Guernsey's last MONEYVAL evaluation report, issued in September 2015 by that FATF-style regional body, found that Guernsey's civil forfeiture regime, by which banks must hand over funds that are probably tainted, was not being used as well or as often as they could be. Things have since improved.

The report also found that the powers of civil forfeiture had not, at that time, been adequately tested by the authorities as they tackled serious economic crimes. The report encouraged Guernsey’s lawmen to step up their efforts.

In response to that recommendation, and in furtherance of plans already well underway at the time of the MONEYVAL inspection, Guernsey has now set up a dedicated asset recovery team ofpolice officers and financial investigators. The International Co-operation and Asset Recovery Team (ICART) is housed in the Financial Investigation Unit (FIU). ICART aims to be proactive rather than reactive in trying to recover assets and its mission is to recover its £2 million of set-up costs, become self-financing and contribute surplus funds to Guernsey's seized-asset fund.

ICART has been keeping itself busy. As publicised in December last year, it has helped two US criminal probes to recover monies that were laundered in Guernsey. The Government then gave some of the £14.3 million that ICART had recovered to the Americans. With asset recovery and detention on the increase, more and more people are asking my firm for advice and help on the subject.

Options for the authorities

What powers are available to Guernsey’s authorities in their efforts to recover assets and what should financial service businesses keep in mind when subject to these powers? In this article we look at police powers of civil seizure, detention, freezing and forfeiture in criminal proceedings, together with the connected orders and issues that might arise.

Parallel provisions

Our starting point is the Forfeiture of Money, etc in Civil Proceedings (Bailiwick of Guernsey) Law 2007, whose powers have their parallels in the Terrorism and Crime (Bailiwick of Guernsey) Law 2002.

The Forfeiture Law regime is limited to money. This is in part due to the extra resources required to ascertain and manage other assets (such as real property, investment portfolios etc) pending the realisation of their value. The police have post-conviction forfeiture powers that apply to property and are not limited to money in the Police Property and Forfeiture (Bailiwick of Guernsey) Law 2006. Customs officials also have the right to seize, detain and forfeit property (also not limited to money)inthe Customs and Excise (General Provisions) (Bailiwick of Guernsey) Law 1972. These latter two laws are, however, not the subject of this article.

The authorities of Guernsey can exercise the powers that the Forfeiture Law gives them for domestic purposes and for the enforcement of foreign non-conviction-based forfeiture orders, subject to certain conditions. At present these are limited to orders from England, Scotland, Wales, Northern Ireland and the USA.

The Forfeiture Law

The Forfeiture Law regime has two important features.

• It provides for remedies that are not based on convictions. In other words, somebody can be forced to forfeit things without anyone having been convicted of a crime.
• The process is a civil one. In a criminal case, the prosecutors have to prove that someone committed a crime beyond reasonable doubt; in a civil case, the plaintiffs only need to ‘prove’ facts 'on the balance of probabilities', i.e. to convince a judge that somebody probably transgressed. This standard is much lower.

The powers of seizure, detention, bank account freezing and forfeiture are subject to a minimum amount of £1,000 or its equivalent in another currency.

Seizure

The police seize cash when they take physical possession of it. A policeman can seize cash if he has reasonable grounds for suspecting that it represents the proceeds of any person's unlawful conduct or that any person intends to use it for unlawful conduct. It does not matter that the person in possession of the cash at the time of seizure was not involved in the unlawful conduct.

Detention

The police ‘detain’ or keep possession of cash that they have seized. They can keep it for up to 48 hours (excluding weekends and public holidays). The power of detention is subject to the policeman in question continuing to have reasonable grounds for his suspicion.

A court order can extend the holding period for four months at a time, up to a total of two years. The court is, however, entitled to extend the order for longer than that if it is ‘in the interests of justice.’

To obtain a detention order, the authorities have to apply to a court, typically through the ex parte route in chambers. The order may be made subject to such terms and conditions as the court thinks fit and, although the application may be ex parte, the order must dictate that anyone it affects must be notified of it.

The court may make a detention order if it is satisfied that there are reasonable grounds for suspecting that:

• the cash concerned is: (i) somebody's proceeds of unlawful conduct; or (ii) intended by any person for use in unlawful conduct; and
• its continued detention is justified while its provenance is investigated or proceedings are being considered or have been started but not concluded: (i) in any jurisdiction against a person for an offence connected to that case; or (ii) in Guernsey or a specified jurisdiction for civil forfeiture.

Freezing

The court also has the power to order funds held in bank accounts to be frozen. Once it has done so, no part of those funds can be transferred, withdrawn or otherwise paid out.

The requirements for the police to obtain a freezing order for a bank account mirror the provisions for obtaining a detention order, as do the time periods for which such orders may be made.

An account may be frozen in its entirety, or up to a specified amount. Ifit is frozen up to a specified amount, the surplus funds are obviously not subject to the freezing order.

Civil forfeiture

"Forfeiture" is the loss of property resulting from the breach of an obligation. In this context it concerns a person being deprived of his money when a court believes it to be connected to unlawful conduct.

When the authorities want to obtain a forfeiture order, it is a pre-condition that the money in question is subject to detention or freezing, as detailed above.

Anyone who wants to obtain a forfeiture order has to apply to a court. Once he has made his application, the money to which it relates is to be detained or frozen until the application process, including any appeal that might occur, is over. By contrast with orders for freezing and detention, such applications are made on notice.

The court may make a forfeiture order if it is satisfied that the money concerned (or a relevant part thereof) is the proceeds of someone’s unlawful conduct; or intended by any person for use in unlawful conduct.

On the order being made, and with all appeals exhausted, the money and accrued interest are to be credited to General Revenues of the States of Guernsey or as otherwise directed by the Policy and Resources Committee (e.g. into a seized asset fund).

The standard of proof is, as we have seen, the civil one. The burden rests on the police to demonstrate, to this standard, that unlawful conduct is ‘concerned.’ Should a respondent be shown to have lied about the source or intended use of money, this may be relied upon as evidence in support of an application. Similarly, if a respondent has been afforded considerable opportunities to adduce evidence or provide an explanation to rebut accusations, the court may draw inferences from his failure to provide such evidence or explanation.

Release of money

Money subject to the above processes may be released in four circumstances.

• To the person last in possession of the money. A person from whom cash is seized and is then ‘detained,’ or whose funds are frozen, may apply to a court for the release of that money. The court may order (‘direct’) the release of the money in whole or in part if it is satisfied that any of the conditions for its detention or freezing are no longer met. Such applications may be heard in chambers but HM Procureur must be notified of them. As an alternative, HM Procureur may authorise the release of some or all of such money if she is satisfied that the detention of the money to be released is no longer justified. The most likely condition to be attacked is the suspicion that the money is the proceeds of any person's unlawful conduct, either because the suspicion of unlawful conduct has been eliminated or the applicant has shown that the money is not connected to unlawful conduct.
• Money seized or frozen in the hands of another. A person whose cash was seized from the hands of another, or whose funds are frozen in the account of another, may apply to the court for the release of that money in whole or in part. The court may order the release of the money, in whole or in part, to that applicant if satisfied that the money belongs to that person and any of the conditions for its, detention or freezing are no longer met.
• Victims' recovery. A person who claims that money detained or frozen belongs to him may apply to the court for the release of that money in whole or in part. The court will order the release of the money to him if it is satisfied that: (i) the applicant was deprived of their money by unlawful conduct (i.e. is a victim of crime); and (ii) immediately before the applicant was deprived of it, the money was not the proceeds of unlawful conduct nor intended by any person for use in unlawful conduct; and (iii) the money belongs to the applicant.
• A failed forfeiture application. Whenever forfeiture is not ordered in response to an application, the court in question will order the release of the money, either to the person from whom it was seized or whose account was frozen, or to an applicant who has satisfied it that the money in question properly belongs to him. In such circumstances, the person to whom the money is to be returned may apply to court for compensation. Such compensation is typically limited to lost interest, but if the court is satisfied that the applicant has suffered loss and that the circumstances are exceptional, it may decide that additional compensation ought to be paid.

A list of problems

The Forfeiture Law is not without its difficulties, particularly if the recipients of orders are financial service businesses that must have regard to their obligations to customers as well as to the authorities.

Prejudicing an investigation

These orders do not exist in isolation. A typical order follows a period of investigation and may form part of a continuing investigation. Should a person who knows or suspects that a civil forfeiture investigation is continuing or pending make a disclosure that is likely to prejudice such an investigation, he might be found guilty of an offence.

The threshold is whether the disclosure is likely to prejudice an investigation. Afinancial firm in these circumstances is likely to hold sparse information. This is likely to make it difficult for the court to assess whether an investigation may be prejudiced, and even more difficult for it to decide if that is a likely consequence. There is, however, not a firm prohibition against financial service businesses discussing matters with their customer/s or other interested parties.

Financial service businesses must be especially cautious when money laundering may be involved. In those circumstances, the ‘tipping off’ provisions of other Bailiwick laws may come into play, regardless of whether or not an investigation is prejudiced. As these orders are principally concerned with movements of money, the money laundering laws are frequently relevant. Respondents should therefore approach the risk of ‘tipping off’ with considerable caution and take legal advice.

Document retention policies

A further potential offence exists should a person, knowing or suspecting that a civil forfeiture investigation is continuing or pending, tamper with documents relevant to that investigation. The potential offence for getting rid of documents is causing particular concern to businesses which have revised their document retention policies to ensure GDPR compliance.

The legislation does not articulate a test for suspicion, but in other contexts the bar is set quite low. There is a lack of clarity and a risk of the effect being akin to a backdoor document preservation order in which the authorities tell someone that they might be opening an investigation.

This is particularly uncomfortable for respondents having regard to their obligations to persons other than law enforcers, in particular to customers and regulators. There is no simple rule that dictates the circumstances in which financial firms might retain or dispose of documents safely. Decisions will depend on the facts, but the courts are very interested in the intentions of the party in question. It is a defence if there was no intention of concealing the facts disclosed by the documents from investigators. A financial service business, following its usual document retention procedures, would therefore risk far less than an entity taking a targeted approach to destroying files. However, if an investigation seems to be a possibility, respondents should be careful.

Set-off and security interests

Unless the court orders otherwise, account freezing orders and/or forfeiture orders do not affect pre-existing rights of set-off and secured interests. However unsecured interests are not protected.

The court may, however, override pre-existing rights or set off and/or secured interests should it find that the right or interest was not created in good faith, or that it is otherwise in the interests of justice to make an alternative order.

Other considerations

If served with an account freezing order or forfeiture order, a financial firm should consider the chance that its contents might give rise to other reporting obligations. It should decide whether it ought to send off a suspicious activity report (SAR) to the FIU, and/ or if there are matters that it ought to divulge to the Guernsey Financial Services Commission in accordance with Principle 10 of the Code of Principles of Conduct of Financial Business.

These are not automatic consequences of being served with such orders, but they are all worth considering. A SAR may be particularly important if the order does not relate to the entirety of the funds held in the account and other transactions are contemplated.

It now seems as though Guernsey’s authorities are putting the island’s civil forfeiture regime to good use, which is to say as often as possible. All of these issues are complex and involve a variety of legislative provisions and obligations. Any recipient of the orders we have mentioned should take legal advice promptly.

* Sally French can be reached on +44 1481 739 341 or at sally.french@mourantozannes.com