Introduction
A recent judgment1 of the Royal Court casts light on the Island’s conviction-based confiscation regime at a time when the States of Jersey is busy sharpening the claws of Jersey’s investigatory and prosecutorial authorities in relation to its civil, non-conviction based, asset forfeiture framework.
The judgment contains an interesting tale of a cross-border, multi-million dollar criminal conspiracy involving South African rock lobster, Patagonian toothfish, bribery and smuggling. Perhaps regrettably then, this author’s focus is the slightly more prosaic issue of what constitutes “realisable property” for the purposes of the domestic proceeds of crime legislation.2
The judgment highlights some of the difficulties facing the Jersey Court when seeking to balance the interests of an overseas jurisdiction in safeguarding and recovering the proceeds of crime and the interests of persons holding property not to have such property frozen without good cause.
Background
At the centre of the case is Arnold Bengis, formerly the owner and controller of a substantial fishing business in South Africa, Hout Bay Fishing Industries (Pty) Limited (“Hout Bay”). Hout Bay was involved in a conspiracy to overfish vast amounts of rock lobster in South African waters – a species protected by quota – in contravention of conservation laws, and of the bribing of fishery control officers. The illegally harvested fish were then transported to the United States and sold through two US companies controlled by Mr Bengis. The proceeds of this enterprise ultimately found their way into bank accounts with SG Hambros in Jersey held by two Virgin Islands and one Cypriot company connected through trust structures to Mr Bengis and his family (“the Companies”).3
Hout Bay was convicted in South Africa in 2002 in respect of the overfishing and bribery. Mr Bengis pleaded guilty in 2003 to charges brought in the Southern District Court of New York of conspiracy to violate the Lacey Act, which prohibits the trade of fish taken in violation of foreign law, and conspiracy to commit smuggling . This led to a forfeiture order (the equivalent of a confiscation order in Jersey) in the sum of US$5.9 million, which he paid, and a jail sentence of 46 months, which he served. Significantly, the plea agreement was stated to be without prejudice to any restitution order (a compensation order in this jurisdiction) that the court might make.
Following a ruling of the New York Court of Appeals in 2011 that South Africa had a property interest in the illegally harvested lobster, in 2013 Mr Bengis and his co-conspirators were ordered to repay US$22.5 million to South Africa by way of restitution. Mr Bengis failed to comply with this order. Under US law, where a defendant is in default in respect of a restitution order he may be re-sentenced. That is what happened. On 19 July 2017 Mr Bengis was re-sentenced; his jail term was increased to 57 months (he has not served the extra 11 months because he does not live in the US) and an additional forfeiture order was made in the amount of US$37 million. In relation to this forfeiture order, on 28 July 2017 a saisie judiciaire (restraint order) was granted by the Royal Court in respect of the Companies’ bank accounts at SG Hambros.
The Decision
First Trust, a Liechtenstein company and trustee of the trusts which hold the Companies, applied for the saisie to be lifted. The Royal Court dismissed the application. Of particular interest is the Court’s finding that there were reasonable prospects of a specified property external confiscation order4 (ECO) being made, that is to say an order which specifies the property in the accounts of the Companies.
The Royal Court accepted that the evidence presented by the Attorney General was “incomplete”. The New York District Attorney’s (NYDA) office could only say that it was “hopeful” of demonstrating, in due course, that the proceeds of Mr Bengis’s offending in the US were traceable to the funds in the accounts of the Companies at SG Hambros. There was, further, an acknowledgement by the NYDA that the funds from Mr Bengis’s offences in the US were “commingled” with the funds in the accounts of the Companies. This, said counsel for First Trust, suggested that even the US government did not expect to show that all the monies in the accounts were the proceeds of offending.
The Court, however, was of the opinion that there were reasonable prospects of a specified property ECO being obtained. It did so largely by reference to evidence comprising the internal records and KYC documentation of Pearl Investment Trading Limited, a BVI company and the only one of the Companies to hold substantial assets. Those records indicated that Mr Bengis was the source of the funds and that they came from Icebrand Seafoods, which had sold the illegally harvested lobster in the US. The Court also noted that it was open to it to draw inferences where a prima facie case is raised and the defendant fails to produce any evidence to rebut it.5 No evidence had been served on behalf of the Companies to show that the funds in the accounts at SG Hambros are not the proceeds of any criminal offending, alternatively that they are the proceeds of Icebrand’s substantial legitimate business.
Realisable Property and the Court’s Saisie Jurisdiction
The issue of what is (or might be) and what is not “realisable property” for the purposes of the legislation matters a great deal. That is because the effect of a saisie is to vest in the Viscount all the realisable property of a person in respect of whom an ECO has been made (or may be made). To put it another way, the property ceases to belong to that person.
The categories of property falling within the definition of realisable property were extended by the Modified Law to include any property that is specified in an ECO. As the Royal Court has previously recognised6, this presents the potential for injustice. It does so because it leaves the door open for a saisie to be granted in circumstances whereby the property (1) is not held by the defendant, (2) is not held by the donee of a “tainted” gift made by the defendant and (3) is property to which the defendant is not beneficially entitled.
Sometimes a defendant’s realisable property can be easily ascertained, such as a bank account in Jersey in the defendant’s name. The difficulties arise, as is alleged in the present case, when the assets are laundered through a complex structure, or mixed with other funds from potentially legitimate sources.
The power to restrain property is a severe one and it is axiomatic that such order must find strong justification in the facts. But that justification seemingly need not necessarily be premised on cogent evidence, at least at the stage when the Court is considering whether to grant, or maintain, the saisie itself. At this stage, as Commissioner Birt observes7, the Court does not have to establish definitively whether property is realisable property for the purposes of the Modified Law, as it would have to do on an application to register an ECO.
Conclusion
The judgment serves as an illustration of the difficulties faced by a party seeking to discharge a saisie judiciaire imposed by the Court in respect of property that is likely to become subject to an ECO. The Court may well uphold a saisie even where there is some doubt over what will ultimately be found to constitute realisable property. It is suggested, therefore, that any application on the merits might be better delayed until the hearing to register the ECO. By that stage, the Court will need to be satisfied that registration of the ECO is not contrary to the interests of justice and detailed evidence of the movement of monies, traceable to the proceeds of crime, will need to be provided.
As an aside, and as a further safeguard of a defendant’s rights, the Court noted its obligation to discharge a saisie in circumstances where proceedings have not been instituted within a reasonable time. This reflects the attempts of the legislature to strike a balance between the rights of a person against whom no prosecution has yet been brought or conviction obtained to be able to deal with his assets and the need to preserve assets in the event that a conviction is ultimately secured and confiscation order granted. The Court suggests that a similar approach should in fact be taken where proceedings have been instituted but there is unreasonable delay in progressing the matter in the overseas jurisdiction.8 The point was pertinent as it is now nearly 18 years since Mr Bengis was originally sentenced and the forfeiture order imposed in the US.
It is little wonder he seems unlikely to crawl out from under his shell after all this time…
By Phillip Brown, Associate
1 First Trust Management Limited AG v The Attorney General [2018] JRC 064
2 Regulations introduced in Jersey in 2008 (Proceeds of Crime (Enforcement of Confiscation Orders) (Jersey) Regulations 2008) modified the Proceeds of Crime (Jersey) Law 1999 (the 1999 Law) in its application to confiscation orders made outside Jersey. The 1999 Law as modified (“the Modified Law”) is set out in the Schedule to the 2008 Regulations.
3 It is noteworthy that in 2017 the Companies brought an action against SG Hambros, which had refused – in purported compliance with a restraint order made by the US District Court – to act on the Companies’ instructions to pay funds away to an account in Switzerland. The judgment is reported at [2017] JRC 122 and contains background which is relevant to Commissioner Birt’s analysis of the issues in the present case.
4 An order made by an overseas court for the purposes of (a) recovering property obtained as a result of or in connection with criminal conduct, (b) recovering the value of property so obtained or (c) depriving a person of a pecuniary advantage so obtained.
5 Citing Prest v Prest [2013] 2 AC 415 and Durant International Corporation v Brazil [2013] (1) JLR 273
6 See, for example, Tantular v AG [2014] JRC 243
7 Paras 56-57
8 Paras 122-123