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

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