10th Annual Conference International Wealth Transfer Practiceasset into an offshore company and then have the offshore company shares transferred into the trust. More simply, the same
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International Bar Association
10th
Annual Conference
International Wealth Transfer Practice
Planning the Lifecycle of an Offshore Trust
Practical Issues to be Considered when Creating
an Offshore Structure
Hock Lai Chan
Cooper Chan
Bridge House
Bridge Street
Castletown
Isle of Man
IM9 1AX
1. The Current Market
The options open to a client considering the establishment of an offshore structure are almost
endless. In the past 15 years, the traditional offshore jurisdictions have been joined by a variety
of new jurisdictions, each one seeking its own niche and market. Accordingly, the traditional
jurisdictions such as the Channel Islands, the Isle of Man and Bermuda have been joined by new
players such as Nevis, Mauritius and Barbados to name just a few.
The types of vehicles have proliferated, with each jurisdiction vying with one another to
introduce new laws which provide more extensive benefits to their prospective client base and
market. At the same time, many jurisdictions have rebranded themselves so that they can attack
certain markets so we now no longer speak about “offshore” but moreover “international
financial centres”. The trend definitely has led to more variety and choice both in geographical
diversity as well as the products on offer. The professional advisor now has a much more
difficult task in selecting the optimum structure for his clients given the diversity of choice.
In the past decade, the amount of regulation in offshore jurisdictions has been explosive. The
traditional boundaries of simply regulating banking, insurance and investment services have been
expanded dramatically. We now have regulators becoming responsible for controlling a much
wider spectrum of services provided to clients with many jurisdictions already regulating
corporate service providers and the provision of trust and fiduciary services. The increased
regulatory burden is also compounded by the more intense and complex obligations placed upon
each licensed person. More complex rules including, rightfully, provisions to combat money
laundering has spawned a whole new class of offshore professionals, the compliance officer. The
professional advisor now has to consider the merits of each jurisdiction and weigh up the benefit
to a client of being in a regulated environment, but one which by its very nature comes with an
increased cost of conducting business.
A changing market, also brings new challenges for advisors in leading their clients through the
markets. Increased regulation and the ever changing environment, not always driven by domestic
pressures, mean that it is very important for practitioners to keep current. In this paper, it is not
possible to summarise the available options. However, a limited number of options will be used
to illustrate the diversity available.
This paper does not attempt to examine in any detail the taxation impacts upon any particular
structure. The design of the structure will often be driven by the client’s domestic tax issues.
Many offshore vehicles will mimic features of structures commonly seen in the client’s home
jurisdiction and will try to feature as many of the positive aspects whilst at the same time seeking
taxation arbitrage advantages by virtue of being established in an offshore jurisdiction. An
obvious example of this in recent years has been the extension of the LLC concept into offshore
centres as an attempt to mimic the tax benefits of LLC’s in the United States market. Ultimately,
advisors will have to consider both domestic tax issues and those pervading in the selected
offshore jurisdiction. Furthermore, there will often be a layer of advice required in relation to
Double Taxation Treaties, their effects and the probability of management and control being
maintained in the appropriate jurisdiction.
The following is a discussion of a selected number of issues that should be considered by the
advisor before implementing a structure for a client. The permutations available now are infinite
and the selection will depend upon the circumstances and preferences of both the client and his
advisor.
2. Style of Structure
2.1 Trust
Most offshore structures involve the formation of a trust. This can take many forms;
discretionary; fixed interest; accumulation and maintenance; private purpose; charitable;
protective; forced heirship; asset protection (in the creditor sense); secret, half secret and
tailored specific trusts. The trust can vary from a simple trust created orally to extremely
sophisticated trusts which demand many hours of skilled drafting.
Care will need to be taken in each case to ensure that any trust deed is tailored to both the
settlor’s requirements and also any idiosyncracies of the law of the applicable jurisdiction
both where it is expressed to be subject and also where the trust will be actually managed.
After all, any prudent trustee and his beneficiaries will want to ensure that the trust is
capable of being regulated in the Courts in the jurisdiction in which the administrative
functions are being carried out and not just where the trust is expressed to be domiciled.
It is usual for trust deeds to have a series of checks and balances to ensure that the trustee
is not capable of running riot. It is becoming increasingly rare for trust deeds to be
prepared without any obvious control mechanisms being placed over the trustee.
Obviously, in the absence of express controls it is always possible for beneficiaries to
make applications to the Court, but that is usually slow, costly and laden with risk.
Furthermore, the outcome is never certain. So the trend is to put into the trust deed a
number of control mechanisms. These could in certain circumstances simply be
reservations of powers by the settlor or the establishment of a protector or advisory
committee. In the circumstances of a purpose trust, an enforcer can be appointedi.
Care always has to be taken when considering the powers that are to be vested in a settlor,
protector, advising committee or enforcer as the nature of these powers are capable of
being scrutinised by the Courts such as in the Star Trust caseii. If these powers are to be
exercised as a fiduciary power there may be adverse taxation impacts if the relevant
persona is resident in a high tax jurisdiction.
2.2 Protecting the Transfer into Trust
In addition to the actual design of the trust, care has to be taken as to the method of
transfer into trust to ensure that neither the trust itself nor the gift into trust upon which it
relies can be set aside. Quite often, the transfer into trust will require preparatory steps to
convert the situs of the asset from one jurisdiction to a more convenient jurisdiction in
order to protect the act of transfer. For instance, it is now common in most offshore
jurisdictions for legislation to be passed which protects the transfer of assets against the
application of foreign laws. In the Isle of Man, this is set out in the section 5 of Trusts
Act 1995iii
which effectively excludes the application of foreign law to both the trust and
the disposition into trust. These provisions are most commonly employed in forced
heirship situations where a settlor is subject to testamentary obligations in his home
domicile. These can in certain circumstances be avoided by the application of an inter
vivos gift. However, the gift into trust will have to be protected from any attack in the
settlor’s domestic Courts. A typical technique would involve the transfer of a foreign
asset into an offshore company and then have the offshore company shares transferred
into the trust. More simply, the same effect can be achieved by the transfer of money into
the settlor’s personal offshore bank account immediately prior to a gift being made. The
monies could then be applied in the purchase of the foreign asset from the settlor.
2.3 Asset Protection Trusts
Certain jurisdictions have in the past two decades passed asset protection trust legislation
(protection against creditors) with varying degrees of success. For instance, Nevis has
passed the Nevis International Exempt Trust Ordinance 1994 (“NIETO”). Section 24
NIETOiv
places the onus upon the creditor to demonstrate beyond reasonable doubt that a
trust was settled with the principal intent to defraud that creditor; and that at the time the
settlement was established, the settlor was insolvent or became insolvent by virtue of the
disposition. If a creditor is able to climb such a high evidential mountain, then the trust
will be set aside, but only to the limited extent necessary to satisfy that creditor’s interest.
Accordingly, any subsequent creditor would have to re-litigate de novo and cannot rely
upon any matters proven by the first creditor. In addition, Nevis burdens the creditor with
not just the onus of proof, but also exceedingly short time limitation bars, being a
maximum of two years from the date of the disposition. On the basis that justice in most
onshore jurisdictions grinds slowly, and delaying tactics are usually available to the
settlor and his legal team, then the establishment in Nevis for asset protection is
exceedingly attractive.
The Cook Islands passed similar legislation by its International Trust Act 1984.
However, that became unstuck in the case of South Orange Grove Owners Association v
Orange Grove Partners [2001] where the Court of Appeal of the Cook Islands highlighted
certain limitations in the Act.
In Nevis, the Courts have supported NIETO and have applied it in the face of an
aggressive SEC funded action in the case of Donald F Conway v Queensway Trustees
Limited Civ. App. No. 11/99. Therefore, if asset protection is high on the list with
creditors banging down the door Nevis is the likely home. However, this brings
with it a number of consequential difficulties in maintaining assets in a
jurisdiction where the investment and banking infrastructure is not yet fully
matured. If the trustees were to move assets outside of Nevis, then they may
be subject to attack in those other jurisdictions where the Courts may not be so
minded to apply the draconian protective measures afforded to the trust by
NIETO.
Other jurisdictions have not gone down this route and deliberately have avoided such
temptations to remove the application of the Statute of Elizabethv.
2.4 Regulation
For centuries the regulation of trusts and trustees has been in the passive hands of the
Equity Courts. However the trend is now for a move towards active regulation. Offshore
jurisdictions are now substantially ahead of onshore jurisdictions in relation to the
regulation of trust and fiduciary services. The offshore jurisdictions are now extending
the scope of regulation to those who provide trust and fiduciary services by way of
business. This usually includes the provision of administration and ancillary services.
Many of the leading jurisdictions such as Bahamas, Bermuda, The British Virgin Islands,
Cayman Islands, Channel Islands and the Netherland Antilles have already enacted
legislation. The Isle of Man is currently in the process of enacting legislation with
comprehensive regulations. It is ironic that in this area, the offshore jurisdictions are
leading the major onshore jurisdictions such as England and the USA have no such
legislation either enacted or in the pipeline. Surely if the offshore community feels it is in
the public interest to manage the risk associated with those controlling money belonging
to trusts (and their beneficiaries), then perhaps the onshore jurisdictions should also
actively consider whether it is appropriate for them.
The increased burden in regulation is more likely than not to change the service providers
industry in offshore jurisdictions. As the fixed costs of maintaining a fully compliant
service provider increase, this will naturally have the effect of squeezing out the smaller
players. It is probable that there will be an acceleration of consolidation in the offshore
industry over the next five years as businesses attempt to maintain profitability in a
hardening market. The professional advisor will typically be looking to set up structures
with a long term view. Therefore, it is important to ensure that insofar as possible the
service provider into whom you entrust your clients business is properly resourced and
well managed. It is in the client’s interest that the service provider is capable of
continuing that service in the long run.
3. Corporate Structures
The choice of corporate structures has expanded over recent years from the traditional limited
company through to the use of companies limited by guarantee, companies limited by guarantee
but also having a share capital (also known as hybrid companies) and limited liability companies.
Each type of company has its own unique features and often, each jurisdiction will have its own
variations. For instance, some jurisdiction still allow bearer shares whereas many have phased
this phenomena out. Some jurisdictions require local directors whereas others don’t. The tax
status of companies varies with some jurisdictions calling their companies international business
companies, non resident, offshore, tax exempt and international. The options are varied and the
usefulness sometimes depends upon the availability of double taxation treaties to shield profits
within companies.
The common theme running through all of these companies are that they offer either tax free or
tax rate controlled options for the beneficial owner. Accordingly, in return for a set government
fee, no taxes and no direct or withholding taxes are applied to the offshore vehicle by the offshore
jurisdiction. Alternatively, it is possible to manipulate the actual rate of tax paid in order to fulfil
the criteria for some tax break in an onshore jurisdiction. Typically these techniques would be
considered when attempting to limit the impact of controlled foreign corporation legislation.
There is usually a natural tendency by many clients to have an overwhelming desire to sit on the
boards of their offshore companies. In this way, they often feel that they can satisfy the needs for
checks and balances and retain control over the day to day management of assets held within the
offshore structure. As a general rule, this should only be permitted in exceptional circumstances.
At its highest, the advisor runs the risk that the entire structure could be attacked as a shamvi
.
It is much better generally to find reliable and sensible independent directors who will take a
practical view upon matters being proposed and who will, manage the companies in a pragmatic
and commercial manner. It would be foolhardy for clients to think that they can still have
“nominee directors”. The days of the “Sark Lark” are well and truly over with the onset of
corporate service provider regulation. The standards generally in the offshore world are now
increasing to the extent that directors are being held personally to account by their regulators, and
in some instances by the Court through disqualification processes, for activities undertaken on
behalf of clients.
To illustrate this new phenomenon, the Isle of Man enacted the Corporate Service Providers Act
2000. This sets out a comprehensive regulatory framework for corporate services providers.
This includes persons who supply regulated activities in relation to the formation of companies;
the sale of companies; registered office and accommodation addresses; officers shareholdings etc
and company administration. In the Isle of Man, the Financial Supervision Commission have
brought several cases through the Courts seeking to disqualify directors in the financial services
industry in the provisions of ss. 26 and 27 of the Companies Act 1992vii
. The minimum period of
disqualification is 3 years and the maximum is 15 years. This is an extreme measure available to
the FSC in circumstances where it has decided to remove an individual from practising in the
industry. Against this background, it is of no surprise that the “nominee director” is now an
extinct breed in the more regulated jurisdictions.
In Nevis, there is no equivalent of the Corporate Services Provider Act 2000. However, it is only
a matter of time before other jurisdictions are forced to follow suit for fear of being left behind in
the ever increasing international standards. So whilst in some jurisdictions it may be possible to
find a dinosaur from the past: looking forward in the longer term, we can be very sure about its
imminent extinction.
4. Money Laundering
In the past decade, all offshore financial centres have modified their laws to combat the issues
raised by the threat of money laundering. This has been driven principally by pressure being
placed by OECD and FATF with the perception that money laundering is an endemic problem in
offshore centres. This is far from the case given that offshore centres have a vested interest in
preserving their future economic wellbeing by preventing their jurisdictions from being abused
by money launderers.
The professional advisor should be aware that anti-money laundering legislation is not uniform
across all offshore financial centres. Although, the basic principals are set down by FATF,
including the creation of certain definitionsviii
, the interpretation varies from jurisdiction to
jurisdiction. The prevention of money laundering in some jurisdictions is restricted to combating
drugs trafficking and terrorism. In other jurisdictions, it is expanded to all crimes. Furthermore,
in certain circumstances, the crime has to be a crime in the jurisdiction in which it has been
commissioned as well as the jurisdiction in which the proceeds are presented into the banking
system. However, it is not strictly necessary for there to be a crime in the commissioned country
but merely the country in which the monies are presented for banking. The Isle of Man, has
implemented all crimes money laundering. If it can be demonstrated that the same foreign acts
would have been criminal if commissioned in the Isle of Man, then this constitutes a criminal
activity for the purpose of the Criminal Justice Act 1998.
Due to the lack of uniformity in the application of KYC, record keeping, introduced business
through professional intermediaries, the offshore professional should be mindful of the potential
pitfalls from the increased regulatory burden demanded by the banks and other financial
institutions. In practice, this impacts upon the speed at which a service can be provided and also
the amount of information which is required before services can be applied. This often has a
material impact upon the decision making process and the selection of a jurisdiction by a client.
If an existing business relationship has been established, it may be possible in certain
jurisdictions for the introducing professional to seek and obtain eligible introducer status. This
will considerably shorten the establishment process in that KYC requirements only need to be
undertaken at the source of the business with the obligation to certify that KYC has been
satisfactorily completed. Thereafter, the KYC information has to be made available upon request
in order to satisfy eligible introducer status. Ultimately, breaks such as these have to be earned
by introducers, and should be seen as an incentive given that this will reduce the delay and
administrative burden on both the introducer and service provider thereby reducing their
respective costs for the increased compliance burden.
5. Considering Alternate Planning Strategies
In this section, it would not be possible to set out in any detail the potential for the application of
alternative planning techniques to take into account specific needs of the client. Whilst tradition
suggests that trusts and companies (in whatever form) are the accepted normal route, the
sophisticated advisor will always have an eye on the alternative solutions which may well
provide a more novel but efficient solution to meeting a client’s needs. With the ever increasing
restrictions being placed by onshore taxation jurisdictions upon trusts and foreign corporations
controlled by onshore nationals, it is always good to spend 15 minutes with each client thinking
out of the box. After all, it is that 15 minutes which is often the most interesting part of the day
and also the time when new ideas and products are born or evolved.
Although it is not always possible to have a positive outcome from brainstorming sessions, it is a
useful exercise to consider any new techniques which may be appropriate to use with clients who
are more acceptable to risk.
5.1 Insurance
In its basest form, a contract of insurance is an agreement by an insurer to pay a sum of
money upon the occurrence of certain events (risks) in return for a premium payment.
This is a generally accepted method of contracting where the general effect is to shift
value and risk. In estate planning principles, we are also advising upon the shifting of
value and risk so there are clear parallels between traditional estate planning and the use
of insurance as an estate planning technique.
The traditional uses of insurance in offshore scenarios fall into two broad categories. The
long term insurance is the savings type policy the value of which is reflected by a pool of
underlying investments. The second group is the general insure which is typically
represented by captive insurance companies and the broking companies that service them.
Just as a single example, if a client has a portfolio of risks, he could insurance them into a
rentacaptive insurance celloffshore thereby transferring reserves and potentially profits
into an offshore environment whilst maintaining the ability to deduct tax for the payments
made. If at the same time, the unit in the offshore insurance cell can be transferred at a
low value into an offshore structure, then benefits may arise, depending upon the place of
residence of the client and the ultimate holding structure, advantages in tax and/or asset
protection. Although I do not pretend that this is the ultimate solution, or that it works in
any one or more cases, the intention is merely to stimulate the imagination as it only takes
one of these ideas to generate significant benefits to a client and accordingly fee income
to his advisors.
6. Conclusion
If there is one pervading message on the practical issues in considering the creation of an
offshore structure, it must be teamwork. Offshore professionals should seek out onshore
professionals with whom they feel comfortable and can work in a creative fashion. Onshore
professionals I am afraid that the choices offshore are more limited but if you look hard enough,
you will find a pool of talent in the offshore jurisdictions. By sharing creative thinking, it is
possible as a professional to find successful solutions for your clients out of the endless options
available, or at the very least minimise the potential for disaster and the consequential litigation.
Hock Lai Chan
8 March 2005
ix
i Purpose Trusts Act 1996
1 Creating purpose trusts
(1) Subject to the provisions of this Act, a person may create a valid purpose trust, for
a period not exceeding 80 years, if-…
(a) ….
(b) …; and
(c) …; and
(d) the instrument creating the trust-
(i) appoints a person who is independent of the trustees to enforce the
trust (in this Act that person is referred to as 'the enforcer'); and
(ii) provides for the appointment, as soon as is practicable, of such a
person as enforcer in the event of a vacancy in the office of
enforcer or in the event of an enforcer ceasing to be independent of
the trustees or if for any reason the enforcer is incapable, unable or
unwilling to act as enforcer; and
(e) the instrument creating the trust provides for the enforcer to have an
absolute right of access to any information or document which relates to
the trust, the assets of the trust or to the administration of the trust; and
(f) …
(2) The High Court may on the application of the enforcer of a trust make such orders
as it considers necessary or expedient to enable or assist an enforcer-
(a) to enforce a trust; or
(b) to gain access to any information or document which relates to a trust, the
assets of a trust or to the administration of a trust.
ii Jurgen von Knieriem v Bermuda Trust Co Ltd and Grosvenor Trust Co. 1994
(unreported)
iii
Trusts Act 1995
5. Exclusion of Foreign Law
Without prejudice to the generality of section 4, no trust governed by the law of the Island
and no disposition of property to be held upon the trusts of such a trust is void, voidable,
liable to be set aside or defective in any fashion, nor is the capacity of any settlor to be
questioned by reason that –
(a) the law of any foreign jurisdiction prohibits or does not recognise the concept of a
trust; or
(b) the trust or disposition –
(i) avoids or defeats any right, claim or interest conferred by foreign law upon
any person by reason of a personal relationship to the settler or by way of
heirship rights; or
(ii) contravenes any rule of foreign law or any foreign judicial or
administrative order or action intended to recognise, protect, enforce or
give effect to such a right claim or interest.
iv
The Nevis International Exempt Trust Ordinance 1994
24 Avoidance of Fraud
(1) Where it is proven beyond reasonable doubt by a creditor that a trust settled or
established or property disposed to a trust
(a) was so settled established or disposed by or on behalf of the settlor with
principle intent to defraud that creditor of the settlor; and.
(b) did at the time such settlement establishment or disposition took place
render the settlor insolvent or without property by which that creditors
claim (if successful) could have been satisfied, then such settlement
establishment or disposition shall not be void or violable and the
international trust shall be liable to satisfy the creditor’s claim and such
liability shall only be to the extent of the interest that the settlor had in the
property prior to settlement establishment or disposition and any
accumulation to the property (if any) subsequent thereto.
(2) In determining whether a trust, settled or established or a disposition, has rendered
the settlor insolvent or without property by which a creditor’s claim (if successful)
may be satisfied, regard shall be had to the fair market value to the settlor’s
property, (not being property of or relating to the trust) at the time immediately
after the settlement establishment or the disposition referred to in subsection (1)
(b) and in the event that the fair market value of such property exceeded the value
of the creditor’s claim, at the time, after the settlement establishment or
disposition, then the trust so settled or established or the disposition shall for the
purposes of this Ordinance be deemed not to have been so settled or established or
the property disposed of with intent to defraud the creditor.
(3) A trust settled or established and a disposition to such trust shall not be fraudulent
as against creditor of a settlor-
(a) if settled, established or the disposition takes place after the expiration of 2
years from the date that such the creditors cause of action accrued; or
(b) where settled, established or the disposition takes place before the
expiration of 2 years from the date that the creditors cause of action
accrued, that creditor fails to commence such action before the expiration
of 1 year from the date such settlement establishment or disposition took
place.
(4) A trust settled or established and a disposition of property to such trust shall not be
fraudulent as against a creditor of a settlor if the settlement establishment or
disposition of property took place before that creditors cause of action against the
settlor accrued or had arisen.
(5) A settlor shall not have imputed to him an intent to defraud a creditor, solely by
reason that the settlor-
(a) has settled or established a trust or as disposed of property to such trust
within two years from the date of that creditors cause of action accruing;
(b) has retained, possesses or acquires any of the powers or benefits referred
to in paragraphs (a) to (f) of section 47;
(c) is a beneficiary.
(6) Where a trust is liable to satisfy a creditors claim in the manner provided for in
subsection (1), that creditors right to recovery shall be limited to the property
referred to in subsection (1), or to the proceeds of that property, to the exclusion of
any claim right or action against any trustee or any other property of the trust.
(7) For the purpose of this section the onus of proof of the settlor’s intent to defraud
the creditor lies on the creditor.
(8) For the purpose of this section-
(a) the date of the cause of action accruing shall be, the date of that act or
omission which shall be replied upon to either partly or wholly establish
the cause of action, and if there is more than one act or the omission shall
be a continuing one, the date of the first act or that date that the omission
shall have first occurred, as the case may be, shall be the date that the
cause of action shall have accrued;
(b) the term “cause of action” means the earliest cause of action capable of
assertion by a creditor against the settlor of a trust or, as the case may be
against the settlor of property upon a trust by which that creditor has
established (or may establish) an enforceable claim against the settlor;
(c) the entry of judgement in any proceedings shall not constitute a separate
cause of action.
(9) The provisions of this section shall apply to all actions and proceedings brought
into court, however described, against the person (whether a party to the
proceedings or not) with regard to the settlement of an international trust or the
disposition of property to such a trust, or receipt of property by or for such a trust
and the remedy conferred by subsection (1) shall be the sole remedy available in
such an action or proceedings to the exclusive of any other relief of remedy
against any party to the action or proceeding.
(10) Failure by a creditor to present all claims arising out of any controversy and join
all parties with a material interest shall prevent that creditor from presenting such
claims and bringing an action against such parties in a subsequent proceeding.
(11) For the purposes of this section the term “creditor” means a creditor of the settlor,
including a judgement creditor and an assignee from such creditor of any claim
and includes any person who alleges a cause of action against a settlor.
v Fraudulent Assignment Act 1736
Fraudulent Assignments void
(4) And all that fraudulent Assignments or Transffers of the Debtors Goods or Effects
shall be void and of no void against his just Creditors, any Custome or Practice to
the contrary notwithstanding.
vi
Abdul Rahmen v Chase Bank (CI) Trust Co Limited and others JLR 103
vii
26 Disqualification of unfit persons
(1) Where on an application by the Financial Supervision Commission under this
section it appears to the Court that a person's conduct makes him unfit-
(a) to be a director or secretary of a company; or
(b) to be a liquidator of a company; or
(c) to be a receiver or manager of a company's property; or
(d) in any way, whether directly or indirectly, to be concerned or take part in
the promotion, formation or management of a company,
the Court may make a disqualification order.
(2) A person who is the subject of a disqualification order shall not, without the leave
of the Court, undertake any of the offices and activities referred to in subsection
(1)(a) to (d).
(3) Without prejudice to the generality of subsection (1), the Court may treat a person
as unfit to undertake any of the offices or activities referred to in paragraphs (a) to
(d) of that subsection if the person or a body corporate of which that person is a
director or similar officer, or the secretary-
(a) has been convicted of an offence (whether in the Island or elsewhere)
which involves dishonesty;
(b) has been convicted (whether in the Island or elsewhere) within the 25 years
ending with the date of the application of any combination of 3 or more
offences under-
(i) the Companies Acts 1931 to 1992;
(ii) legislation having equivalent effect in any country or territory
outside the Island,
whether or not convicted on the same occasion;
(c) has been convicted of any offence under-
(i) the Prevention of Fraud (Investments) Act 1968, the Banking Acts
1975 to 1986, the Insurance Act 1986, the Company Securities
(Insider Dealing) Act 1987, the Insider Dealing Act 1998, the
Financial Supervision Act 1988 or the Investment Business Act
1991 or the Insurance Intermediaries (General Business) Act 1996
or the Corporate Service Providers Act 2000; or
(ii) legislation having equivalent effect in any country or territory
outside the Island;
(d) has failed to comply with a direction of the Court under subsection (4).
(4) Without prejudice to any other powers of the Court, where a person is in default in
relation to any provision of the Companies Acts 1931 to 1992 the Court may, on
an application to it by the Financial Supervision Commission or by any person
affected by the default, by order direct the person in default (whether or not he is
in the Island) to rectify the default forthwith.
(5) The Financial Supervision Commission shall keep an index, in the prescribed form
and with the prescribed particulars of those persons subject to disqualification
orders and shall make the index available for inspection-
(i) at the office for the registration of companies; and
(ii) on the Financial Supervision Commission website or in such other manner
as the Financial Supervision Commission may deem appropriate.
27 Section 26: supplementary provisions
(1) The period for which a disqualification order under section 26 shall operate shall
begin with the date of the order and shall not be less than 3 years nor be more than
15 years.
(2) A disqualification order or a direction under section 26(4) may be made on
grounds which are or include-
(a) matters arising before or after the commencement of section 26; and
(b) matters other than criminal convictions, even if the person in respect of
whom it is to be made may be criminally liable in respect of those matters.
(3) In considering whether to make a disqualification order on the grounds that the
person concerned was a director or similar officer, or the secretary, of a body
corporate which has been convicted of offences specified in section 26(3)(a) to (c)
or which has failed to comply with a direction under section 26(4), the Court shall
give due account to any evidence given by or on behalf of the person concerned
that he took all such steps as were reasonably open to him to ensure that no
offence would be committed or, as the case may be, that no such failure would
occur.
(4) Rules of Court may be made with regard to the procedure for obtaining-
(a) a disqualification order;
(b) leave of the Court under section 26(2);
(c) a direction under section 26(4),
and may include such provision as to evidence or proof of any matter for the
purposes of such procedure.
(5) Section 26 is in addition to and not in derogation of section 31 of the Companies
Act 1982.
(6) If a person acts in contravention of a disqualification order, he shall be guilty of an
offence and shall be liable-
(a) on conviction on information to imprisonment for a term not exceeding 2
years or a fine, or to both;
(b) on summary conviction to imprisonment for a term not exceeding 6
months or a fine not exceeding £5,000, or to both.
(7) In section 26-
'company' includes any body corporate (wherever incorporated) and includes any
association;
'director' includes any person in accordance with whose directions or instructions
the directors of the company are accustomed to act.
viii
"Money laundering" means the following conduct when committed intentionally:
– the conversion or transfer of property, knowing that such property is derived
from criminal activity or from an act of participation in such activity, for the
purpose of concealing or disguising the illicit origin of the property or of assisting
any person who is involved in the commission of such activity to evade the legal
consequences of his action;
– the concealment or disguise of the true nature, source, location, disposition,
movement, rights with respect to, or ownership of property, knowing that such
property is derived from criminal activity or from an act of participation in such
activity;
– the acquisition, possession or use of property, knowing, at the time of receipt,
that such property was derived from criminal activity or from an act of
participation in such activity;
– participation in, association to commit, attempts to commit and aiding, abetting,
facilitating and counselling the commission of any of the actions mentioned in the
foregoing indents. Knowledge, intent or purpose required as an element of the
above-mentioned activities may be inferred from objective factual circumstances.
– Money laundering shall be regarded as such even where the activities which
generated the property to be laundered were carried out in the territory of another
Member State or in that of a third country.
"Criminal activity" means any kind of criminal involvement in the commission of a
serious crime.
Serious crimes are, at least:
– any of the offences defined in Article 3(1)(a) of the Vienna Convention;
– the activities of criminal organisations as defined in Article 1 of Joint Action
98/733/JHA;
– fraud, at least serious, as defined in Article 1(1) and Article 2 of the Convention on
the protection of the
– European Communities' financial interests;
– corruption;
– an offence which may generate substantial proceeds and which is punishable by a
severe sentence of imprisonment in accordance with the penal law of the Member
State. Member States shall before 15 December 2004 amend the definition
provided for in this indent in order to bring this definition into line with the
definition of serious crime of Joint Action 98/699/JHA. The Council invites the
Commission to present before 15 December 2004 a proposal for a Directive
amending in that respect this Directive. Member States may designate any other
offence as a criminal activity for the purposes of this Directive.
ix
Source: US Department of State, Money Laundering and Financial Crimes
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