GUERNSEY FINANCIAL SERVICES TRIBUNAL

 

 

 

Castle Company Management (LLC) Limited

                                                                Applicant

 

and

 

Guernsey Financial Services Commission

                                                                      Respondent

 

Before

Mr Michael Blair QC (President)

Mrs Carol Goodwin

Mr Stephen Jones

 

 

 

Sitting in Guernsey in public

On Tuesday 24, Wednesday 25 and Thursday 26 June, and on Wednesday 16 July, 2003

 

 

 

 

Mr Michael Doyle (a director of the Applicant) for the Applicant

Mr Talmai Morgan (Director of Fiduciary Services and Enforcement) 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 second application to come before the Tribunal. As with the first case (de Garis v Guernsey Financial Services Commission, decided on 16 April 2003, and published on 19 June 2003) we have decided to set out in some detail the background and the conclusions we have reached.

2.     The application concerns the relatively new legislation brought into force in Guernsey, and in Sark, in April 2001, some two years and three months before the dates 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.     The Applicant, Castle Company Management (LLC) Limited, is a company which was incorporated in April 1996 in the United States, in the State of Wyoming, and which operates from a place of business on the Island of Sark. It also trades under the trading name of “Sark Offshore Consultancy”. We will call the Applicant “the Company” hereafter.

4.     Under sections 1 and 2 of the Fiduciaries Law, it is an offence for a person such as the Company to carry on by way of business in the Bailiwick the activity of company administration, which includes the provision of a director to any company whether incorporated under the laws of the Bailiwick or elsewhere, except in accordance with a full fiduciary licence granted by the Guernsey Financial Services Commission (“the Commission”) under section 6 of the Law. The same is true of trust administration, such as the provision of trustees.

5.     The Company duly applied for such a licence on or about 28 March 2001, very shortly before the Fiduciaries Law came into force, by commencement Ordinance of the States under section 62(2), on 1 April 2001. Accordingly, under the transitional provisions in section 59 of the Law, the Company has since then been carrying on its business lawfully on the basis that it is deemed to be the holder of a full fiduciary licence pending the final determination of the application.

6.     Following consideration of that application, the Commission has indicated, at the level of its staff, that it is not satisfied that it can grant the licence applied for. That decision was taken by the Enlarged Assessment Committee of the Commission, chaired by the Director General and consisting of (among others) all the members of the Commission staff in the rank of Director. However, before the conclusion of that Committee could be put before the Commission itself for endorsement, the Company was asked whether it wished to refer the matter to the Tribunal.  After some correspondence, in which the Company explored the ground with the Commission, it duly did refer the case to us.  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 over three days, and with a further short hearing on a fourth day. In this Opinion we now present our agreed conclusions to the Company and to the Commission.

 

CENTRAL CONCLUSIONS

 

7.     Our general conclusions may be summarised thus:

a.      We agree with the Commission’s conclusion that a full fiduciary licence should not be granted to the applicant Company.

b.     The criteria specified in the Fiduciary Law, which need to be fulfilled before a licence is granted, are not fulfilled, either in relation to the Company itself, or in relation to one of its two directors.

c.     Had the case been somewhat nearer to the margin of acceptability than it is, we might well have been prepared to adjourn the case, so as to enable a further compliance visit to be conducted by the Commission; the purpose of this would have been to enable us to see whether there had been, since the first visit in November 2001 (over 18 months ago), a sufficient degree of improvement in relation to some of the criteria to justify the grant of a licence.

d.     However, there would be no point in our adjourning the case for that purpose unless there were a real chance that the fresh visit would cause our concerns to evaporate; and we believe that there is no realistic prospect of that being the case. The concerns we have about this application go well beyond the matters that might be shown to have been rectified on a further visit.

e.      We have also concluded that, in so far as there are particular concerns about one of the directors, there is no point in our requiring a corporate reorganisation that would have the effect of removing that director and allowing the Company, with new governance arrangements, to obtain a full fiduciary licence; the substance of the Company is to a very large extent the director in question, and without him it would not easily be able to operate.

8.      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 (which was raised by the Company and with which we also have to deal) whether the Commission staff have gone about the business of considering the application lawfully and fairly.  So our conclusions relate mainly to the underlying substantive issue whether the Commission can and should grant a full fiduciary licence under section 6 of the Law.  However, we have also reached some conclusions on the procedural side, to which we now briefly turn.

9.      The Company made strenuous efforts before us to seek to establish that the Commission had behaved improperly in relation to it. The criticisms included suggestions that the case had been prejudged, that there was a deep-seated propensity to discriminate against applicant companies if they were based in Sark rather than in Guernsey, that the Commission gave licences to those who agreed with its policies and not to those who did not, that the Commission did not understand the nature of the business carried on in Sark and by the Company in particular, and that there had been some sharp practice in selecting for examination files that would bolster the Commission’s case against the Company.

10.  We find that there was no credible evidence to support any of these unsubstantiated allegations. Nor, in our view, was there evidence before us to lead us to conclude that we needed to look in detail into the question whether the Commission had behaved unlawfully or unfairly. That said, we have some criticisms of our own to make of the way the Commission approached its task. These appear in the course of this Opinion in the form of observations on the way in which the Commission went about the consideration of the Company’s application, and the presentation of it to the Tribunal. We provide a general summary of the points at paragraph 95.  These observations will, we hope, be of some assistance to the Commission in appraising its own performance in this case, and in preparing for any future similar case.

 

THE REQUIREMENTS

 

11.The statutory provisions (including, for this purpose, the provisions of Codes of Practice made by the Commission under statutory powers), upon which the staff of the Commission relied in support of the decision not to grant a full fiduciary licence to the Company, are the following:

 

(a) provisions of the Fiduciary Law:

 

Section 6(2)                 (which provides that the Commission shall not grant a fiduciary licence unless it is satisfied that the criteria specified in Schedule 1 to the Law are fulfilled in relation to the applicant and in relation to any director or controller of the applicant),

 

Section 6(3)(b)(i) (which enables the Commission, in deciding whether it is satisfied that the criteria specified in Schedule 1 are fulfilled, to take into account the provisions of any Code of Practice issued under section 35),

 

Section 6(3)(b)(ii) (which enables the Commission, in deciding whether it is satisfied that the criteria specified in Schedule 1 are fulfilled, to take into account any matter to which it may have regard under section 8 when considering whether to revoke a fiduciary licence),

 

Section 8(1)(d)             (which enables the Commission to revoke a fiduciary licence if it appears to it that it has been provided with false, misleading, deceptive or inaccurate information by or on behalf of either the licensed fiduciary or a person who is a director, controller, partner, manager or employee of the licensed fiduciary), and

 

Schedule 1                   the relevant provisions of which will be dealt with below.

 

(b) Provisions of Codes of Practice made under the Fiduciary Law

 

(i)The Code of Practice – Company Directors (made by the Commission on 1 April 2001 in exercise of its powers under section 35 of the Fiduciary Law) including, where applicable, the guidance notes to relevant paragraphs of the Code):

 

            Paragraphs 1 to 6 and 9, 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.

 

3.         Treat the company as a separate legal entity from its shareholders, directors and others and avoid conflicts of interest with it or deal with them in accordance with the company’s articles of association.

 

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.”

 

            (ii)The Code of Practice – Corporate Service Providers, (similarly made)

 

             Paragraph 6 states that:

 

A Corporate Service Provider (“CSP”) “should, through its staff:

 

understand and comply with its contractual and other legal obligations,

 

identify and act in each client company’s best interests and avoid or deal properly with any conflict of interest between clients or client companies or between itself and a client or a client company,

 

ensure that any person for whom it arranges to act as a director of a client company  is  fit and proper to do so (within the meaning of paragraph 3(2)(a) to (e) of Schedule 1 to the Law),

…………

 

keep and preserve (so far as appropriate for the CSP’s retainer and for at least as long as required by any applicable law) appropriate records including accounting records, company registers, records of material communications with clients, client companies and others and of proceedings at company meetings,

 

prepare and file returns and accounts as required by any applicable law, unless the agreement with the client provides that the client or client company will do so,

 

comply with the requirements of The Criminal Justice (Proceeds of Crime)(Bailiwick of Guernsey) Regulations, 1999 and of the Guidance Notes on the Prevention of Money Laundering, as amended from time to time,

 

……………. and

 

satisfy the “four-eyes” criterion.”

 

            (iii) The Code of Practice – Trust Service Providers (similarly made), and including its guidance notes

 

             Paragraphs 4 and 5, which state that trust service providers (“TSP”) should:

 

“4.        …………

 

invest, distribute or otherwise manage each trust’s assets in accordance with the law and the trust deed,

 

manage the investment and custody of trust assets professionally and responsibly,

avoid setting up or participating in discretionary trusts where the trustees merely carry out the settlor’s instructions and exercise no significant discretion,

 

…………

 

          Guidance Note:

 

…comply with their obligations under section 19 of The Trusts (Guernsey) Law, 1989 (or any equivalent obligation for a trust to which that provision does not apply) to ensure that trust property is under the TSP’s control and to preserve and enhance, so far as is reasonable and consistent with the terms of the trust, the value of the trust property

…………”

 

            “5.            …………

 

keep and preserve (so far as appropriate for the TSP’s functions and for at least the periods required by any applicable law) appropriate records of trust business including accounts, tax records and minutes of meetings

 

…………”

 

 

 

(c) Other legislation (especially on money laundering)

 

            The Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999, as amended (“the Criminal Justice Law”),

 

            the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations, 2002 and their predecessor Regulations (“the Regulations”), and

 

            the Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism and their predecessor Guidance Notes (“the Guidance Notes”).

 

 

THE FACTS

 

12. The Company has traded since its incorporation in 1996 on the Island of Sark.  Its website uses the trading name of Sark Offshore Consultancy and is to be found at www.sarkoffshore.demon.co.uk. From the documents and oral evidence in the case it appears to us that the main business of the company is the provision of company directors to act as directors for companies, most of which, though not all, are asset holding companies. The Company has two Directors, Mr Michael Doyle and Ms Belinda Lanyon. It has one full time employee on Sark who acts among other things as the Compliance officer. It has 5 part time employees on Sark who act as directors of a proportion of the companies for whom the Company supplies directors. The two Directors act as directors in the other cases.  There are also a few more employees of the Company in an establishment in Kent, about which we did not learn very much: the Commission did not visit it or offer any evidence about it, and the main focus of the proceedings before us was on the operations as carried out on Sark.

13.As at the end of March 2001, the Company was supplying directorships to 2042 companies, and the Directors of the Company were acting as trustee of one trust. By 10 July 2002, however, this number had shrunk to 1113 directorships. We understand that the reduction was achieved by the simple device of raising the fees payable by the companies.

14. It appears that the Company was also supplying company administration services in a fuller sense to some of these companies, including the keeping of bank accounts and records of company meetings etc. We did not, however, hear very much about that aspect, nor about some of the other services which, according to the Company’s website, are offered. These include the provision of mailing addresses, and mail box accounts; the website contains the  statement that “a mail box account allows you to use our address as your registered office . . . address”. We were somewhat surprised that the Commission introduced the website into evidence but took no point on the Mailing/E-Mailing Address Services aspect, perhaps because they were more interested in the fact that the website offers Russian as an alternative language in which to have access to it.

15.Before us, the main areas of contention were about the individual character of Mr Doyle himself (involving two instances of alleged dishonesty on his part, the extent of the knowledge and understanding which he had, and issues about soundness of judgement); about the way in which business (in supplying directors) was taken on, and the way in which that business was conducted, including the return to the clients of the powers to deal with the assets of the company under powers of attorney. Issues about the so-called “four eyes” requirement and about record keeping also arose.  The subject of money laundering also cropped up under some of the other headings.

 

Integrity

16.The first general area advanced by the Commission was that mentioned in paragraph 1 of Schedule 1 to the Fiduciaries Law. This is prudence, professional skill, integrity and the reputation of the Bailiwick , or to set it out as relevant in full, “Whether the business of the applicant [is] carried on with prudence, professional skill and integrity appropriate to the nature and scale of its activities and in a manner which will not tend to bring the Bailiwick into disrepute as an international finance centre”. (The reason for the square brackets above is that the Commission’s case here used the words [“will be”], but that seems to us to be based on a misapprehension as to the effect of the transitional provisions in Section 59 of the Law.)  The test covers far more than integrity; it will however be convenient if we leave out of account, for the present, the requirement so far as it relates to “prudence” and “professional skill”: we return to those matters below.

17.On integrity, the Commission’s evidence was exclusively about Mr Doyle, and not about the Company. Paragraph 1 of Schedule 1 appears to refer to the applicant, whether the applicant is an individual (as in the case of Mr de Garis referred to above) or a company. In the case of a company applicant, the Law goes on to require analysis of the individual directors etc in the context of the requirement that the applicant and the directors etc have to be  “fit and proper persons” (paragraph 3).  It may be suggested, therefore, that Paragraph 1 is concerned with the attributes of the applicant itself, and does not enable us to look at instances where it is alleged that there is a lack of integrity on the part of, say, a director of the applicant. However, in our view the focus of paragraph 1 is not exclusively on the question of what the attributes of the applicant itself are, but is aimed at how the business of the applicant will be conducted.  It is therefore relevant to that test (ignoring for the present paragraph 3) to consider issues about the integrity of those who will be concerned with the conduct of the Company’s business. On any view, we find that Mr Doyle is such a person.

18. Two incidents were relied on by the Commission in this context as showing in their view a lack of integrity on the part of Mr Doyle (and thereby through him on the part of the Company).  In the context of a particular trust (named for the proceedings as “file 6”) the Commission suggested to the Company on 17 December 2001 that the on-site visit of 14 November 2001 had shown that the Company appeared to have agreed with the economic settlor of the trust (“XY”) to use dummy beneficiaries as well as a dummy settlor.  Mr Doyle’s letter of 13 March 2002 stated that the Client, XY, had suggested by letter at the outset “these practices” (i.e. the use of a dummy settlor and dummy beneficiaries) but that the Company had not agreed to this and that it had remained an idea in the mind of the client.

19.However, a different set of facts appeared during the Commission’s second on-site visit on 27 March 2002. On that occasion, the Commission staff saw on the Company’s computer system an e-mail which they had not seen during the first visit (there having been no printed copy on the paper file).  This e-mail, dated 3 January 2001, is from Mr Doyle to the intending (economic) settlor and appears to suggest that “if the beneficiaries are to be kept out of the schedule for confidentiality reasons then we should insert nominee beneficiaries who would be superceeded” (sic) “by the letter of wishes”.  We were shown the Company’s bound version of the trust document, as actually executed, dated 31 January 2001; it names the two directors of the Company as the trustees, and the Company as the beneficiary, though there is included at any rate in that version of the document a letter of wishes naming members of XY’s family as the intended ultimate persons to benefit.  Therefore this suggested two pieces of deception of the Commission by Mr Doyle:

a.       the use of a nominee beneficiary was suggested by him, and not by the intending settlor: and

b.     that use was actually carried into effect, and did not merely remain an idea in the mind of the intending settlor.

20. When this inconsistency was put to Mr Doyle in the Commission’s letter of 17 June 2002, and raised with him at a meeting on 15 August 2002, Mr Doyle’s explanation was that “it appears that these two matters are related and they are not”.  The Commission itself has apparently seen no evidence for this, and told us that this statement did not explain the inconsistency.

21. The matter was pursued in evidence before us. Mr Doyle was concerned to establish that the Trustees were bound, in honour at least, by the expression of wishes that was interleaved into the Company’s copy of the Trust document that he produced to us. He seemed to us to use the word “beneficiaries” in that sense, so as to include the three persons named in the expression of wishes.  In fact, however, the Commission’s argument was related to the inconsistencies in the accounts given by Mr Doyle at different times. We therefore do not need to make any findings of fact as to the Trust itself. However, we are in a position to say, having heard the evidence on both sides, that we are satisfied that Mr Doyle’s explanation, in his letter of 13 March 2002, is not supported by the later evidence, including the e-mail discovered on 27 March 2002. We find that it is unsatisfactory, and regrettable, that Mr Doyle should have misled the Commission on a matter of such seriousness on 13 March 2002. We are not in a position to say affirmatively that he actually knew that he was not telling the truth in that letter. However, he must have known that this was a very important letter for him to write, as it was one that sought to dispel the concerns that had arisen at the first visit, and which appeared in the Commission’s general letter of 17 December 2001. He took almost three months to respond to this part of the Commission’s letter (there were intervening exchanges on other matters), and could have been expected to do full due diligence on the accuracy of the statements made in his reply. There was, before us, no incontrovertible evidence, either way, on the issue whether in early 2002:

a. he remembered the e-mail he had written about a year before, but believed that the Commission had not found it and were unlikely to turn it up if they came back; or

b. he had just forgotten the existence of the e-mail but was  honestly doing his best to respond to the Commission’s concerns.

22. However, of these two possible explanations, we find the former to be much the more likely.  On the evidence, there was only one Trust in the Company’s portfolio of responsibilities, and we were told that XY was a good friend with whom Mr Doyle had been sailing at some time for a number of days.  So the chances of confusion with another trust are negligible, and the memory should not have been that deeply buried. Further, a trustee, if at all competent, should have a relatively clear idea, without having to refresh his memory, of the principal content of the trust document/s, at least so far as concerns the name of the principal beneficiary. And a written statement that the strategy remained an idea in the mind of the client when he (Mr Doyle) had actually carried it out would seem to us to stretch credulity a long way too far.  We therefore find that the explanation that the scheme was never finalised was untrue when made, and that Mr Doyle misled the Commission in a serious way in the letter of 13 March 2002. We also find that he must have known that he was misleading the Commission. We therefore conclude, in this context, that he is a person not always to be trusted and about whose integrity there are serious doubts.

23.The Commission had another example of alleged dishonesty to put to us. This involved allegedly misleading a foreign securities regulator, and then the Commission itself.  Mr Doyle was approached in or about August 2002 by the foreign regulator, who wished to enquire of him, on a voluntary basis, about the beneficial ownership of a company called, in our proceedings, A Limited.   Mr Doyle replied on 19 August 2002 and stated that A Limited had been incorporated at the request of a Mr B and a Mr C and that he had acted as the first director.  There was then a second letter, which, it appears, was sent at the request of Mr B and/or Mr C, to the foreign regulator (either on 28 August or 2 September 2002: the document bears both dates) in which he used a different signature and stated that he had not communicated with the foreign regulator on 9th August 2002 (which was technically true, as the date was wrong) or at any other time (which was not true).

24.The main question of significance before us, therefore, was whether Mr Doyle had written, or caused to be written, both the letters.  In a meeting with the Commission set up at his own request - for which he deserves some credit - on 1 October 2002 and again in the proceedings before us, he agreed that this was the case: he had in fact sent both of the letters to the foreign regulator and both signatures were his, one having been computer generated.  He had no explanation for the inconsistency. We find this to be a serious and incontrovertible lapse from the standards of honesty to be expected under the Fiduciaries Law.

25.This matter does not, however, stop there. The Commission had become involved in the correspondence with the foreign regulator in the first place because it had been asked by the foreign regulator to see if the apparent inconsistency could be unravelled. Accordingly, a member of the Commission’s staff, Kevin Bown, telephoned Mr Doyle on 27 September to enquire about the two letters. At that stage, according to the file note made by Mr Bown on 7 October, Mr Doyle then told him, and thus, through him, the Commission, that it was the second letter that was the genuine one. This means that at that stage he stuck to the veracity of the statement in the second fax that “indeed we have never communicated with you [the foreign regulator] in any manner”. As stated above, however, it is now admitted that both letters were genuine, and so the statement made to Mr Bown on 27 September 2002 was untrue.

26. In the proceedings before us, Mr Doyle cross-examined Mr Bown, and then gave evidence on his own behalf. His explanation relating to the incorrect statement to Mr Bown appears to be in part that he had been expected to answer questions on the telephone from memory, instead of having the time to check his files to respond to a letter, that he was confused between cases and that the misleading was not deliberate. We would find it surprising, however, if he did not have a clear memory of the highly unusual circumstances, only a month before, of the second letter. This included, according to his own account,

a.   his being confronted by the clients (Mr B and/or      Mr C) and upbraided for writing the first letter,

b.  his being embarrassed at his earlier confusion, including a false recollection that he was a director of A Ltd, which had led to the first letter being sent;

c.  his being presented with a draft letter prepared by the clients’ lawyer;

d. and his signing it even though it contained highly damaging statements which could well have been (and indeed now are) serious from the point of view of the future of the Company.

 27. We find that no competent director of a company would simply have forgotten this circumstance over the period of a month.  The point is exacerbated in our view by a point which Mr Doyle himself made, namely that, at the time of the conversation with Mr Bown, the application of the Company was, as it were, hanging in the balance. There had been a formal meeting of the Enlarged Assessment Committee on 15 August 2002, and Mr Doyle was waiting to see what impression his advocacy at that meeting had had on the Staff members present at it.

28. What happened in our view was that Mr Bown put the inconsistency of the two letters to him, and he decided on the spur of the moment that the best way out of the problem was falsely to suggest that the first letter was not his, but might have been forged by someone else using a computer generated signature of his. He went on to make a further gratuitous misleading statement, in that, according to the note (and this was not challenged in cross examination) he volunteered, contrary to his own later evidence to us, that “there had been no contact or pressure to deny the first fax”.

29. The special extra day of hearing on 16 July 2003 was held in order to enable Mr Doyle to cross-examine Mr Boyd Kelly about the contemporaneous handwritten note of the meeting on 1 October 2002, and the subsequent typed file note of 2 October 2002, both of which had been made by Mr Kelly. We did not find, however, that this cross examination added anything of substance to the account of the incident. The two notes seemed to correspond one with another, except for one sentence in the typed version, about which Mr Doyle did not question Mr Kelly, and apart from some possible social pleasantries which did not appear, and which we would not have expected to see, in either note.

30. The whole story of the enquiries by the foreign regulator leads us inexorably to a clear conclusion: when under pressure, Mr Doyle is fully prepared to lie in order to serve his own purposes. In so far as he accused the Commission before us of using the episode as “the last nail in his coffin”, it is unfortunately the case that the nail has been driven in by a hammer in his own hands.

31. Having made these findings of fact about Mr Doyle’s integrity, we are driven to the conclusion that this has serious repercussions for the Company. Mr Doyle’s position as Director, 50% owner and key principal in the Company is such that we are not satisfied that its business will be conducted with the prudence and integrity appropriate to the nature and scale of its activities, as required by the Fiduciaries Law.  It also follows that there is a risk to the reputation of the Bailiwick as an international finance centre if the Company is permitted to continue to carry on a licensable activity on its present basis.

 

Competence, experience and soundness of judgement

32. The second general area advanced by the Commission was that mentioned in paragraph 3(2)(a) of Schedule 1 to the Fiduciaries Law. This, read with paragraph 3(1), requires us to assess, in essence “Whether the applicant and every person who is a director, controller, partner or manager of it is a fit and proper person to hold that position . .. and in particular the . . . probity, competence, experience and soundness of judgement (of such a person) for fulfilling the responsibilities of that position.”

33.It is also convenient to take into account in this area the parts of the test at paragraph 16 above which we then left over, namely “prudence” and “professional skill”. Equally, so far as the paragraph 3(2)(a) test relates to “probity” on the part of the Company’s directors and controllers, we have little to add to paragraphs 16 to 31 above. We would, however, observe that the language of paragraph 3(2)(a) of Schedule 1 to the Law, read with section 6(2) in the main part of the Law itself, makes it clear beyond argument that findings of lack of integrity on the part of a director or controller are clearly relevant to the issue whether the Company itself is or is not to be granted a full fiduciary licence.

34. There are therefore five requirements to apply in this context; we have decided that they can readily be grouped into two groups for the purposes of this part of our opinion, as follows:

a. Competence (from paragraph 3(2)(a) of Schedule 1); experience (from paragraph 3(2)(a) of Schedule 1), and professional skill (from paragraph 1 of Schedule 1);

b. Soundness of judgement (from paragraph 3(2)(a) of Schedule 1), and prudence (from paragraph 1 of Schedule 1).

35.On the first group, the main evidence before us related to an on site visit on 14 November 2001, over 18 months ago. This was followed up by a second visit on 27 March 2002. On the first visit, some 14 files were inspected, 3 on introducers, 9 on companies and 2 on trusts.  The Commission relied on what they had found in 9 of the 14 files, including, as far as we can gather, 7 of the company files, both of the trust files and none of the introducer files.

36. There was some controversy before us on the question of how the files had been selected for analysis on the first visit. The Commission maintained that they had been selected at random from the Company’s filing cabinets. The fact, however, that the sample included what appeared to be the only two trust cases in which the Company was involved was not explained. At a late stage in the proceedings, Mr Doyle introduced a new accusation about the Commission’s file selection; he told us that he had informed the visiting officers which groups of his files were live and which were dormant (since, in his view, the dormant ones, which had not yet been “checked for compliance” might well not do the Company as much credit as the working files, on which standards had been raised). The Commission staff, however, had “deliberately” chosen the 14 files from the dormant group, in order to produce evidence that was not representative of the later work. This suggestion is not, however, borne out by the account of the on-site visit. All 14 files are described in some detail in the file note of 15 November 2001. Of the 9 files on which reliance was placed in the proceedings before us, there had been activity during the second half of 2001 (that is within 5 months of the visit) in 6 of them, and a seventh had seen some activity earlier in 2001. Only in 2 of the 9 files was there any indication that the file might have been dormant in that sense. The 4 files that were not relied on by the Commission may have been dormant, but that does not seem to us to be material. We therefore conclude that there is no basis for the suggestion that the Commission had selected the files in an artificial manner.

37. Competence, experience and professional skill. On the basis of the on-site visit and other information gathered by the Commission, its submissions to us could be summarised as follows:

a. none of the directors or employees has any significant experience of company or trust administration outside the Company’s own business.

b. the files inspected were not in a good state, and did not contain what they should have contained in terms of the companies’ activities, assets and liabilities. In some cases the main documents in the file were some rudimentary details of the client for whom the Company had taken on the directorship, and a power of attorney enabling that client to act on behalf of the company in question, and thus effectively resume control of the assets in question, whatever they happened to be.

c. in consequence, the directors of the companies concerned were not in a position to fulfil their fiduciary obligations to the company.

d. In relation to trust administration, although this aspect of the Company’s business was apparently minimal, much the same could be said; the files showed inadequate detail of the process of establishing, managing and operating the trust (and, in one of the two cases, where it was suggested by Mr Doyle that one trust had ceased to exist, of the winding up).

38 As to experience, the Company asserted that there was more experience than met the eye, since, for example, the other Director, Ms Lanyon, had learned the business from her father who had had an apparently similar undertaking on Sark while he had been alive. Some of the previous business experience of other employees was also mentioned, but none, so far as we could gather, was in company administration. We conclude, however, that even after making allowance for this, the Company’s case is not in any way sufficient to answer what is a key point in the Commission’s case, and indeed in the Fiduciaries Law itself. After the concept of integrity, with which we have already dealt, we would regard the issue of experience and competence as cardinal to the success of an application. If an applicant is materially short of either experience or competence (or indeed of both), the prospects of satisfying the standards stated in the Law must be very low.

39. As to the state of the files, points of this kind, though not in this exact form, were put to the Company after the first visit and, as a result, the idea of a further visit came up in discussion between the parties, so as to verify the suggestion that much if not all of the concern about alleged inadequacy of the files would be allayed if the computer data could be looked at alongside the files. However, the net result of the second visit was that the Commission satisfied themselves that, contrary to Mr Doyle’s suggestion, relatively little was to be found in the computer-held data.

40. We also note from the correspondence that the Company had some difficulty in dealing with the Commission’s comments on the files inspected because of what appears to have been an unusual approach to file storage, indexing and retrieval.

41.We conclude, on the basis of the evidence we heard, that the Commission were indeed right to draw the conclusions-

a. that the Directors, and, so far as included in the definition of “manager” in section 58 of the Law, the staff of the Company, are indeed lacking in the broader experience that would have been desirable for an undertaking of this size and complexity; and

b. that the documentation held in Sark was not of the general quality that would be appropriate for an operation providing company administration to the standards expected by the Fiduciaries Law. Even on the somewhat minimal approach to company administration which the Company appeared to have adopted in a good number of the cases, that is the provision of a director, coupled with an authority to the client to resume control of the relevant assets, the record keeping was inadequate to ensure that the business was carried out competently, efficiently and without risk to the Company. We need to return to this substance of this in more detail below.

42. Soundness of judgement and prudence.  Next we need to deal with the other aspect of this topic, namely soundness of judgement (as required by paragraph 3(2)(a) of Schedule 1 to the Fiduciaries Law), and prudence (as required by paragraph 1). There was relatively little evidence directed specifically to this point, in either direction. It was submitted by the Commission, on the basis of the general evidence they had led, that Mr Doyle was reckless in undertaking work for which he did not have the relevant knowledge or experience; Mr Doyle’s reply to that was there had been nothing untoward in terms of the Company’s business reputation; that there had been no complaints about his services over the 8 year period concerned, and that the Commission were being over demanding in the standards they expected to see. No one was perfect, he said. While some of other findings can be said to be relevant to the issue whether Mr Doyle, in particular, is a man of integrity, we do not feel the need to add much on this specific head except for two matters:

a.                  the incident of the Slovak bearer bond, which we discuss below, is an example, putting it at its lowest, of poor judgement on the part of the Company and of Mr Doyle; and

b.                 the decision of the Company not to incur the expense of legal representation, and the provision of expert evidence, in these proceedings seems to be a questionable exercise of judgement, unless (which we can scarcely credit) the Company had concluded that its application stood no chance of success; we emphasise, however, that this comment is derived from, and is restricted to, this particular case and should not be taken as applicable in other cases.

 

Knowledge and understanding

43.The Commission further drew our attention to paragraph 3(2)(e) of Schedule 1 to the Fiduciaries Law which, read with paragraph 3(1), requires us to assess, in essence “Whether the applicant and every person who is a director, controller, partner or manager of it is a fit and proper person to hold that position . .. and in particular the . . . knowledge and understanding  (of such a person) of the legal and professional obligations to be assumed or undertaken.” 

44. The main attack of the Commission under this head was to suggest that the Company, and indeed Mr Doyle as a Director of it, were not aware, or not sufficiently aware of the Company’s legal and professional obligations, and in particular of the obligation, when acting as company director, to act in the best interests of the company. They also referred to the obligations under the Codes of Practice made by the Commission, in particular under that for Company Directors (see paragraph 11 above)

 to ensure that the board has effective control of the company,

 to treat the company as a separate legal entity from its shareholders and others,

 to know the company’s business and finances and have full and up to date information on them, and

 to ensure that the company keeps proper accounts and records.

45.The main evidence to support this was fourfold. First there was a good deal of emphasis on the Company’s obligations in relation to money laundering, which we tackle below. Secondly, there was evidence about the financial records and arrangements, which we also deal with below. Thirdly we heard, and read, evidence about the thin state of the files and the absence of any real attempt to get to grips with what the companies were doing. Fourthly there was important evidence about general powers of attorney. We deal now with the third and fourth points and add a few words on the second.

46.  Knowledge of obligations (general). On the third point, we accept that the amount of knowledge which the Company had about the very numerous companies it had as clients was far too thin for any real ability to comply with the requirements on directors. As at March 2001, the Company was providing the services of directors to 2042 companies, though that number had shrunk to 1113 in the course of the next 15 months. Mr Doyle himself was, at 30 June 2002, director of 291 companies, Ms Lanyon of 270, and the five part time employees of various numbers, ranging from 91 to 140. While we are not in any position to draw any conclusions about the number of directorships of companies which any one person can properly handle, it seems to us that these numbers, particularly if one takes into account that the part time employees were said to be under the relatively close guidance of Mr Doyle himself, are far too large. We accept that a number of them were described as asset holding companies, rather than as trading companies; and that a number of them may well have been dormant, though it is not clear why they were then willing to pay the annual fee for the directorship.  Even so, it cannot in the nature of things be possible to comply with the requirements of the Code of Practice for Company Directors on the basis of a volume of directorships such as we find in this case, where Mr Doyle has direct responsibility for 291 companies, and indirect responsibility for at least 552 more. Although he denied that the service the Company was providing was that of a nominee directorship service (and indeed informed us that he was taking steps to discourage his clients from other jurisdictions from using the term), we find on the evidence that in substance that was the service that was being provided. As the Commission put it in their written case, “a very large number of directorships can suggest that a director is providing his services as nominee and the Commission’s inspection of some of the Applicant’s files appeared to bear that out”. 

47. In the proceedings before us, there was at least one occasion (the foreign regulator incident described above) where Mr Doyle’s explanation for what occurred was that he was confused as to which company was in question, and whether he was a director of it. We find this rather damaging to him, as a company director ought to have enough knowledge of his legal obligations not to allow himself to become confused as to whether he is acting on behalf of a company or not. We also were surprised at Mr Doyle’s reaction to the suggestion that he might have been expected to know that one of his clients, XY, had been disqualified in the United Kingdom from acting as a Company Director. “How am I to find out?” he asked in cross-examination, and appeared to be surprised when the witness explained how easy it was.

48. Accordingly we find, in this context, that the Company and Mr Doyle himself did not have, and do not have, the knowledge and understanding they need to have of the legal and professional obligations to be assumed or undertaken. 

49. Knowledge of obligations (powers of attorney). We now turn to powers of attorney.  In a number of the files inspected, the Commission had found evidence of a power of attorney granted by the Director concerned, and conferring what was typically unlimited authority on the donee to deal as he thought fit with the assets of the company concerned. This, they suggested, led inescapably to the inference that the Company, and Mr Doyle, did not understand the risks that they were running in having, as it were, restored to the previous owner the company assets with no, or at best very little, basis for being sure that the company’s interests would still be preserved.

50. Mr Doyle’s answers to this were essentially twofold. First, he stated his view that it would not be practicable for the law to prevent (or the Commission’s practice effectively to prevent) the use of powers of attorney, even of an unlimited kind. Secondly, he felt that powers of attorney were a useful and appropriate tool for business use. Thirdly, he indicated that the Company’s practice had now changed; the powers granted were now specific and there was an established procedure for reporting back; they did not issue any general powers of attorney any more.

51. Ideally, we would have wished to be able to have this verified. As it was, however, there was little we could do to answer the question we asked ourselves, namely whether the practice had indeed changed as was suggested. We can however state a clear finding that the Company’s practice in 2001-2 was not in accordance with the requirements of which it was or should have been aware.

52. On both the third and fourth point (files, and powers of attorney), the Company pointed out that it was based in what had until relatively recently been an unregulated environment; that it accepted that all was not in order at the time of the first visit in November 2001, but that great strides had been made since then to improve compliance and to learn from the process. Indeed, in response to a question from us, Mr Doyle indicated his firm belief that a further on-site visit would produce a much more positive snapshot of the state of affairs of the Company.  In evidence, one of the Commission’s officers indicated his view that, at the time of the first on-site visit in November 2001, the Company appeared to be about two years behind the norm for other applicants for a full fiduciary licence that he had visited.

53. It is a pity, in our view, that the Company did not take any of the steps that would have been open to it to convince us, by written opinion evidence or otherwise, that things had improved, especially in relation to the suggested change of practice on powers of attorney. It is also a pity that the Commission did not themselves feel able to devote the resources (though we were told that they had been thinly stretched recently) to a further on-site visit shortly before the hearing. Had either of these steps been taken, our task would have been easier. As it is we have to reach a view on the basis of what was put before us, and the limited amount we were able to elicit for ourselves.

54. The second point relates to the Company’s accounts, and will be covered below. We add, here, however, that at the final hearing, the Company produced, at its own initiative, the recently finalised Company accounts for the year to 31 March 2003. (This was done in order to answer some criticisms that had arisen in the earlier hearing about the (relatively high) remuneration of the Directors and the (relatively low) remuneration of the employees. The latest accounts showed that the 2003 position was somewhat less polarised between the two groups than had been the case in 2002.  The Company also produced a “management letter” from its accountants pointing out some defects in the Company’s banking and accounting arrangements. Mr Doyle, for the Company, suggested that letters of this kind were not unusual in the case of a young, growing, company, particularly one that had not had to prepare formal accounts until the new Law came into operation. However, our conclusion, so far as relevant to this topic of “knowledge and understanding”, from the three sets of accounts which we saw, is that up until July 2003 at least the Company had no bank account in its own name, and was operating accounting systems that had required the auditors to give a qualified report in two successive years. It is true that the Company appears, with the help of its auditors, to be addressing the outstanding issues on banking and accounting arrangements, but the present position is not at all satisfactory.

55. Our conclusion on these three issues of knowledge and understanding, therefore, is that, even giving due credit for the point that the Company was having to confront high standards and positive regulation for the first time, this is not a good reason for having been so far short of the normal standards of the law and good practice in 2001 and 2002. On the business side, had it wished to show that it had turned over a new leaf since the compliance visits, that could have been done; in the absence of any such evidence, beyond an unsupported statement by Mr Doyle, we are not able to accept that the Company’s practice is now never to issue general, or wide ranging powers of attorney.  On the financial side, though the issues are now, somewhat tardily, being addressed, there appears to have been until recently an inadequate grasp of how serious the accounting problems were. This gives us little confidence that future problems which emerge will be diagnosed, understood and addressed with vigour. We therefore conclude that there certainly was until recently, and that, on balance, there still is, a lack of knowledge and understanding of the full breath of the Company’s legal and professional obligations. This is a finding against both the Company and against Mr Doyle.

 

Anti-money laundering procedures

56. The next general criterion relied on by the Commission was that mentioned in paragraph 3(2)(f) of Schedule 1 to the Fiduciaries Law. This, read with paragraph 3(1), requires us to assess, in essence “Whether the applicant and every person who is a director, controller, partner or manager of it is a fit and proper person to hold that position . .. and in particular the procedures (of such a person) 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.

57.The Law of 1999 (to which we referred at paragraph 11(c) above) is the general legislation in the Bailiwick of Guernsey (including Sark) which, with effect from 1 January 2000, and along with the subordinate regulation made under it, has required financial services businesses to have in place systems and controls for the purposes of forestalling and preventing money laundering.  In particular, there are regulations now in force (the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations 2002, which replaced the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Regulations 1999) which require financial services businesses to have identification procedures, record keeping procedures and internal reporting procedures. It was accepted before us that the definition of financial services business including businesses doing what the Company does.

58. The Commission’s case on this issue was two fold. First, it had suggested in the written case for these proceedings that correspondence initiated by Mr Doyle with the Commission in early January 2001 showed a poor understanding of the requirements even after they had been binding on him for a year. This proposition was not, however, very strongly advanced at the hearing; and we think that that was a sensible decision, since, in our view, there is not very much to be made of this point.

59. Secondly, and much more relevantly, the Commission’s evidence suggested that, at the time of the first on-site visit in November 2001, there were serious deficiencies in the anti-money laundering arrangements in force in the Company. A fairly large proportion of the Company’s introductions comes from countries in Eastern Europe, including Belarus, and, indeed, the Company’s website offers a version of itself in the Russian language. Much of the business comes from introducers in a number of  these countries- the list we saw includes Belarus, Croatia, Bulgaria, Latvia, Lithuania, Russia, and the Ukraine (in addition to Canada, Cyprus, Ireland, the USA and the UK). Under the requirements in the Bailiwick, while financial services businesses are not prohibited from taking on clients from, for example, Belarus, it is necessary to exercise a heightened degree of vigilance in such cases.  This is because many of these countries are not listed in Appendix C to the Guidance Notes, and because of the content of various notices issued by the Commission, one of which was in evidence before us, relating to business coming from sensitive sources. Despite these requirements, the evidence before us showed that the Company’s procedures involved inadequate identification of the beneficial owner or ultimate client, undue reliance on the introducers in some of the countries in question, and inadequate record keeping. For instance, three of the files inspected contained nothing relevant to verifying whether the business was bona fide beyond an inadequate statement that the client had been “introduced”; a fourth was nearly as bad, though it did contain some evidence of someone having inspected and copied a Ukrainian passport. The requirements are clear in requiring robust and positive identification, and not a mere introduction, in the case of any business coming from any country not listed in Appendix C.

60. Mr Doyle had no real answer to these points. As far as we could gather, he regarded the attack on him in this respect as something of a “put up job”; and he suggested (admittedly only in cross-examining a Commission witness) that money laundering requirements were not of first importance to a business of the Company’s kind, as little if any cash was involved in the business. Our conclusion is that the Commission’s case is made out in this respect. We do not know, either way, whether the practice of the Company has improved since 2001-2.  If it had done, we would have expected Mr Doyle to have mentioned it in some way. As it is, there is the virtually unchallenged evidence of serious inadequacies in 2001-2, which we accept.

 

 Unsatisfactory business practices and conduct

61. Under paragraphs 3(3)(c) and (d) of Schedule 1 to the Fiduciaries Law, regard may be had, in the context of the fit and proper test for applicants and relevant individuals, to some further issues. The main heading is “the previous conduct and activities in business or financial matters of the person in question and, in particular, to any evidence that he has

 

engaged in any business practices appearing to the Commission to be deceitful or oppressive or otherwise improper (whether lawful or not) or which otherwise reflect discredit on his method of conducting business or his suitability to carry on regulated activities (paragraph 3(3)(c)), and

 

engaged in or been associated with any other business practices or otherwise conducted himself in such a way as to cast doubt on his competence and soundness of judgement(paragraph 3(3)(d)).

62. It will be apparent from these passages from the Schedule that there is in theory at least a fair amount of overlap in the criteria which the Fiduciaries Law expects to be applied. We have already collected together two other provisions about the quality of judgement, that is “prudence” in paragraph 1 of Schedule 1, and “soundness of judgement” in paragraph 3(2)(a). As drafted they are intended to apply in different ways to a given set of facts, as the prudence is that of the applicant company, the soundness of judgement is in relation to fulfilling the responsibilities of a licensed fiduciary, and this third one is in an even wider context, that of business or financial matters, including past conduct there.

63. In this context, the Commission drew attention to two matters that have already been discussed in other contexts. These were

a.  the number of directorships, which tended, in the Commission’s view, to suggest that the services were of a nominee character, and

b.  the way in which business was taken on from, among other countries, Belarus in a way that did not satisfy the Bailiwick’s requirements on adequate introductions.

To the second, the Commission added that the automatic translation of the Company’s website into Russian was a positive encouragement to business from such jurisdictions. This in their view reflected adversely on the Company’s soundness of judgment. We do not wish to embark on an exhaustive analysis of the extent to which the acts or omissions of Mr Doyle and those of the Company can be said to overlap. Our view, however, is that we have nothing to add to the findings that we have already made.  On the Russian version of the website, we do not think it adds much to the case either way. Had the introductions been impeccable, and had the business from Eastern European jurisdictions been perfectly taken on, there would have been nothing to criticise in relation to a website that is made accessible to a bona-fide clientele. Since however the business was not adequately taken on, we do not see that having a website with this capability makes it much worse, in terms of discreditable business practices or lack of sound judgement.

64. There was, however, another matter which the Commission raised in this context. In April 1998, the website of the Company, trading under the trading name of “Sark Offshore Consultancy”, offered a “Slovak bearer deposit account” which, according to the then website, was like an anonymous, portable, bearer bank account, but better than the then existing Austrian “Sparbuch” because it could be denominated in any convertible currency.  The Commission wrote to Mr Doyle expressing disapproval of this on 19 August 1998. He replied on 2 September 1998 stating that he understood the Commission’s concerns and had instructed the Company’s systems engineer to remove the relevant section from its website.  According to the Commission this section still appeared on the website on 2 December 1998.  Mr Doyle’s discussions with the Commission and his evidence to us did not explain why the material was not removed after he had told the Commission that it would be removed.  He suggested, but not forcefully, that the evidence that it was still on the web on 2 December 1998 might have been created by the Commission by some kind of electronic date shifting; we do not accept that suggestion.

65. We find that the inclusion of such an invitation on the website in the first place was a serious error of judgement, even in the distant days of 1998. We also find that it was unsatisfactory that no steps were taken to comply forthwith with the undertaking given to the Commission. The material on the website was or could easily have been damaging to the reputation of the Bailiwick as an international finance centre: he was invited to remove it; he knew or ought to have known of the damage or potential damage to the Bailiwick; he agreed to remove the material, and yet he did not do so for at least 3 months.  This conduct was itself damaging to the reputation of the Bailiwick.

66. We are also seriously concerned about this incident, on a further ground. When originally asked for his observations on the Slovak Bearer Bank Accounts, he told the Commission on 2 September 1998 that he had “read and understood your concerns- As previously stated, I have never sold a single account and this remains the case. . .  I have today instructed my Systems Engineer to remove the entire section from our website.” This impliedly (though we note not expressly) accepts responsibility for the fact that the section was on the website and that Sark Offshore Consultancy (viz the Company) might until then have been willing to contract to sell such an account.

67. When Mr Doyle was questioned by the Enlarged Assessment Committee on 15 August 2002, an arguably different story emerged. Although in places he appeared to have accepted responsibility for the offer on the website (“we never made any sales on this. We weren’t interested in the business you know”), in other places during that hearing he stated that “a client had asked us if he could advertise his services on our website and we allowed him to do it. . . . . We thought he was just selling company formations.”  Asked whether the Company had verified what was to be put on the website, he replied “He sent some e-mails and explained, but basically he told us a pack of lies.” This seems to us, though the Commission made no point of this in their case or in the proceedings, like an attempt to explain the problem by shuffling responsibility off onto another unidentified (and now former) client. We leave aside the questions why that explanation was not advanced at the outset, and why there is no record available to us to substantiate the suggestion, made by Mr Doyle, that this explanation had been given to the Commission when they first raised the matter with him. The point of concern to us is that, if this explanation is actually true, then it reflects poorly on Mr Doyle’s competence and soundness of judgement in allowing an unsatisfactory business practice to become connected to the Company. To allow a client (even one who is then of good standing) to advertise on one’s own website without checking that the material was not damaging to the owner of the site, and apparently without even looking to see whether he was advertising in his own name, is, in our view, incompetent and ill judged, and shows Mr Doyle and the Company up in a very poor light. While this aspect of the matter was not stressed before us by the Commission, and indeed, if taken on its own, would not have been fatal to the application, it has to be added to the scales on the negative side.

 

The “Four Eyes” Requirement.

68 Under paragraph 4 of Schedule 1 to the Fiduciaries Law, it is necessary that “at least two individuals, resident in the Bailiwick and of appropriate standing and experience, effectively direct the business” of an applicant for a full fiduciary licence. In the Company’s case, it was accepted, at any rate before us, that the Company could not satisfy this requirement unless it were possible to count the Compliance officer, Ms de Jonge, as supplying the third and fourth eye. This was because the two Directors live together, with their children, as a family.

69. The Company maintained that Ms de Jonge had the appropriate standing and experience, and that she effectively directed the business. The Commission disagreed; in their view, though she may have had some experience of business in the Netherlands, she had neither the standing (that is, in the Company) nor the authority to be able effectively to direct the business. She was an employee, and one who, so far as the Commission could tell, had very limited authority; there was no evidence that she had ever contradicted either of the Directors.

70. We did not have the advantage of meeting Ms de Jonge. However, she herself indicated in her Personal Questionnaire on 27 March 2001 that she would in carrying out her duties be acting on the directions and instructions of the Controller, Mr Doyle. Further, it appears from the papers that she has no authority to sign cheques on behalf of the Company (though Mr Doyle said that this was because it was not necessary).   Some of the criticisms of her made by Mr Doyle in the context of the second compliance visit led us to conclude that her freedom of action, and the extent to which she was trusted, in the Company were both fairly limited.

71. While therefore we are not of the view that an employee can never be an effective second pair of eyes, we conclude that, in this case, the requirement was not and is not satisfied.

 

Adequacy of Records

72. An applicant for a fiduciary licence has to maintain adequate accounting and other records of his business and adequate systems of control of his business and records. This is required, under the general rubric of “conducting business in a prudent manner”, by paragraph 5(6) of Schedule 1 to the Fiduciaries Law.

73. Our findings above have already included criticism of the record keeping of the Company, and there is little we need to add. It is however relevant to note that the main purpose of the second on-site visit was to see whether, as suggested, the deficiencies in the files could be cured by a look at the computer records. However, the second visit produced very little evidence of more material to supplement the deficient files.

74. As to accounting records, we have seen the audited accounts for the years to 31 March 2001 and to 31 March 2002. Newly completed accounts for the year to 31 March 2003 were also made available to us.  These three documents were produced in the proceedings, in part because the version of the 2002 accounts in the Company’s bundle (that supplied to the Commission on 17 June 2002) turned out to be merely a draft, and in part because of questions asked by the Tribunal about accounts during the proceedings. The accounts are drawn up in the Guernsey form, and they suggest that this is required by the Companies (Guernsey) Law 1994; the Company is a Wyoming Company and we understand had no accounting obligation until the commencement of the Fiduciaries Law. Even then, there is no requirement as far as we aware that the accounts should be drawn up in the way required by the 1994 Law. All that is required is that they should be “adequate”.

75.The question whether the accounts, at least for the last two years, to 31 March 2002 and to 31 March 2003, are adequate, has exercised our minds considerably. These accounts, while indicating the auditor’s opinion that the accounts give a true and fair view of the state of the companies affairs as at the relevant 31 March, then go on to qualify that opinion in an extremely important manner. The wording, which is the same in both cases, is that there is a true and fair view “Except for any adjustments to the financial statements that might have been found to be necessary had we been able to obtain sufficient evidence concerning debtors, creditors, income and expenditure during the current and prior periods”.  The auditors go on to say that, “in respect alone of this limitation:

We have not obtained all the information and explanations that we considered necessary for our audit; and

We were unable to determine whether proper accounting records were kept.

76. We were seriously concerned at the extent of this qualification especially since it appeared in successive years. It seems to rob the accounts of a great deal of their value as a statement of the Company’s affairs. The qualification is the more surprising since the same auditors were able to sign unqualified accounts without any apparent difficulty in 2001; and yet in 2002 they indicated that they had not had sufficient evidence about debtors, creditors, income and expenditure in prior years. Mr Doyle told us that he had been advised that (as with the management letter referred to at paragraph 54 above) accounts of this kind are not unusual or surprising in young and dynamic companies. We regret to say, however, that we think he may have been advised in that sense on the basis of less challenging requirements that those which are applicable to the holder of a full fiduciary licence.

77. On balance we conclude that these accounts, although they perhaps would have been acceptable for a company to which the 1994 legislation applied which was outside the regulated sector, were not adequate for the purposes of the Fiduciaries Law. The qualifications cited above were too far reaching to enable us to reach any other conclusion.

78. We have to add that we were disappointed that the Commission seemed not to have given any real consideration to the accounts as supplied to them, and that there was nothing in the proceedings before the Commission’s Enlarged Assessment Committee or in the Commission’s case about accounts. It had not, so far as we could tell, applied its mind to the issue with which we have just been grappling.  Indeed, it may not even have noticed that the Company’s letter of 17 July 2002 was wrong to suggest that the accounts then supplied were the audited ones, since the document actually submitted was a draft. For a financial regulator concerned with the prudential supervision of important banking, insurance and other financial business, we find this surprising.

79. Our conclusion on paragraph 5(6) of Schedule 1 to the Fiduciaries Law is that the Company has not satisfied us on the question of records or that of accounting.

 

Overall assessment.

80.We do not wish to repeat all our many findings above. We think it clear beyond any shadow of doubt that the Commission were right to conclude that a full fiduciary licence should not, and indeed in law could not, be issued to the Company.

81.We have considered, as shown at paragraph 7(d) above, whether there should be an adjournment of the case, before reaching any final conclusion, so as to enable the Company to bring its affairs into order. The case for this would have been that the on-site visits took place quite some time ago, and there is a possibility that the Company might have climbed some way further up the “learning curve” in the meantime. There is also some force in the Company’s observation that the actual scale and intensity of the on-site visits were perhaps on the short side (two people for a morning, and then two people for less than two hours on the second visit).

82.  However, the case has been fought before us on the footing that a licence can be issued now. The question of a third visit (albeit first raised in correspondence by the Company) was one that, in the proceedings themselves, was not any part of the Company’s case; it was we ourselves who first enquired about the possibility, but the Company did not thereafter seek to rely on it as a possible way forward.  Indeed, the Company complained at the length of time that the decision-making under the Fiduciaries Law had been hanging over it, and the consequential effect on the Company’s energies and staff morale. The Commission for its part submitted that the case had to be decided on the basis of the past and the present, and that future aspirations were not enough.

83. Notwithstanding that there was no application for an adjournment, we have discussed among ourselves whether we should none the less direct one to take place.  However we conclude that this would not be the right course to adopt. An adjournment on our part would in our opinion be a waste of effort and of time. In view of the gravity of many of the findings we have made which would not be affected by any brighter picture on compliance, and which include some serious issues about integrity, the chances of our coming to a different conclusion are extremely low. Accordingly we believe that there is no realistic alternative but to reach a final decision now.

84. We have also considered, as shown at paragraph 7(e) above, whether we should adjourn the case to allow the Company to reconstruct itself without Mr Doyle. No application for any such adjournment was made, and we do not think we would have granted it if it had been made. Mr Doyle seemed to us to be the virtual embodiment of the Company, and we do not see how it could function without him on anything like the present footing.

 

 

 

Criticism of the Commission

85.The Company’s criticisms. We ought not to finish this opinion without expressing our conclusions on some of the criticisms which the Company made of the Commission. The Company contended that the preliminary decision of the Commission was based upon errors of law, and/or was wrong in law, or alternatively that the Commission had exercised its discretion wrongly.  We here restate the detailed allegations that supported this submission, with some compression, as follows.

a. The Commission failed to realise that the reputation of the Bailiwick is damaged by a refusal to issue a full fiduciary licence. The Company enhances the reputation of the Bailiwick and this is not taken into account by and is restricted by the Commission.

b. The majority of the findings are based on one short inadequate visit to see the physical files and a further inadequate visit to see the computer files.

c. The Commission have ignored responses and have sought, steadily, to build a case against the Company.

d. The Commission did not initially understand the nature of the business and wrongly interpreted information based on experiences alien to that business (eg trustee work):  even now it has not taken the time to understand the nature of the business particularly toward the way introductions are gained.

e. The Commission has consistently referred to companies and trusts that do not exist in building their case.

f. The Commission have used a strong-arm approach, and unnecessary pressure, to force a withdrawal of the application, have displayed open bias and selectivity, have failed to help the Company in any way, have failed to take into account any of the positive aspects, and have interpreted innocent events to suit their own ends.

g. The process has taken far too long and has given competitive advantage to those whom they have licensed.

86. Many of these points have been dealt with above, but for completeness we give our views on each of them.

87. As to (a), while of course we accept that the closing down of the Company would mean some loss of employment on the Island of Sark, we do not accept that its presence enhances the reputation of the Bailiwick; indeed, if a licence were to be issued, that reputation would be damaged, as it might suggest to an increasingly alert world that the high standards set in the Fiduciaries Law were not being properly applied in practice.

88. As to (b), we do think that the visits were somewhat short in duration. The Commission must have known before the visits took place that this case was going to be an important one; 14 files, out of 1113, or 1.2% seems a somewhat small sample compared to the 15% inspected in the de Garis case. Moreover, some of the files were of little evidential value either way, in view of the limited information contained or the fact that the file appeared to be dormant. That said, there was enough amiss in the 9 files dealt with in the proceedings before us to substantiate the Commission’s case, and there is little evidence to suggest that other files would have shown a more convincing case for granting the application at that time.

89. As to (c), the Commission, while not offering a counselling service to applicants, did seem to us to be diligent in handling the correspondence, and seemed to us to have been handling the application in a fair-minded way, though, of course the process did involve the steady collection of matters of concern. We do not see how the Law could have been applied differently.

90. As to (d), it is true that, compared with the totality of the Company’s portfolio of clients, the Commission spent a disproportionate amount of time and effort on the two trust cases which they found among their sample. We saw and heard nothing to suggest that the Commission did not understand any part of the business or were applying to one part criteria relevant to the other part.

91. As to (e), we have little to add. Perhaps some of the companies were dormant, but that is what turned up in the sample. In the proceedings before us the only cases on which reliance was placed were 7 active files, and two which might have been dormant. The suggestion that reliance was placed on non-existent companies and trusts seems therefore overstated.

92. As to (f), there was no evidence before us on any strong arm approach or of undue pressure. Any regulatory system imposes constraints on those subjected to it, and there was nothing here remotely out of the normal.

93. In (f), mention is made of “bias”. Some time was spent in the proceedings on the way in which the Fiduciaries Law had been applied so far in Guernsey, and in Sark.  The Company suggested an in-built bias against Sark except for those persons in Sark who had, to put it loosely, sided with the Commission.  We therefore asked for figures to show how the applications from Guernsey and from Sark respectively had turned out. Although the Commission did not keep separate statistics for Sark, they did their best overnight and thereafter to help us. The figures we elicited were as follows-

 

 

 

Sark

Guernsey and Alderney

All

Applications for full licence

4

194

198

Of which- granted

1

163

164

               -refused