GUERNSEY FINANCIAL SERVICES TRIBUNAL
De Garis
Applicant
and
Guernsey Financial Services Commission
Respondent
Before
Mr Michael Blair QC (President)
Mr David Farrimond
Mr Stephen Jones
Sitting in Guernsey in public
On Wednesday 2nd April 2003
Mr de Garis in person
Mr Talmai Morgan for the Commission
For publication as soon as the Commission have made a decision on the application.
OPINION
GENERAL
1. This opinion contains the Tribunal’s conclusions in the first application to come before the Tribunal. For this reason, and since our Opinion may be of relevance to some further cases to come before the Tribunal, we have decided to set out the background and the conclusions we have reached in some detail.
2. The application concerns the relatively new legislation brought into force in Guernsey in April 2001, almost exactly two years before the date on which we sat to hear the application. This is the Regulation of Fiduciaries, Administration of Businesses and Company Directors, etc (Bailiwick of Guernsey) Law 2000, but apparently generally known by its informal name of “the Fiduciaries Law”.
3. Under sections 1 and 2 of the Fiduciaries Law, it is an offence for a person such as the Applicant to carry on by way of business in the Bailiwick the activity of acting as a director of any company whether incorporated under the laws of the Bailiwick or elsewhere, except in accordance with a licence granted by the Guernsey Financial Services Commission (“the Commission”) under section 6 of the Law.
4. There are exemptions from this requirement, but none of them was cited to us, and none of them appears to be directly relevant to the case.
5. Mr de Garis (“the Applicant”) accordingly applied for a licence on 28 March 2001, very shortly before the Fiduciaries Law came into force, by Ordinance of the States under section 62(2), on 1 April 2001. Accordingly, under the transitional provisions in section 59 of the Law, he has since then been carrying on his business lawfully on the basis that he is deemed to be a licensed fiduciary pending the final determination of his application.
6. Having duly considered the application, the Commission, or to be precise, a Committee of the staff of the Commission, chaired by the Director General and known as the Enlarged Assessment Committee, concluded that the application should not, and indeed could not, be granted. However, before the conclusion of that Committee was put before the Commission itself for endorsement, the Applicant was allowed time to refer the matter to the tribunal. We have accordingly considered the documents in the case, and have heard evidence and submissions from both parties, in the course of a public hearing lasting most of a day.
7. We now present our agreed conclusions to the applicant and to the Commission. Our jurisdiction is one “on the merits”; that is, we are concerned to find the right answer on the substance of the matter. This is different from the question whether the Commission staff have gone about the business of considering the application lawfully and fairly. So our conclusions relate exclusively to the underlying substantive issue whether the Commission can and should grant a licence under section 6 of the Law. We would add, however, that we found no evidence to suggest that there was any need to look into the question whether the Commission had behaved unlawfully or unfairly.
THE REQUIREMENTS
8. The statutory provisions upon which the staff of the Commission relied in support of the decision not to grant a fiduciary licence to the Applicant are the following provisions of the Fiduciary Law:
a. Section 6(2) (which provides that the Commission is not to grant a fiduciary licence unless it is satisfied that the criteria of Schedule 1 to the Law are fulfilled in relation to the Applicant),
b. Section 6(3)(b)(i) (which provides that, in deciding whether or not the criteria specified in that Schedule are fulfilled, the Commission may take into account the provisions of any Code of Practice issued under section 35), and
c. Schedule 1 to the Fiduciary Law, paragraphs 3(2)(a), 3(2)(e) and 3(2)(f) of which direct the Commission, in determining whether a person is a fit and proper person to hold a fiduciary licence, to have regard, among other things to:
i. his competence and experience for fulfilling the responsibilities of a licensed fiduciary,
ii. his knowledge and understanding of the legal and professional obligations undertaken, and
iii. his procedures for the vetting of clients and his record of compliance with any provision contained in or made under the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999
d. paragraphs 1, 2, 4, 5, 6 and 9 (and where applicable the guidance notes to those paragraphs) of the Code of Practice for Company Directors, published by the Commission under section 35 of the Fiduciary Law, which state that directors should:
“1. Understand
and act in accordance with their legal duties and the constitution of the company
and seek advice on those when necessary.
Guidance note:
This Code does not attempt to summarise the law of
any particular jurisdiction on the duties of a director. Principle 1 requires that, in addition to
the general duty of directors to act in good faith and in what they consider to
be the best interests of the company, directors must ensure that they
understand their duties to each company of which they act as director. That may involve obtaining advice on the law
of the jurisdiction in which a company is incorporated or carries on its
activities. It also requires directors
to understand that the acceptance of instructions from others (acting as
“nominee director”) is inconsistent with their duties to the company because
acting in accordance with those instructions might not be in the company’s best
interests.
Principle 1 also requires directors to understand
any anti-money laundering laws and requirements to prepare and file accounts or
other information which apply to the company.
2. Ensure that the board of
directors has effective control of the company.
Guidance
Note:
Principle 2 requires directors to ensure that
adequate board meetings are held (not necessarily face to face but in
accordance with the applicable law) and that the board has sufficient
information to make its decisions.
Directors must give continuing consideration to the company’s financial
position, for example before authorising any major expenditure or distribution
or the declaration of a dividend.
…………..
4.
Know who owns the company (except to the extent that its
shares are traded on a stock exchange).
5. Know the company’s
business and finances and have full and up to date information on them.
6. Ensure that the
company keeps proper accounts and records, observes the minimum retention
periods under any applicable laws, and files accounts and returns as required
by law.
……………
9. Ensure that they
have adequate experience, expertise and resources to enable them to discharge
their responsibilities as directors.”
9. On the basis of all this, the Committee concluded under section 6(2) that the Commission was unable to grant the application for a fiduciary licence. That set of legal provisions was accordingly the basis for the hearing before us. It should however be mentioned that, at the outset of the hearing, the Commission made it plain to us that another provision in Schedule 1 to the Fiduciary Law, that is paragraph 1, which mentions the need for integrity, was not relevant to their concerns. Equally, in presenting the case to us, no mention was made by the Commission of the word “probity” in paragraph 3(2)(a). The Commission asserted, and we are happy to accept, that there was for them no issue relating to the honesty or uprightness of the Applicant. Indeed it emerged in the course of the hearing that some at least of the Commission’s staff had some considerable respect for the Applicant as an individual, and that that was to a large extent reciprocated. The case therefore was concerned with the other factors listed above which were said to be relevant to the question whether the Applicant was a fit and proper person to hold a fiduciary licence.
THE FACTS
10. The Applicant, who has a full time job in the insurance industry in Guernsey, has taken on, in the years since 1998, about 50 directorships. He was invited to do so by DW, another Guernsey resident, who is also a director of a number of the 50 companies concerned. The individual companies have been introduced to the Applicant over the last 5 years by two introducing companies operating in England, who also provide corporate secretarial services for the individual companies. The provision of those services was taken over some time in 2002 by a third company, known to us as DMCL. That company, DMCL, is managed and controlled by a Mr DS, of whom more will be said later in this opinion. We refer to the two introducing companies and the successor company (DMCL) as “the English introducers”.
11. The Tribunal was not able, in the time available, to obtain a clear picture of the types of company making up the 50. Some, it appeared, were trading companies, or at any rate companies that had traded at some time in the past; others were asset holding companies. Some were dormant or nearly so. The value of the companies, taken together, was of the order of £5m. In the main the companies are registered in England and Wales, though one at least was Irish, and a substantial number of them were formed at the request of further intermediaries operating in Switzerland. There was little evidence about the location of the underlying beneficial ownerships, though one case appeared to involve a German resident, and another a French one. So it appears that the English introducers are acting as intermediaries for Swiss lawyers or other professionals who in turn are acting for their underlying clients from a number of countries.
12. The service provided by the Applicant is an extremely limited one. He acts as a director (whether a sole director, or along with others, and in particular with Mr DW). He is used to receiving requests for action on his part as a director, and to carrying them out. He seldom makes any routine enquiries about the business of the companies concerned, and the amount of information which he has on file about each of them is strictly limited. He is, however, able to ask questions if he needs to and to secure answers from the others involved (whether the introducing companies, or the accountants or company secretaries concerned). He told us in evidence that he was reliant to a large extent on those others for the quality of the service provided and for compliance with any statutory or regulatory requirements. On occasion, the requests for action included the signing and execution of a power of attorney, or an appointment of another company as agent for the one of which he was a director. The Commission had found at least one example of each of these in their random sampling of 15% of the Applicant’s portfolio of companies. The power of attorney was in favour of the underlying beneficial owner, who appeared to be German, and the company appointed as agent appeared to have been incorporated in Gibraltar. There were, as far as we could discover, no actual board meetings as such; business requiring to be dealt with by the director/s or by the board was dealt with on the telephone, though the Applicant and Mr DW were often in the same room together, with the Company Secretary or some other person attending on the telephone.
13. For these services the applicant charged each company £100 each year, later raised to £125.
14. In evidence, the description just given of the services provided was more or less agreed, though there was a conflict of evidence on two points, as well as a disagreement about one issue of law, relating to money laundering, to which we will turn below. The two points of fact related to a question whether the Applicant had actually signed on or about 29 April 2001 an agreement that was expressed to take effect on 21 September 1998, and whether the English introducers were reluctant to supply information to the Applicant.
15. On the first of these, while we did not see the actual agreement, we conclude that, when the Applicant signed the agreement in 2001, he knew or ought to have known that it purported to bear the date of 21 September 1998, that being the date on which he apparently assumed the duties of a director of the company concerned. The Commission’s written evidence tends to suggest that that was the position, and the Applicant’s answer to the point did not convince us that the agreement was drafted in a form which he could properly have signed in 2001, though he asserted that it must have been.
16. On the second point, the issue concerned the phrase in an internal Commission memorandum, stating that the Applicant had told the Commission on 6th December 2001 that the English introducers “are not forthcoming with information about the companies and their beneficial owners”. Here we are inclined to accept the Applicant’s evidence when he stated to us that, if he had used those words or anything like them, what he actually would have meant was that the introducers did not actually volunteer information. However, as stated above, they were on his account always ready to deal responsibly with his inquiries when he took the initiative.
THE COMMISSION’S CASE (GENERAL)
17. The Commission were troubled by what they perceived as a lack of information held and control exercised by the Applicant on and over the ownership, activities, assets and liabilities of companies of which he acts or acted as a director. The Commission relied as evidence for this on:
a. the Applicant’s statement that he did no due diligence work but relied on the English introducers to do that;
b. his statement that he did not exercise any control over the companies’ bank accounts, was not usually a signatory to those accounts, did not receive bank statements and did not know the identities of the signatories;
c. his statement that he did not generally have information on the activities of companies of which he acts as director;
d. the fact that, in one of the cases sampled, the auditor’s report on the financial statements of the company had stated that by reason of a loss on the sale of investments the company had at 31 December 2000 an excess of liabilities over assets, and that this might require the convening of an Extraordinary General Meeting; the Applicant, however, had told them that he did not know what type of investment had been sold and had thus caused the loss, and that an EGM had not taken place;
e. the fact that the Applicant signed the directors’ reports on the financial statements of several companies without any material information on the companies’ activities, assets and liabilities;
f. the fact that the Applicant authorised other persons to operate the bank accounts of companies of which he was a director with what the Commission regarded as insufficient information on the companies’ financial positions and on the signatories to whom he gave that authority;
g. the fact that in another case the Applicant executed a general power of attorney allowing the donee of the power to transact business on behalf of a company when he had no material information on the company’s business or assets and without knowing the relationship of the donee to the company;
h. his statement to the Commission that he typically granted powers of attorney to the Swiss fiduciary who had introduced the company to the English introducer, that those powers would enable the Swiss intermediary to open and operate a company bank account without reference to the Applicant and that the Applicant would be unaware of the transactions on that account until he received the company’s financial statements for signature; and
i. the fact that the Applicant executed on behalf of a company of which he was a director agreements permitting another company to conduct business in the first company’s name with insufficient information on the business or activities of either company.
18. The Commission also alleged that the Applicant had failed to remedy, or to attempt to remedy, this lack of information between the Commission explaining it to him in its letter of 17 December 2001 and his meeting on 15 August 2002.
19. To these should be added, in the light of the proceedings before us, a further concern of the Commission that arose on the documents, (though it was not mentioned in the Commission’s case), namely that, in their view, the Applicant had signed and backdated an agreement- see paragraphs 14 and 15 above.
20. The Commission’s general conclusions (leaving aside money laundering) therefore were that the Applicant:
a. is acting as a director of companies whose beneficial ownership is unknown both to him and to his introducer;
b. has insufficient information on the activities, assets and liabilities of those companies to make informed decisions on matters the introducer asks him to consider in his capacity as director to fulfil his duties to the company, and
c. has insufficient control over the companies’ activities and assets to fulfil those duties.
THE APPLICANT’S ANSWERS (GENERAL)
21. In response to these allegations, the Applicant’s broad approach was to accept the statements of fact, and the general accuracy of the documents which had been produced (except for the points discussed and dealt with above). However, he maintained that the material produced did not in any respect show that he was unfit to be a company director. Indeed, he several times suggested that the Commission’s approach to the issues of judgment arising on the material before the Tribunal was unreasonable.
22. In one area, in particular, the Tribunal has some sympathy with that approach. One of the points mentioned in the Commission (see paragraph 17(b) above), relating to control by a director over a company’s bank accounts, concerned the need (or lack of need) for a director to be a signatory to bank accounts, and to receive bank statements. While we consider that a responsible director needs to exercise solid and systematic control over the bank accounts, and needs, in particular, to consider with care the granting of any signing authority, we saw some force in the Applicant’s view that the need for adequate financial control did not extend, in the circumstances of the companies of which he was a director, to physical control of the cheque book itself, or of the bank statements. That said, we were satisfied about the remainder of paragraph 17(b) above and about the similar point in paragraph 17 (f).
23. In other areas, his approach was to us much less convincing than on the point about chequebooks and statements. For instance, his answer to the point about reliance on the English introducers (and he added, the accountants and company secretaries) for due diligence work (paragraph 17 (a) above) did not seem to us to deal with the fact that a person offered appointment as a director has to know much more about the company than he typically did. We say this even on the basis that we agreed with him on the point of construction about the willingness of the English introducers to answer his questions when he chose to ask them (paragraph 16 above). Our concerns in this area were heightened when the Commission informed him during the hearing that one person on whom he relied heavily (Mr DS) had been disciplined and fined by the Institute of Chartered Accountants in England and Wales: it was evident that he was not aware of that, and that by silence he was forced to admit that his confidence in Mr DS appeared to be misplaced.
24. He put forward a possible, and unchallenged, explanation, based on general company law practice in the Republic of Ireland, for the absence of an Extraordinary General Meeting (EGM) in the case described at paragraph 17(d) above; in the case in question, he suggested, he would have decided that the company was not actually insolvent, and that there was no need for an EGM. However, the Tribunal has concluded that a director of a company who was truly on top of his job would have handled the situation arising in that case very differently, and would have left a great deal more on his file than in the actual case before us.
25. As to the use of powers of attorney, and the appointment of other companies to act as agents with power to open bank accounts on a nominee basis (see paragraph 17 (g), (h) and (i)), the Applicant’s answer was that it was possible, and by no means improper, for a company to have its own “operating strategy”, including arrangements of this kind. A power of attorney, he said, was a legitimate tool which could be very beneficial for the company concerned. While he accepted that there was a remote possibility of abuse, that risk could be disregarded as the donees or agents were people of standing, familiar with the companies’ objectives.
26. He stressed to us that he had been carrying out his functions as a nominee director (he did not shrink from describing himself in that way) for over 5 years, and had not been the subject of any complaint from any quarter. In response to that, the Commission observed that it was scarcely surprising that there were no complaints, as there was so little done by the Applicant as a nominee director of which any person could complain.
CONCLUSIONS ON THE GENERAL MATTERS
27. Our conclusion on the general part of the Commission’s case is that it is largely, though not universally, proved. The major matters that the Commission established, and which the Applicant could not rebut in the exchange of evidence and submissions, are, in our minds, the following:
a. He does not generally have, either on file or in his head, anything like the amount of information on the activities of companies concerned that a competent director requires:
b. He does not have the degree of control over the financial and business affairs of the company that a competent director requires;
c. In particular the arrangements which he is content to authorise or accept for agents, for signatories and for powers of attorney are inadequate for the purpose of proper and systematic financial control;
d. The evidence about the backdating of an agency agreement from 2001 to 1998 was disturbing. While we did not actually call for the file ourselves, it seems to us that a competent director would have known that this was a matter that would be bound to attract the attention of the Commission and the Tribunal at the hearing; and we would have expected him to have had a better explanation than the one we heard for the apparent state of affairs, had there been such an explanation;
e. The degree of reliance on Mr DS, and the Applicant’s ignorance of the facts suggesting he was not trustworthy, leave us unconvinced of the Applicant’s thoroughness even in his minimal due diligence; if a person does not do any due diligence about his companies, because he is reliant on another to do it for him, it is elementary that he should do at least some due diligence in relation to the qualities and reliability of that other;
f. Although not in the Commission’s case, the Tribunal was not satisfied that all the companies concerned had held the Board or General meetings or brought into existence the Board or General meeting minutes and other documentation required even of small or dormant companies; one of the company files inspected appeared to contain little more than two sets of accounts and the Applicant’s annual invoice for his director’s fee.
28. On this basis therefore we conclude that the Commission should not grant a fiduciary licence to the applicant.
THE COMMISSION’S CASE (MONEY LAUNDERING)
29. We now turn to another major plank of the Commission’s case, which relates to money laundering. Here, the Commission alleged that the Applicant had failed to fulfil his obligations under the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations 2002 (and their predecessor Regulations). Their particular concern was that he appeared to be operating a “chain of introductions” system. By this they meant that the Applicant was two or three places removed from the beneficial owner whose identity he was supposed (unless exempted) to uncover. The first link in the chain was to the English introducers; the second was to the Swiss intermediary; the final link was to the Swiss intermediary’s client (though it was possible, of course, that the chain went on behind that client as well).
30. The Commission is firmly of the view that a chain of introductions falls foul of the Guernsey money laundering law, whether one looks at the new law or at the law as it was during part of the time relevant to this Application. We turn to the relevant law below.
31. Their evidence to show that the Applicant was in breach of the regulations was as follows:
a. the Applicant’s statement on 6 December 2001 that he did no due diligence work but relied on the English introducers to do that;
b. the fact that none of the 7 files inspected by the Commission on 6 December 2001 contained anything to show that the Applicant or the English introducers had verified the identity of the beneficial owner(s) of the company or a certificate from the introducer to the Applicant as described in paragraphs 57 to 60 of the Guidance Notes on the Prevention of Money Laundering (as they then were), and
c. evidence suggesting that the English introducers are not aware of, and do not verify, the identity of the ultimate beneficial owners of the companies of which they ask the Applicant to act as director. This evidence they suggested appeared in a letter from DMCL (Mr DS’s Company) of 9 January 2002, in the Commission’s note of its meeting with the Applicant and Mr D S of D M C L on 11 April 2002, and in the Applicant’s statements, on 15 August 2002, that he does not have contact with the Swiss fiduciaries who introduce companies to the English introducers, that he does not know the names of the beneficial owners of the companies of which he acts as director and that he does not have documents verifying the identity of the beneficial owners.
32. They go on to allege that Applicant failed to understand the deficiency of a “chain of introductions” after it had been explained to him in December 2001 until, at the least, 15 August 2002 when he stated at a meeting with the Commission his continued belief that a “chain of introductions” was acceptable. As an alternative way of putting this, they alleged that he had failed to remedy, or to attempt to remedy, this deficiency in introductions between 17 December 2001 and that meeting on 15 August 2002.
33. The Commission’s general conclusions on money laundering
therefore were that the
Applicant is unable to comply with his
obligations under the
Criminal Justice (Proceeds of Crime)
(Bailiwick of Guernsey)
Regulations 2002 (and their predecessor
Regulations) which, they
pointed out, is a criminal offence.
THE APPLICANT’S RESPONSE (MONEY LAUNDERING)
34. In reply, the Applicant accepted many of the facts as stated by the Commission, but reiterated his belief that what he was doing did not fall foul of the Regulations, as he was relying, and entitled to rely, on the reliable introductions he received and the verification of identity that had been done by others. He also disputed the extent to which it was true to say that the English introducers did not do their own identification, but relied on the Swiss intermediaries to do so.
35. This therefore was a mixed point of law and fact, in a difficult and important area of Guernsey law. We have therefore gone into the point in some detail, and what follows are our conclusions.
MONEY LAUNDERING: THE LAW
36. The principal legislation relating to money laundering is the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999, known as the “All Crimes Law”, which came into force on 1st January 2000. The All Crimes Law applies to everyone, not just to regulated persons. Its provisions include substantive criminal offences including, in particular, in section 39, the offence of assisting another person to retain the proceeds of criminal conduct.
37. Section
49(3) of the All Crimes Law gives to the Advisory & Finance Committee of
the States of Guernsey the power to make regulations in respect of the
duties and requirements to be complied with by financial services businesses
for the purposes of forestalling and preventing money laundering. The Committee
has used this power on a number of occasions. The current regulations in force
are the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey)
Regulations 2002, which replaced the Criminal Justice (Proceeds of Crime)
(Bailiwick of Guernsey) Regulations 1999.
These impose obligations on financial services businesses in relation
(amongst other things) to identification procedures, record keeping procedures
and internal reporting procedures.
38. The
expression “financial services businesses” is defined in the Schedule to the
All Crimes Law. This definition can be (and has been) changed by Advisory &
Finance Committee by regulations made under section 49(2) of the All Crimes
Law.
39. The
original definition of “financial services businesses” included (amongst other
activities not relevant for the purposes of this case):
“Any person or body
carrying on or providing services in relation to the business of banking,
bureaux de change, cheque cashers, insurance, investment, asset management or
administration, trusteeship, company or trust formation and administration, the
establishment of business enterprises or any matter ancillary to any such
business.”
40. It appears
to be common ground that the Applicant’s business activity, of providing his
services as a director of companies, falls within this definition, as it
appears to constitute the provision of services in relation to the business of
company administration. On that basis, he has, since the first Regulations came
into force on 1st January 2000, been subject to and has been obliged
to comply with those Regulations.
41. The definition of “financial services business” was amended substantially by the 2002 Regulations, and there is no doubt that, after the date when they were made (in September 2002) the Applicant has been subject to and has been obliged to comply with the Regulations.
42. In
addition to the All Crimes Law and the Regulations made under it, the Guernsey
Financial Services Commission has issued Guidance Notes on the Prevention of
Money Laundering and Countering the Financing of Terrorism. These do not have
force of law. However, regulation 1(4) of the Regulations provides that in determining whether a person has
complied with any of the requirements of regulation 1(1) of the Regulations
(which sets out the obligations of a financial services business in relation to
identification procedures, record keeping procedures and internal
reporting procedures) a
court may take account of the Guidance Notes.
43. In addition section 35 of the Fiduciaries Law (for the full title
see paragraph 2 above) gives to the Commission the power to issue Codes of
Conduct. These likewise do not have force of law, but compliance (or failure to
comply) with them may be taken into account by the Commission when exercising
its powers under the Fiduciaries Law. Amongst other Codes, the Commission has
issued a Code of Conduct in relation to company directors, which states that a
director should ensure that a company of which he is a director
complies with the Guidance Notes on the Prevention of Money Laundering (as
amended from time to time).
(a) is another financial services business or a person professionally qualified
in financial services, the law or accountancy; and
(b) is acting in the course of
business to which he is subject to regulation or supervision in Guernsey or in
any other jurisdiction listed in Guidance Notes issued from time to time by the
Guernsey Financial Services Commission as being an equivalent jurisdiction;
it
shall be reasonable for the financial services business to accept a written
assurance from the applicant for business to the effect that evidence of the
identity of the principal on whose behalf the applicant may act has been
obtained, recorded and retained under procedures maintained by the applicant
for business.”
45. Both the United Kingdom and Switzerland are listed in the Guidance Notes as being “equivalent jurisdictions”. The list of such jurisdictions is contained in Appendix C to the Guidance Notes.
financial services business but
on behalf of an underlying customer
(perhaps with reference to a customer name or
an account number) this may be treated as an exempt case (where the
requirements of paragraphs 57, 58 and 60 or 59 and 60 are met) but otherwise
the customer himself (or other person on whose instruction or in
accordance with whose wishes the intermediary is prepared to act) should be
treated as a verification subject”.
47.
This
paragraph gives to the financial services business, such as that of the
Applicant, seeking to rely on it the option to comply with paragraphs 57, 58
and 60 or else with 59 and 60. Paragraph 59 is not relevant in this case, in
that it relates to introductions from overseas branches or members of the same
group. Paragraph 57 is likewise not relevant to this case (as it relates to
local introductions). It follows that, in order to have complied with the
Guidance Notes, the Applicant would need to have complied with paragraphs 58
and 60. Paragraph 58 is similar in terms to section 4(4) of the Regulations,
and provides that: “Verification may not be needed where the
introducer is:
• either a person professionally qualified in
financial services, the law or accountancy or a financial services
business operating from a country or territory listed in Appendix C; and
• the receiving financial services business is
satisfied that the rules of the introducer’s professional body or
regulator/supervisor (as the case may be) include ethical guidelines, which
taken in conjunction with the money laundering regulations in the introducer’s
jurisdiction include requirements at least equivalent to those in these
Guidance Notes; and
• the introducer is reliable and in good
standing and the introduction is in writing, including an assurance that
evidence of identity will have been taken and recorded, which assurance may be
separate for each customer or general.
Details
of the introduction should be kept as part of the records of the customer
introduced.”
48.
Paragraph 60 provides that:
“To qualify for exemption from verification,
the terms of business between the financial services business and the introducer
should require the latter:
• to complete verification of all customers
introduced to the financial services business or to inform the financial
services business of any unsatisfactory conclusion in respect of any such
customer;
• to keep records in accordance with these
Guidance Notes; and
• to supply copies of any such records to the financial
services business upon demand.
In the event of any dissatisfaction on any of
these, the financial services business should (unless the case is
otherwise exempt) undertake and complete its own verification of the customer.”
49. It should be noted that paragraph 60 goes further than the Regulations, in specifically requiring (in so far as the Guidance Notes are able to impose a requirement) that the terms of business between a financial services business and an introducer should require the introducer to supply copies of verification records to the financial services business on demand.
CONCLUSIONS ON MONEY LAUNDERING
50. The Tribunal is of the view that the Regulations and the Guidance Notes taken together do not permit the operation of a “chain of introductions” whereby the immediate introducer does not undertake verification himself but simply relies on verification having been carried out by another introducer in a jurisdiction listed in Appendix C to the Guidance Notes. We therefore conclude that the Commission are right as a matter of law to reach this conclusion. In a nutshell, a Guernsey company director may be able, under Regulation 4(4) and the Guidance Notes, to rely on those who introduce to him, if they have done the necessary due diligence themselves; but he cannot rely on anything done further out such as, in this case, by the Swiss intermediaries. One level is enough.
51. It might be otherwise, as a matter of law, if on the facts the Swiss intermediaries were themselves directly an applicant for business to the Guernsey director acting on behalf of their underlying clients; but the evidence in this case does not support such a view of the facts, and the Applicant himself did not seek to put his case on that basis.
52. His explanation for not feeling obliged to make the relevant checks himself, though understandable in the circumstances, seemed to us to be based in part on a misunderstanding of the relevant law, and in part on an assertion that, in fact, the necessary due diligence was carried out by the English introducers. On this last issue, however, we found his assertions to be somewhat unconvincing, and to be unable to stand against the clear evidence in the documents produced for the Tribunal, including some that were put forward by the Applicant himself. The main reason for the disagreement between the parties was on the issue of law on which we have stated our view of the position. We had some sympathy with the Applicant when he pointed out that he had asked for help on the matter, and had been led to expect that he would be given some guidance within about 2 weeks from the relevant meeting; but that in the event the next thing that happened was an intimation some 8 weeks later that his application gave rise to concerns at the level of the Commission staff. That said, however, we conclude that the Applicant needs to comply with the Regulations, that he does not have the exemption which he claims, and thus that he does not at present comply with the Regulations.
53. Finally we give some weight to the fact that paragraph 4 of the Code of Practice issued in relation to Company Directors requires that a director should:
“Know who owns the
company (except to the extent that its shares are traded on a stock exchange).”
This requirement appears to be independent of any requirement for verification under the Regulations and the Guidance Notes. Presumably it arises not from any anti-money laundering objective but simply because a director cannot properly undertake his duties as such without knowledge of who owns the shares of the company of which he is a director.
54. Our conclusion therefore on this aspect of the case is that the money laundering shortcomings of the Applicant are a further reason why the Commission should not grant a fiduciary licence to the Applicant.
FINAL REMARKS
55. Before leaving the case, we make three separate remarks.
56. First, we were grateful to both parties in the proceedings before us for the able and good-humoured way in which the case was put on each side. That has made our task easier than it otherwise would have been.
57. Secondly, we can see that if the Commission accept our conclusions, an immediate consequence will be that the Applicant will have to shed his directorships, or at any rate the great majority of them. Under the Law, however, a certain period of time is available to him to wind his business down in whole or in part. This is because the time when the application is finally determined for the purposes of the transitional provision in section 59 of the Fiduciaries Law includes, as a minimum, 28 days from the date of the notice of the Commission’s decision.
58. Finally, we have decided that we ourselves should not publish this Opinion until the Commission have had an opportunity to consider whether to adopt it or to differ from it. We fully expect that the Commission will publish this Opinion, once that stage is reached, or else will invite the Tribunal to do so. In the meantime we express the hope that the parties will preserve the confidentiality of this Opinion until that stage is reached.
Signed:
16 April 2003.