Financial Services Regulation v Individual Rights

We have previously commented on the ever-increasing layers of regulation imposed upon the financial services sector in Guernsey and in other offshore jurisdictions.  The demand for further regulation stems from onshore jurisdictions requiring increased transparency with respect to the financial affairs of the wealthy to seek to secure higher domestic tax revenues reinforced by the imposition of international economic sanctions against non-cooperative jurisdictions.  Against this tide however, the Royal Court, has in a series of recent judgments reminded us all, including our local authorities, that financial services regulation, like any law, has its limits and must be imposed and enforced with an appropriate balance of fairness and justice with respect to individual rights.

In an application by His Majesty’s Comptroller to seek the forfeiture to the States of Guernsey of funds held at a local bank on the basis they were alleged to have the proceeds of crime, the Court ruled that the evidence put forward was “just not good enough” and that the Comptroller had failed to show that the individual concerned had any actual involvement in a criminal offence.

The Court accepted that the terms of the Forfeiture Law were “draconian” because its purpose was to send a message that Guernsey is not a place where one can deposit the proceeds of crime and get away with it Notwithstanding the purpose of the Law, the Court stated  “that cannot simply be an invitation to exercise the draconian power as draconianly as possible in all the circumstances just because it is draconian.  It must also be operated so as to not to deter innocent parties from placing their business in Guernsey lest they become embroiled in, or have their assets at risk of confiscation, because of some connection to some unlawful conduct in the past which they knew nothing about”.

In an appeal against the imposition of financial penalties and banning orders issued by the Guernsey Financial Services Commission, the Royal Court found (in what it described as a “troubling case”) that the Commission’s allegations of lack of probity against the appellants were flawed, unreasonably made and unjustified.  Significantly, the Court stated that the Commission had overlooked the fact that the reputation of the Bailiwick as a financial centre included the reputation of the Commission itself as a regulator.  That reputation needed to be one of “firm but fair” however the appropriate measure of fairness was lacking in its approach.  This decision has sparked further political debate with respect to the extent of the Commission’s self-regulation of tis affairs.

In further matter the Court held, after a full examination of the evidence, that funds held at a local bank which were subject to the suspicious activity report filed with the Guernsey Financial Intelligence Unit where not in fact the proceeds of crime and thereby required the bank to pay the funds over to the customer.  This decision reinforced a relevantly recently established line of cases whereby the Court has allowed innocent individuals subject to unfounded allegations of unlawful conduct to have a forum for seeking justice in the absence of any legal avenue.

The above decisions are a pertinent reminder of the importance of our Guernsey system of justice and the vital role it plays in achieving a just balance between regulation and the fairness of its application enforcement.

The Disputes & Risk team at Babbé LLP regularly advises and appears on the types of matters referred to above and where the advocates for the successful party in decision involving the suspicious activity report.

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