In Liang v RBC Trustees (Guernsey) Ltd, it emerged that the trustee had sent off a suspicious activity report to the local financial intelligence unit, which then refused to allow him to terminate the trust at the request of a HNW beneficiary.

This represents the first time that the Royal Court of Guernsey has considered a private law claim made for someone's refusal to transfer assets due to an AML 'no consent' event. Although the court declined to order the transfer of all assets, it upheld some useful principles of law and indicated ways in which an aggrieved party might make a case to have his assets released.

The facts

The case concerned a claim that the plaintiff made in connection with the Lavender (2009) Trust. The defendant is the trustee of that trust. The plaintiff, A Chinese lady called Ms Liang, wanted to terminate the trust (of which she was a beneficiary) so that the net assets held on trust might be returned to her. However, anti-money laundering considerations prevented the trustee/defendant from acting on the plaintiff's instructions. He sent off a suspicious activity report (SAR) to the Financial Intelligence Service (FIS), the local financial intelligence unit which is staffed jointly by policemen and people from the Guernsey Border Agency. The SAR was related to open-source information relating to the plaintiff’s husband, Mr Songxiao Li, who is wanted in Hong Kong on suspicion of fraudulent conspiracy.

Having raised the SAR, the defendant sought consent from the FIS to terminate the trust, but it gave none.
 
Suspicion and provenance

By reference to previous cases, the Royal Court said that a party who wants access to funds subject to "law enforcement no consent" could obtain relief on two grounds.

• Suspicion. The plaintiff may ask a court to decide whether the defendant holds a properly formed suspicion that the funds were the proceeds of crime. The threshold for establishing suspicion in Guernsey is the Shah standard, delineated in Shah v HSBC Private Bank (UK) Ltd [2010] 3 All ER 477. The defendant must think that there is a possibility, which is more than fanciful, that the relevant facts exist. This is not a high threshold, but a vague sense of unease is not enough. The onus of proof is on the defendant to show that it is more likely than not that there are still relevant facts on which to base suspicion about the source of the funds in question. There must be more than a fanciful possibility that those funds are the proceeds of criminal conduct.
• Provenance. A plaintiff who wants access to funds may try to prove that those funds are not tainted, so he has to persuade the court that the funds are not the proceeds of crime and the burden of proof lies with him. The standard of proof, as with everything to do with the allocation of proceeds that might or might not be criminal, is the balance of probabilities. In other words, the "more likely than not" standard applies.

The court encapsulated the points at which the burden arises and shifts in paragraph 26 of the Liang judgment: "In my judgment, the burden of proof properly shifts between the parties in this manner. A plaintiff will establish a prima facie case to have the instruction or request made to the institution complied with. A defendant will raise an impediment to being in a position to comply, which will be the combination of the suspicion held and the absence of law enforcement consent. In order to overcome that impediment, the plaintiff will have to prove that the position is that the suspicion is unfounded because the source of the funds is not tainted in the manner believed or suspected."

Points for practice

In this instance, the defendant satisfied the Royal Court that its suspicion was properly held. The plaintiff was able to persuade the court about the legitimate provenance of some, but not all, of the funds in the trust. The court noted that its view may change if the plaintiff were to return with additional evidence.

The case shows that "law enforcement no consent" does not represent the end of the line for a party who wants access to his assets. Cases that turn upon whether suspicion is properly held are probably quite rare. The threshold remains low, so the prospect of success here is a distant one. Provenance arguments provide more fertile ground for court action. The Liang case showed that the success of such action turns upon comprehensive and cohesive evidence.

The court expressed some sympathy for the difficulties that some parties, including Ms Liang and other HNW people who are "innocent victims by association," face when compiling that evidence. Their difficulties may be exacerbated by the passage of time and they might face further obstacles if their relations with people who hold probative evidence have soured. Parties who do not obtain consent from the authorities to go ahead with their applications would therefore be well advised to compile as much detailed evidence as possible about the provenance of the funds in question, the better to persuade the institution that holds their assets to act on their instructions, or to persuade the financial intelligence unit to grant consent, or ultimately to persuade the Royal Court to order the institution to comply with their instructions.

* Abel Lyall can be reached on +44 1481 739 364; Sally French can be reached on +44 1481 739 341