-

"123    The definition of 'tainted property' has two parts.  Under the first part it means property 'found' to have been 'used in, or intended to be used in, unlawful conduct'.  In broad terms, this first part is concerned with property which is not necessarily the proceeds of crime but the instrumentalities of crime.  The second part is concerned with property 'found' to have been 'obtained in the course of, from the proceeds of, or in connection with, unlawful conduct.'  This second part is concerned with the proceeds of crime.

124     It must be the case that the first part of the definition adds something to the second part.  If property 'used in' unlawful conduct has itself to comprise the proceeds of crime, then the first part of the definition becomes redundant.  Thus in the first part of the definition, the property 'used in' unlawful conduct may comprise property from legitimate sources that is used in unlawful conduct."

8.        Article 10(2)(b) refers to a "consent request" made to an authorized officer and that is defined under Article 10(3) as follows:-

"(3)     For the purposes of paragraph (2)(b), a "consent request" means a request -

(i)        under Article 32 of the proceeds of Crime (Jersey) Law 1999, for consent to do any act or to deal with property held in the bank Account in any way which would, apart from paragraph (3) of that Article, amount to the commission of an offence under Article 30 or 31 of that Law; or

(ii)       under Article 18 of the Terrorism (Jersey) Law 2002, for consent to do anything which would, apart from paragraph (1) of that Article, amount to the commission of an offence under Article 15 or 16 of that Law,

made by a person making a disclosure in accordance with either of those Articles."

9.        Article 10(4) provides that notice shall be by way of representation and shall be served on both the holder of the bank account and the bank at which the account in question is held.  It must specify the property in the bank account which in the opinion of the Attorney General is tainted property and give the holder of the account a time to attend before the Court to show cause why the property so specified is not tainted property and should not be forfeited. 

10.      Under Article 11(1), if the account holder fails to attend the hearing as required by the notice, the Attorney General can apply forthwith for a forfeiture order, but if the account holder appears, then Article 11(2) (3) and (4) set out the procedure to be followed in this way:-

"(2)     If the respondent appears (whether in person or by a legal representative) at the hearing, the respondent may -

(a)       at the hearing, satisfy the Court that the property is not tainted property or

(b)       request that the question of whether or not the property is tainted property be determined at such later date as the Court may order.

(3)       If the respondent makes a request under paragraph (2)(b), the respondent must provide an affidavit in answer to the notice within the period of 21 days beginning with the date on which the matter is placed on the list, satisfying the court that the property is not tainted property.

(4)       Unless the respondent satisfies the court that the property is not tainted property, the court shall, upon the application of the Attorney General, make a forfeiture order in relation to the property specified in the notice or any part of it."

11.      Article 26 of the Forfeiture of Assets Law provides that proceedings under this part of the Law are civil proceedings and any issue in such proceedings shall be determined on the balance of probabilities.  Article 29(4) provides that the Attorney General shall not be liable in costs for any proceedings under the Forfeiture of Assets Law, except where it is shown that the proceedings were commenced or (having been lawfully commenced) were continued in bad faith.  That means that absent proving bad faith on the part of the Attorney General, the cost to the account holder of defending such a notice may become disproportionate to the amounts involved in the case of bank accounts with modest sums. 

Procedure in this case

12.      In this case, the Attorney General served a notice on the respondent by way of representation under Article 10 on the 3^rd December, 2018, and required the respondent to attend upon the Court on the 1^st February, 2019, to show cause why his account ("the Account") at Standard Chartered Bank, Jersey branch ("the Bank") with a balance of £33,804.52, should not be forfeited.  Appended to the notice is the information upon which the Attorney General based the application, comprising a Summary of the Facts and the relevant supporting documentation.  That was comprised within an affidavit sworn by Ms Charlotte Compton of the Law Officer's Department dated 21^st November, 2018, in support of an application for leave to serve the notice upon the respondent outside the jurisdiction of Jersey.

13.      The respondent, who now lives in Cyprus, appeared through counsel on 21^st February, 2019, and it was agreed that the matter would be adjourned to be determined at a later date.  The respondent complied with his obligations under Article 11(3) by filing an affidavit dated 28^th February, 2019.   

14.      At a directions hearing on 22^nd May, 2019, the Court refused an application by the Attorney General to order the respondent to attend the hearing in order to be cross-examined on the basis that no precedent in civil proceedings for such an order had been produced and refused the Attorney General's application for the hearing to be adjourned, on the grounds that these were summary proceedings to be dealt with quickly and with the minimum of formality. 

15.      Whilst Article 11(3) only refers to an affidavit being filed on behalf of the respondent, it did not preclude the Court permitting additional evidence to be filed, as requested by the Attorney General, provided that the respondent was given a fair opportunity to respond to it.  Leave for the filing of further evidence was given and a further statement dated 15^th May, 2019, was therefore filed on behalf of the Attorney General by Mr Glyn Nelson, employed within financial crime compliance in the Bank.  He exhibited the records of the Bank.  An affidavit was also filed by Mr Jason Tucker of the States of Jersey Customs and Immigration Service dated 31^st May, 2019. 

16.      Advocate Nicholls questioned the admissibility of Mr Nelson's statement in that it referred to the Bank's records being produced pursuant to Article 65 of the Police Procedures and Criminal Evidence (Jersey) Law 2003, and of course, these are not criminal proceedings.  However, we note that the documentation was in fact produced by Mr Nelson pursuant to a production order issued under Article 19 of the Forfeiture of Assets Law.  Provided the documentation supplied did not take the respondent by surprise, and it was not alleged that it did, the Bank's records in relation to the Account are clearly relevant and admissible. 

The facts upon which the Attorney General relied

17.      On 4^th September, 2001, the respondent was convicted in Scotland for drugs offences and sentenced to twelve months' imprisonment.  In the course of a confiscation investigation, it was discovered that he had the Account.  It had been opened on an unspecified date in the 1980s and had been dormant since 1992. 

18.      On 11^th October, 2002, the Bank submitted a suspicious activity report ("SAR") to the Joint Financial Crimes Unit ("JFCU") in connection with the Account, as a result of the copy of a Scottish restraint order being served upon it on 8^th October, 2002.  Consent to operate the Account was withheld by the JFCU on 11^th October, 2002.  The respondent's wife also had an account with the Bank which also was the subject of an SAR at the same time, but consent to operate that account was later given and it was closed. 

19.      On 8^th November, 2002, HM Advocate, the Right Honourable Colin Boyd, submitted a letter of request to the Attorney General, requesting a formal restraint over the Account, but that was withdrawn on 24^th January, 2003, because the respondent had satisfied in full his confiscation order in the sum of £95,898. 

20.      On 31^st January, 2003, a decision was made to launch a local investigation into the source of funds in the Account, and a production order was issued on 25^th March, 2003.  The documentation produced showed that the original funds for the Account were credited in April 1988, and various activities occurred until the Account became dormant at the end of 1992.  A review revealed a total of £42,500 being credited from unspecified origins during this period, which included at least £18,000 in cash deposits in Glasgow via various banks. 

21.      On 5th February 2003, having refused a request from the respondent to close the Account, the Bank was advised that the JFCU would have no objection to it requesting its customer to provide evidence as to the source of the funds in the Account.  The Bank subsequently reported that the respondent had refused to co-operate. 

22.      On 21^st May, 2003, the JFCU advised the Bank that it had no objection to it notifying the respondent as to the existence of the Jersey investigation, and on 5^th June, 2003, the Bank wrote to the respondent at his Dumbarton address, requesting him to submit evidence as to the source of the funds in the Account.   

23.      On 25^th June, 2003, the JFCU was contacted by the respondent's solicitor, Mr J Shields of Gallen & Co, who stated that the respondent's funds were derived from his taxi business and that all his business records were held by the Criminal Confiscation Unit in Edinburgh.  Matters were in hand for the documentation to be produced to the JFCU.  He also stated that the respondent was now resident in Cyprus.  No evidence was, in fact, forthcoming. 

24.      On 9^th July, 2003, the Asset Recovery Agency based in Edinburgh indicated that they were also investigating the respondent, and that they were hopeful of issuing a tax assessment at the very least.  On 11^th August, 2003, it indicated that the inquiry was now being passed to the Inland Revenue to pursue. 

25.      On 28^th October, 2003, the Inland Revenue was requested by the JFCU to assist in providing any information that it may hold in order to identify the source of the funds paid into the Account, but it responded on 16^th February, 2004, saying that it was unable to assist. 

26.      The JFCU contacted Mr Shields on 23^rd April, 2004, and again informed him that some form of documentary evidence was required to identify the source of the funds in the Account.  During this conversation, Mr Shields is reported to state that he believed the funds were placed offshore for "tax evasion purposes", and that the only evidence was in the possession of the Crown in Scotland.  It was suggested that he should make an application to the Crown for the information.

27.      No further communication has been received from the respondent or Gallen & Co, and, in the Bank's view, the respondent had effectively refused to co-operate and had walked away from the funds. 

28.      The Attorney General, whilst noting that the initial introduction of funds into the Account took place 12 years before the offending behaviour for which the respondent was imprisoned and that he has no other relevant convictions, stated in the Summary of Facts that there were still clear and reasonable grounds on which to base his application:-

(i)        £42,500 entered the Account between 1988 and 1992, and the respondent had failed to explain the source of those credits, despite being given opportunities to do so. 

(ii)       The respondent's solicitor had failed to provide evidence on his behalf, and indeed, had stated that the funds had been placed in Jersey for the purpose of tax evasion. 

(iii)      Despite the relatively short period of offending in respect of which the respondent was imprisoned, the size of the confiscation order showed an ongoing involvement in serious crime.  The Proceeds of Crime Act 2002 applied assumptions historically for a period of six years to all expenditure and income received or incurred by the respondent.  

(iv)      The amount currently contained within the Account was significant and the respondent had taken no recent steps to establish the legitimate source of the funds or to obtain access to the money in the Account. 

29.      Documents produced by Mr Nelson for the Bank comprised in the main copies of all the bank statements over this period of time, from which the following can be noted:-

(i)    There is an account opening document indicating that the Account was opened on 7^th April, 1988. 

(ii)   Between April 1988 and April 1989, the bank balance increased with credits to some £25,875 and then on 16^th April, 1989, £23,000 was withdrawn by way of cheque.  Thereafter, the residue of £2,875 remained in the Account earning interest until 4^th October, 1992, when £10,000 in cash was credited.  A further £8,000 was credited from another bank Account on 14^th October, 1992, and thereafter, the Account remained entirely dormant, apart from the crediting of interest. 

30.      The affidavit of Mr Tucker shows that in 2009, the Attorney General conducted a review with a view to the funds within the Account being seized under the terms of Article 4(1) of the Proceeds of Crime (Cash Seizure) (Jersey) Law 2008.  That turned out to not be possible, because a bank balance was not covered by the definition of "cash" within Article 1 of that law.  He also exhibited:-

(1)       an office copy of a letter dated 5^th June, 2003, from the JFCU to the respondent, inviting him to resolve the issue over the Account by submitting evidence as to the source of funds.  Mr Tucker believed that letter would have been sent to the respondent. 

(ii)   Investigation notes from the electronic police file database covering the period of 3^rd October, 2002 to 23^rd April, 2004, but he was unable to say who created the file or the exact date that it was created. 

31.      An element of caution is required with having recourse to these notes, but with that caveat in mind, we would extract from them the following:-

"16/05/03	14:30 call from [redacted] Ellis is now asking for his money and [redacted] realises that they will have to make a commercial decision.  It appears from statements that the funds originate from early 90's and were added to by way of cash deposits although largely dormant since 1996.  [redacted] asked if we would have any objection to them asking client to evidence source of funds.  No problem with that as his conviction for D/T is in the public domain.  Bank having trouble retrieving docs from microfiche but are working on it.  [redacted] will contact when they are in a position to provide docs.
21/05/03	09:30 returned call to Peter Hopper.  He states that Ellis has been on the phone and is demanding the release of his funds and stating that he is in possession of the Scottish Court papers which prove the case has been dealt with etc.  Peter has refused to discuss the issue with Ellis and considers that Ellis will not co-operate in any way with the Bank re provision of any evidence of where the funds originated from back in the 90's.  Peter would like consent to tell Ellis that a local investigation has commenced and that in order to expedite the situation it was in his interest to produce evidence of the source of the funds.  I told Peter that I would seek DI's approval.  DI approval granted, bank notified and letter sent to Ellis at his Dumbarton address.
25/06/03	Spoke with Joseph Shields (01414201441) who has represented Ellis.  He states that Ellis is now apparently living in Cyprus.  Made him aware of our position of which he was appreciative.  Stated that if Ellis had paid his tax he would not have got into so much bother.  He thought that the drug offence was fairly low scale.  Quite open that the funds were derived from his taxi business and sent to Jersey where interest rates were good at the time.  He was aware that Ellis has a regular lawyer and would speak with him as he may be in a better position to assist in providing more historic records and evidence of the source of the money.  He believes that his past tax declarations etc. were all provided as part of the previous case.  He said that he had spoken to Catriona from COS.
11/8/03	Call from Nick Bradshaw.  The result of the case conference is that the Ellis job will now be passed to the Inland Revenue to investigate - Joe Cox (Special Compliance Edinburgh 0131 3137800) is aware and will contact me in due course.
04/09/03	Letter received from Gallen and Co Solicitors asking for an update as Ellis is now resident in Cyprus and wants his money.
22/04/04	Letter received from Solicitor, advising that he requires the nature of the evidence which we require to release the funds.  Referred to DS Troy and agreed that I should phone Mr Shields and explain that we require any documentary evidence which can support the source of funds that are held here in Jersey. 10:50 hrs telephone call to Mr Shields.  He is in court and I have left a message for him to contact me on his return
23/04/04	11:40hrs telephone call to Mr Shields.  I explained that he was made aware last year that we needed documentary evidence to support the source of the funds that Mr Ellis has here in Jersey.  Mr Shields asked if a letter from him would suffice, as he can say that the funds represent income from Mr Ellis's taxi firm.  I told him that it would not suffice and we would require documentation for example an Accounts ledger from the business etc.  Mr Shields quite openly stated that the funds were placed in Jersey for the evasion of tax and he believed that this was okay at that time, he added that there is no documentation and anything that was available was now with the Crown in Scotland.  I suggested that he put his comments in writing and also make application to the Crown for any information they can provide to support the funds here in Jersey.  He will do so.

Respondent's affidavit

32.      We would summarise the respondent's affidavit as follows:-

(i)    He is currently 57 years of age.  He was brought up and raised in Scotland, leaving school at 15 and starting his own business, District Taxis, at around the age of 23.  It proved to be a very successful business, and at one point, was one of the largest taxi firms operating in Scotland, employing between 60 and 70 drivers and generating profits of up to £150,000 per annum.  In addition, he was heavily involved in the used car trade, and could earn, on average, around £4,000 per month, buying and selling used cars.  In addition to his earnings, he also inherited his parents' home upon their death. 

(ii)   It had always been his intention to sell his businesses and retire at age 55 to live in Cyprus.  Accordingly, he sold District Taxis, and moved to Cyprus in 2003, establishing a new business there, Ian Ellis Car Trade Zone Limited, which operates out of Famagusta and is a used car dealership dealing in the importation and sale of used cars in Cyprus. 

(iii)  He was convicted on 4^th September, 2001, of being concerned in the supply of two class C drugs, namely diazepam and oxazepam, between 11^th May and 11^th August 2000, for which he received a custodial sentence of twelve months.  He served six months before being released in May 2002.  He was 49 years old at the time of his conviction and said he had very foolishly agreed to try to sell a small quantity of class C drugs to make a quick and easy profit, which he described as a very serious error of judgment on his part, for which he paid a very heavy price. 

(iv)  Because of his conviction, he was made the subject of confiscation proceedings, which he understands to be known as a "lifestyle" offence, and a confiscation order was made in the sum of £95,898, which, although he thought manifestly excessive, he arranged to be satisfied in full in late 2002 early 2003.  He has no other convictions. 

(v)   He cannot recall when he opened the Account, but believes it was at some point in the late 1980s.  As to why he opened an account in Jersey, he says this at paragraph 16 of his affidavit:-

"I distinctly recall, however, doing so in response to an advertisement by the Bank promoting the tax saving benefits of having a savings account in Jersey.  I recall reading that advert in a Scottish newspaper.  From very distant recollection I think it said something about "go offshore without being offshore", and in essence sought to promote the fact that monies deposited in Jersey bank accounts were treated as being free of tax." 

Given that it always been his desire to move to Cyprus, he said this advertisement was obviously attractive to him, and as a result, the Account was set up.

(vi)  As to the 7 credits in the Account, he no longer had access to the statements, but working from a report that had been prepared by Senior Customs Officer Holmes in July 2009, he said this about the seven credits, totalling £42,500:-

"20       As to the Holmes Summary records, 4 of these 7 credits came from Accounts with the Halifax Building Society and two banks, Royal Bank of Scotland and Clydesdale Bank.  These 4 credits (which were made over the period 11 April 1988 to 16 February 1989 i.e. at least a decade before my conviction) totalling £20,500 were made from personal savings Accounts in my own name with the building society and two banks in question.  These monies represented personal savings which were transferred into the Account shortly after the Account had been opened so as to avoid paying tax on the same whilst I continued to be resident in Scotland.

21.      The three remaining credits (which totalled £22,000) represented cash which I directly deposited into the Account.  That cash was derived from the sales of used cars.

22.      Whilst from a modern-day perspective the 3 cash transactions may appear a little unusual (as far as I am aware banks now rarely accept cash deposits), there was, as far as I was concerned, nothing wrong or unusual in what I was doing. Indeed as I have sought to explain, I only became aware that the money could be paid offshore because the Bank was advertising such services."

(vii) In relation to the debit of £23,000 on 26^th April, 1989, he said this, at paragraph 23:-

"23      There is reference in the Holmes Summary to a debit of £23,000 which was made on 16 April 1989.  I cannot recall for sure what this debit related to, but I think it related to cash which I took to Cyprus in 1989 with a view to buying property in Cyprus."

(viii)    He states that to say he had failed to provide evidence as to the origin of the sums paid into the Account overstates and misconstrues the true position.  The Bank's own records would have shown that four of the seven credits were from his own savings Accounts with the Halifax Building Society, the Royal Bank of Scotland and Clydesdale Bank, which evidence, he said, was incontrovertible, and plainly within the Bank's direct knowledge and information.  

(ix) He contacted the Bank in January/February 2003, requesting it to close the Account and transfer the balance to another account, because he had moved to Cyprus, which the Bank refused to comply with.  He subsequently received correspondence from the Bank, which he had not retained, informing him that the Jersey police would not permit the Bank to operate the Account in the usual way until the source of funds was identified.  He subsequently instructed Mr Shields of Gallen & Co to contact the Bank to try to resolve this ongoing impasse, and he was aware that Mr Shields had advised the Bank:-

(a)       That he was now resident in Cyprus;

(b)       The funds in the Account had been derived from his taxi business and

(c)       All of his business records had been seized by the Scottish authorities for the purpose of the confiscation proceedings. 

Consequently, he was unable to provide documentary evidence to identify the source of funds.

(x)  His solicitor had made a number of attempts to retrieve his historic business records unsuccessfully, and believes that those records would by now have been destroyed.  He was also aware that Mr Shields had advised the Bank that the monies in this Account were banked for tax reasons.  In 2005, he instructed a firm of Jersey lawyers to re-visit the issue, but they were unable to make much meaningful progress. 

(xi) It was not the case that he had effectively refused to co-operate, or that he had walked away from the funds; that could not be further from the truth.  He had made a number of efforts to unblock the Account, and was now caught between a rock and a hard place, hampered by the fact that due to circumstances beyond his control, he cannot provide the documentary evidence which the Jersey authorities appear to insist that he provide.  He also had no desire to continue to throw good money after bad in dealing with the issue, and having instructed two firms of lawyers to try to resolve the issue, he put the matter on the back burner.  

(xii)Whilst the sums in the Account were not insignificant, they represent a small proportion of his net wealth.  The monies had been derived from his legitimate business activities.  It was paid into the Account simply to avoid paying tax, and he was advised by the Bank at the time that there was nothing untoward about this. 

Attorney General's submissions

33.      Crown Advocate Jowitt made the following submissions in summary:-

(i)        The burden of satisfying the Court that the property is not tainted property rests on the respondent by way of his affidavit;

(ii)       The definition of tainted property in the 2018 Law is wide and covers not only property which is directly the proceeds of unlawful conduct, but property obtained in the course of or in connection with unlawful conduct, and property which, though itself from a legitimate source, is property used in or intended to be used in unlawful conduct;

(iii)      Leaving aside the Attorney General's initial primary assertion that there were reasonable grounds to believe that the property was tainted property on the grounds that it was probably derived from drug offending, the respondent has now filed an affidavit in which he repeatedly admits that he banked money in Jersey to avoid paying tax on it in the United Kingdom; 

(iv)      The factual nature of the respondent's conduct, on his own admission, is thus necessarily that he falsely understated his income to the UK tax authorities as part of which process and to facilitate it he obtained a chose in action - namely the bank balance at the Jersey bank, which is the property in this case - by which chose in action he concealed some of that income from the UK tax authorities;

(v)       The 2018 Law defines 'unlawful conduct' to include both conduct constituting an offence against a law of Jersey and conduct which, though it occurred outside Jersey, would have constituted an offence had the conduct occurred in Jersey;

(vi)      The making of a deliberately false statement about the true amount of a person's income to a tax authority would constitute, if it occurred in Jersey, the offence of Foster fraud. Under Jersey law, the customary law offence of fraud is committed when a person makes a deliberately false representation with the intention and consequence of causing thereby actual prejudice to someone, and actual benefit to himself or another (Foster v Attorney General [1992] JLR 6). Fraudulently making an incorrect return is also an offence under Article 137(1) of the Income Tax (Jersey) Law 1961;

(vii)      As the Court of Appeal said in Michel v Attorney General [2016] JLR 287 at paragraph 16:-

"Further, we are not persuaded that a material distinction exists between traditional fraud and tax evasion by reason of any consideration that, in instances of tax evasion, the money is, in the first instance, 'legitimately' in the hands of the tax payer.  As soon as a taxable event has occurred, the receipts in the hands of the taxpayer are receipts for which the taxpayer is bound to account to the revenue authorities.  False representations in respect of those receipts cause prejudice to the States (or the Revenue) and benefit to the taxpayer just as in the case of any other fraudulent activity (Michel v Attorney General 2016 JLR 287) at paragraph 16)."

(viii)     The property in this case - the chose in action which is the balance at the Jersey bank - is thus both property obtained in the course of or in connection with unlawful conduct, and property used in or intended to be used in unlawful conduct and is thus tainted property;

(ix)      Moreover, the respondent's admissions amount to an admission that the property is criminal property within the definition in the Proceeds of Crime (Jersey) Law 1999, such that any use by him of the property now would constitute the Jersey offence of money laundering and would thus fulfil the 2018 Law definition of tainted property as property 'intended to be used in unlawful conduct'.

(x)       The respondent on his own case cannot satisfy the Court that the property is not tainted property and the Court must accordingly make a forfeiture order in respect of it.

Respondent's submissions

34.      Advocate Nicholls made the following submissions in summary:-

(i)        Provided the Attorney General was able to satisfy the Court that the preconditions in Article 10(2) were met, he agreed that the burden shifts on to the respondent to satisfy the Court that the Account is not tainted property.

(ii)       The precondition under Article 10(2)(a) had not been met, in that there were no reasonable grounds upon which the Attorney General could have believed that the Account was tainted property.  The Attorney General had shifted from contending that the monies within the Account were derived from drug offending to contending that the respondent had committed tax evasion.  This very obvious volte face on the part of the Attorney General demonstrated in clear and unequivocal terms that he cannot have had reasonable grounds when he brought the proceedings to believe that the Account was tainted property.  Furthermore, the Attorney General had fallen into the familiar error of failing to distinguish between tax avoidance and tax evasion.  The respondent's evidence is that he had responded to an advertisement by the Bank that said he could legitimately avoid tax by opening an account in Jersey.

(iii)      The Inland Revenue had been fully aware of the Account for some years, but had taken no steps to investigate or prosecute the respondent.  The suggestion that the respondent had made false statements in his UK tax returns was little more than baseless conjecture.

(iv)      Whilst Advocate Nicholls accepted that the English common law offence of cheating the Inland Revenue may be committed by omission, the HMRC's own guidance notes made it plain that where an account holder has failed to disclose a potential liability to tax, it can be remedied with retrospective effect, and without criminal sanction.

(v)       If Crown Advocate Jowitt's submissions were accepted, it would necessarily mean that any UK resident with a Jersey offshore account established to shield earnings from potential tax liabilities in the UK would be committing a criminal offence, and also that the bank in question would be holding criminal property for the purposes of the Proceeds of Crime Law. Put another way, if the Attorney General was correct, it must follow that any UK resident with an undeclared offshore account is committing tax evasion, and logically, that such account would now be susceptible to civil forfeiture.  

(vi)      The Forfeiture of Assets Law was not intended to seize the proceeds of Jersey bank accounts where an account holder may have a potential tax liability to a foreign revenue authority.  If that were the case, it would necessarily mean that anyone with an undeclared offshore account is a criminal, and that any institution that facilitated the establishment of such an account would, by extension, be now involved in criminal activity, through criminal facilitation.

(vii)      The condition in Article 10(2)(c) had not been fulfilled because the original "no consent" letter had not been produced.

Decision

35.      Taking first the precondition in Article 10(2)(a) of the Forfeiture of Assets Law, there is a presumption that in exercising his powers under the Forfeiture of Assets Law the Attorney General was acting properly (see Acturus and Others v Attorney General  [2001] JLR 43) and the onus is upon the respondent to show that there were no reasonable grounds upon which he could have come to the belief that the Account was tainted property. 

36.      The respondent has not discharged that burden and in any event we are satisfied that the Attorney General did have reasonable grounds to believe that the Account was tainted property on the information then available to him.  As set out in the Summary of Facts upon which the notice was issued, there were three grounds for such belief put forward:-

(i)    The failure of the respondent to explain the source of funds credited to the Account when asked to do so.

(ii)   The respondent's own lawyer saying that he believed the funds had been paid in to Jersey for the purposes of tax evasion. 

(iii)  The respondent's drug conviction. Although that conviction was on 4^th September, 2001, some thirteen years after the Account appears to have become active, and some nine years after the last transaction, the confiscation order was in a substantial sum and as it states in paragraph 24 of the Summary of Facts:-

"It should also be noted that a confiscation enquiry under the provisions of the Proceeds of Crime Act 2002 is far-reaching and applies assumptions historically for a period of 6 years to all expenditure/income etc received or incurred by the Respondent; these are the 'lifestyle' provisions intended to capture criminality engaged in beyond the mere fact of the conviction, which may only be a 'snapshot' of the overall illicit proceeds generated from the respondent's participation in criminal conduct."

37.      It is the case that the actual no consent letter or a copy of it has not been produced; it is thought to have been destroyed.  The Attorney General's review of 25^th July, 2009, states that an SAR was submitted by the Bank on 11^th October, 2002, and a no consent letter issued that day, and re-affirmed on 31^st January, 2003.  It is not seriously contended by the respondent that the JFCU did not refuse the consent requested at that time and we are satisfied that it was refused.  The refusal was at least twelve months before the date of the Attorney General's notice pursuant to Article 10(2)(d). 

38.      All of the conditions set out in Article 10(2) were therefore fulfilled at the time the notice was served by the Attorney General.  That being the case, we start with the presumption that the Account is tainted property, as believed by the Attorney General, and the  burden now falls upon the respondent to satisfy the Court on the balance of probabilities that the Account is not tainted property. 

39.      The respondent has satisfied the Court that the monies credited to the Account came from his legitimate taxi and car dealing businesses, and not from any involvement on his part in the drugs trade.  The only evidence of his involvement in the drugs trade is his conviction and the associated confiscation order.  The last credits to the bank Account were on 12^th October, 1992, (£10,000 in cash) and 14^th October, 1992, (£8,000 by way of bank transfer), nine years before his conviction.  The connection between the two is too tenuous.

40.      However, the respondent has not satisfied the Court that the Account was used for the purpose of legitimate tax avoidance and not illegitimate tax evasion.  Making allowances for the fact that the Account was opened in the late 1980s, we think it improbable in the extreme that the Bank, or indeed any bank, would have put out by way of an advertisement in a Scottish newspaper, that UK residents can avoid UK tax by the simple expedient of opening an account in Jersey or that such accounts would be treated by the Inland Revenue as being free of UK tax.  The respondent has not produced any of his tax returns, the clear implication being that the interest earnt on the Account was deliberately not disclosed to the Inland Revenue.  If that had occurred in Jersey it would be an offence of either Foster fraud or under Article137(1) of the Income Tax (Jersey) Law 1961.  It is conduct, therefore, which comes within the definition of "unlawful conduct".

41.      The fact that tax liabilities in the United Kingdom can be discharged without criminal sanction and the fact that there has been no criminal charge in the United Kingdom, in our view has no bearing on whether or not there is unlawful conduct as defined, which is concerned with transposing the conduct to Jersey.  In any event a number of policy considerations would apply to the bringing of a prosecution by the Inland Revenue, including the amounts involved, which are not substantial.  The police notes show the case being passed to the Inland Revenue on 11^th August, 2003, by which time the respondent had moved to Cyprus, and by 16^th February, 2004, the Inland Revenue stated to the JFCU that it was no longer able to assist. 

42.      We agree with Advocate Jowitt that the obvious inference from the respondent's affidavit is that the respondent paid monies into the Account as part of a dishonest scheme by which he under-declared the true amount of his income to the United Kingdom tax authorities, which would have involved him in filing tax returns which falsely under-stated his true income, and that would be an offence under our law if it had occurred here.  The Account was used in, or intended to be used in, that unlawful conduct.  In short, his conduct means that the Account falls fully within the definition of tainted property in Article 2 of the Forfeiture of Assets Law.  This accords with English authority.  The case of Ahmed v HMRC (2013) EWHC 2241 (Admin) concerned a respondent who hid cash in his home as part of a scheme to under-declare takings from his company to the revenue.  Carr J said (at paragraph 37) "It is sufficient to prove that the sum or part of it was part and parcel of a dishonest scheme to cheat the Revenue ...".

43.      The onus is of course on the respondent to show that the Account was not tainted in this way and he has not satisfied us.

Proportionality

44.      The case of Ahmed raises a further point upon which we have not been addressed by counsel.  It was concerned with forfeiture under section 298 of the Proceeds of Crime Act 2002 of "Recoverable Property", namely property obtained through conduct that is unlawful under the Criminal Law of the UK.  At paragraph 37, Carr J referred to the decision of the Supreme Court in R v Waya [2012] UKC 51:-

"The Supreme Court held, allowing the appeal, that a confiscation which did not conform to the test of proportionality would constitute a violation of a defendant's right to peaceful enjoyment of his property as guaranteed by Article 1 of the First Protocol to the Convention.  In order to avoid such violation it was appropriate pursuant to section 3 of the Human Rights Act 1998 to read down section 6(5)(b) of the Act (which required a court to make a confiscation order in the recoverable amount against a defendant who had benefited from criminal conduct) as being subject to the qualification that a confiscation order should not be made if it were disproportionate and thus a breach of Article 1.  In order to be proportionate a confiscation order had to bear a proportionate relationship to the purpose of the Act, which was to remove from criminals the pecuniary proceeds of their crime, rather than deterrence."

45.      Carr J then quoted extensively from the judgment of the Supreme Court, but we would summarise the position in the Jersey context as follows:-

(i)        Article 1 of the First Protocol of the Convention is one of the Convention rights to which the Human Rights (Jersey) Law 2000 applies.

(ii)       That means that under Article 4, legislation must be read and given effect in a way which is compatible with that Convention right.

(iii)      That means that the Forfeiture of Assets Law must be read and given effect which avoids violation of that Convention right.

(iv)      A forfeiture order which does not conform to the test for proportionately will constitute such a violation and it is incumbent upon this Court to provide a remedy for any such violation.

(v)       The appropriate remedy lies in the duty of the Court not to make an order which involves such violation by applying to the Forfeiture of Assets Law the rule of construction required by Article 4 of the Human Rights Law.

46.      Article 11(4) of the Forfeiture of Assets Law provides that unless the respondent satisfies the Court that the property is not tainted property, the Court "shall, upon the application of the Attorney General, make a forfeiture order in relation to the property specified in the notice or any part of it." (our emphasis)

47.      Carr J said that Part 5 of the Proceeds of Crime Act 2000 provides for a civil, not a criminal, sanction, as does the Forfeiture of Assets Law, and therefore compensatory rather than punitive considerations naturally come into play.  Quoting from paragraphs 46 - 48 of the judgment:-

"46     To the proportionality argument, the respondent in this case counters by saying that the Act is a draconian piece of legislation.  It is civil and it is summary in its nature.  It has at its roots the entirely legitimate objective that those who choose to conceal monies, even if from legitimate businesses, as an integral part of a scheme that is dishonest, leave themselves at the mercy of the Act.  This court or any court should not be concerned with assessing taxable liabilities in this context.

48       But, in my judgment, properly construed, only that part of the sum obtained by the appellant that represented evading tax or evaded tax was property obtained through unlawful conduct for the purpose of section 242 of the Act.  I repeat that it was not alleged the claimant had stolen that money from the company.

48       Further, or in the alternative, I accept the appellant's submissions that to order forfeiture of the entire sum would be wholly disproportionate.  Whilst the precise amount of evaded tax has not yet been assessed, I understand there are assessment proceedings in play."

48.      We have no information on the amount of tax evaded by the respondent, but bearing in mind that we are satisfied that the monies credited to the Account came from his legitimate businesses, we need to be addressed on whether it is proportionate to forfeit the whole of the Account or just that part that represents the taxes evaded.

Conclusion

49.      In conclusion:-

(i)    We find that the conditions set out in Paragraph 10(2) of the Forfeiture of Assets Law were fulfilled. 

(ii)   The respondent has failed to satisfy the Court that the Account is not tainted property. 

(iii)  The Court needs to be addressed as to whether the forfeiture of the entire Account is proportionate. 

Authorities

Forfeiture of Assets (Civil Proceedings) (Jersey) Law 2018. 

Sophianou v Defence Committee [1987-88] JLR Notes - 17a. 

Doraville Properties Corporation v Attorney General [2016] (2) JLR 44. 

Police Procedures and Criminal Evidence (Jersey) Law 2003. 

Foster v Attorney General [1992] JLR 6. 

Income Tax (Jersey) Law 1961. 

Michel v Attorney General [2016] JLR 287. 

Acturus Properties Limited and Others v Attorney General [2001] JLR 43. 

Ahmed v HMRC (2013) EWHC 2241 (Admin). 

R v Waya [2012] UKC 51.