Royal Court refuses to ‘unfreeze’ $16m for mystery CEO

Friday 30 August 2019

The Royal Court has refused to review a decision not to grant an anonymous finance CEO, who is subject to a regulatory investigation in the US, access to bank accounts containing $16m.

The decision came after the businessman, who was granted a gagging order preventing his name from being published earlier this year, brought the Police Chief to court.

In a case heard on 19 August, the unnamed man called for a judicial review of the Police’s decision to stop him from operating bank accounts about which they were suspicious last year, effectively freezing them.

But although the applicant failed to persuade the Court to reconsider the matter, the case has rekindled legal debate about the fairness of Police being able to withhold consent to ‘suspicious’ financial transactions indefinitely, without bringing criminal proceedings.

Pictured: The anonymous CEO, who is the beneficial owner of a company that advises a hedge fund specialised in investing in companies in financial difficulty, is accused of crimes in the US.

It also re-opens discussions over balancing individual rights with measures intended to ensure financial transparency and prevent money laundering.

Giving the Court's judgment against the applicant, Commissioner Julian Clyde-Smith OBE drew attention to the importance of tackling money laundering, and criticised aspects of the applicant's case.

But he added that this doesn’t mean that an order to freeze accounts should be maintained “indefinitely, because... there can come a point when its maintenance would become disproportionate.”

"It is not possible for this Court to say when that point will be reached, because it will depend upon all of the circumstances then prevailing, but the ongoing absence of a criminal investigation, a necessary precursor to a saisie [a Court order transferring funds to the Viscount] will be a key factor," he said.

In the present case, the unsuccessful applicant was chief executive and beneficial owner of a company that acts as adviser to a hedge fund specialised in investing in companies in financial difficulty.

He had taken the Chief of Police to Court in a bid to gain access to funds effectively frozen as a result of the Jersey Financial Crimes Unit's decision to withhold consent to the operation of two bank accounts.

Pictured: The CEO's funds were effectively frozen as a result of a 'no consent' order by the Police's Financial Crimes Unit.

That decision followed suspicious transaction reports made by administrators of a Jersey trust company and a wholly owned company in the British Virgin Islands of which the applicant is a discretionary beneficiary.

The Royal Court was told that the applicant and the advisor company are defendants in class actions in the United States, which began in 2017. They are alleged to be involved in a series of manipulative share issues – sales transactions in publicly quoted companies, described as "a fraudulent course of conduct."

The allegations are being investigated by the US Securities and Exchange Commission, which is the relevant regulatory authority in the United States, but both the applicant and the advisor company deny that they acted improperly and no criminal proceedings have been brought against them.

It was against this background that the Police decided not to give consent to the operation of the disputed bank accounts. They told the Royal Court that the applicant had failed to explain the source of $1.45m given to a charitable company that invested in the hedge fund to secure a $4m return, or to provide firm evidence that $12m held by the BVI company were the proceeds of legitimate activities.

However, while refusing a judicial review of the Police decision, Commissioner Clyde-Smith noted that the Royal Court had previously remarked on the potential for injustice arising from the current Proceeds of Crime Law.

Pictured: The Commissioner emphasised the importance of tackling money laundering.

It currently says that a person is guilty of an offence if they are involved with controlling the proceeds of crime on behalf of another person that they know or suspect has been involved in criminal conduct. It is a defence if suspicions are disclosed to the Police who subsequently give consent to the transaction.

Quoting from a previous Royal Court ruling, the Commissioner reflected how banks therefore tend to err on the side of caution, leading the account to become “informally frozen for so long as the bank has the relevant suspicion and the police do not consent.”

This, the quoted ruling said, is “clearly capable of causing great hardship and unfairness”, as it leaves individuals locked out of their accounts even if no criminal charges have been brought against them or a court order has been made.

Appearing on behalf of the CEO, Advocate William Redgrave drew attention to the UK’s procedure, in which Police must obtain a court order within 31 days in order to stop ‘suspicious’ transactions.

He argued that the Court should take the view that the police should use their powers to consent to transactions proportionately. If there was no imminent prospect of orders being made in order that the funds can be confiscated, they should allow individuals to operate their accounts.

But the argument did not find favour with the Commissioner, sitting with Jurats Ramsden and Christensen.

Given the “importance of tackling money laundering”, he concluded that it was not true that the Police’s refusal to grant the CEO access to the $12m sum “placed an unacceptably harsh burden” on him.

“In the case of the $4m it is difficult to see what burden has been placed upon the applicant at all, as the funds are held within a charity.

"The Court has been given scant information about this charity and has heard nothing from it. In addition the applicant has declined, without any real explanation, to disclose the source of the $1.45 million invested through the hedge fund,” he concluded.