Appleby Resolution Offshore Newsletter Q1 2014
Post on 30-Mar-2016
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CONTENTS2 Banking Secrecy in the Cayman Islands4 Data Protection - A Warning to Bloggers! 6 Shareholder Disputes in the British Virgin Islands 8 International Tax Information Exchange in BermudaClarified10 How Can a Trustee Limit its Liability
TheConfidentialRelationships(Preservation)Lawwasintroduced in the Cayman Islands in 1976. There hadbeenaprevious1966Lawseekingtoestablishbanking secrecy, based on a piece of Bahamian legislation introduced the year before. In proposing the new legislation in 1976, the major concerns were firstly,thethenrecent FieldcaseintheUS(inwhichaCaymanbankerhadbeenservedwithasubpoenaatMiami Airport and was held in contempt for refusing to answer questions which would cause him to commit anoffenceintheCaymanIslandsunderthe1966Law)andsecondly,theactivitiesofforeigninvestigatorsontheIslands(seetheUSSupremeCourtdecisionofPayner 447US727foradiscussionoftheftsbyIRSagents in pursuit of information offshore around this time,aspartofOperationTradeWinds).
ThecurrentlawiscontainedintheConfidentialRelationships(Preservation)Law(2009Revision).TheLawcreatesoffencesof(1)divulgingconfidentialinformationor(2)attempting,offeringorthreateningtodivulgeconfidentialinformationor(3)wilfullyobtainingorattemptingtoobtainconfidentialinformation(Section5).Section3(2)setsoutthe8exceptions to the offence.
InApril2013,theFinancialServicesDivisionoftheGrand Court heard an in camera application which puttheConfidentialRelationships(Preservation)Lawback in the spotlight. A Magistrates Court in England had granted a Production Order against a London Bank pursuant to the Proceeds of Crime Act 2002. The application had been made in support of a money launderinginvestigationbytheMetropolitanPolice.
Section 4 of the Law expressly refers to the holder of the informations obligation to apply for directions wheretheyintend,orarerequired,togiveinevidencein, or in connection with, any proceeding being tried, inquired into or determined by any court, tribunal, or otherauthority(whetherwithinorwithouttheIslands)anyconfidentialinformationwithinthemeaningofthisLaw . The Judge found that in this case there was noproceedinginrespectofwhichtheconfidentialinformationconcernedwasrequiredtobegiveninevidence.
Production OrderThe Judge rejected a submission that the application for a Production Order was a preliminary or interlocutory matter arising out of any court proceeding,civilorcriminal(thedefinitionofproceeding set out in Section4(7)),findinginsteadthat:
It was clearly an application by the police for information held by the Bank to be produced to themforthepurposesoftheirinvestigations.Thereisnoevidencethatthatapplicationhasorinevitablywill lead to any other proceeding. The application havingbeengrantedthereisnolongeranycontinuing proceeding before the English court.
There was an attempt to persuade the Court that thepoliceinvestigationsthemselvesconstitutedaproceeding being inquired into by an other authority.
It was submitted that, by analogy, the Metropolitan Police may be regarded as performing a similar
secrecy being an important part of what those jurisdictions offer to businesses and individualswhousethem.Forexample,in2000,theUSTreasuryDepartmentissued
Cayman Islands: The Cayman Islands remains committed to strict bank secrecy, outside of a limited suspicious transaction reporting and international cooperation regime.
function in determining whether or not a person should be charged on the basis of material acquired by them. The Judge also rejected this submission as a step too far which would in effect amount to sanction of the acquisition by the police of a wide range of generalised materialthatisclearlyconfidential;ineffectsanctionofafishingexpedition.
Fundamental ObjectionsThe Judge ignored two more fundamental objections.Firstly that, in fact, the police in the UK do notdetermine whether a person is charged with the more seriouscriminaloffences(suchasmoneylaundering);this has been a role performed by the Crown ProsecutionServicesince2003and,secondly,thisveryargumenthadalreadybeenrejectedintheearliercase of In the Matter of Criminal Investigations by the Frankfurt PoliceCILR1,which(infairnesstotheJudge)doesnotappeartohavebeencitedtotheCourt.
AnargumentthattheBankcouldrelyonSection3(2)(b)(v)(i.e.thattheLawhasnoapplicationtoabankin any proceedings, cause or matter when and tothe extent to which it is reasonably necessary for theprotection of the banks interest, either as againstits customers or as against third parties in respect oftransactionsofthebankfor,orwith,itscustomer)was also rejected on the basis that the bank was not aparty to any proceedings in the UK in the sense requiredbythesection(followingRe BCCI Overseas LimitedCILR56).Beingarespondenttothe application for a Production Order was not sufficienttoengagetheSection3(2)(b)(v)exception.
The judgment in the case correctly applies the Law in relation to the arguments made, although it seems toleavetheUKpolicewithnoabilitytoinvestigatepotential money laundering. That does seem to be atoddswiththevariousreassurancesmadewhenthe Law was introduced that the Law is decidedly not intendedtoprotectcriminalactivity.
So what is the solution for the UK police in investigatingpotentialmoneylaunderingintheCaymanIslands?Oneanswerwouldhavebeentoseek mutual legal assistance from the Cayman Islands authorities. Consistent with the desire to retain local controloverinvestigationsbuttopermitthesamewhere appropriate, the Law sets out the following exceptionatSection3(2):
This Law has no application to the seeking, divulgingorobtainingofconfidentialinformation
(b)byorto;(iii)aconstableoftherankofInspectororabove,specificallyauthorisedbytheGovernorinthatbehalf,investigatinganoffencecommittedorallegedtohavebeencommittedoutside the Islands which offence, if committed in the Islands, would be an offence against its laws.
Apersonwhodivulgesanyconfidentialinformationorgivesanytestimonyinconformitywitharequestshall not be considered to commit an offence under theConfidentialRelationshipsPreservationLaw(2009Revision)byreasononlyofsuchdisclosureorthegivingofsuchtestimony.
Policy QuestionWhether the Law should be retained at all is a more difficultpolicyquestionandrequiressomeconsiderableanalysis of the future role of the offshore jurisdictions in a more connected world economy. There are certainlysomesigns,forexampleinthedevelopmentsrelating to tax information exchange agreements that the time may be approaching when banking secrecy legislation is seen as a relic from a bygone age and theLawhereisrepealed.However,forthemomentatleast,clientsandtheiradviserswillcontinuetograpple with problems such as that raised by the April 2013 application to the Grand Court, sometimes with considerabledifficulty.
the time may be approaching when banking secrecy legislation is seen as a relic from a bygone age
CONTACT Cayman Islands Sebastian SaidSenior AssociateLitigation&Insolvency+1 345 814 firstname.lastname@example.org
It further had to determine important subsidiary issues such as the on-going tension between the European Conventionrighttofreespeechontheonehand,andtheConventionrighttoprivacyandtherightsofindividualsundertheDPLontheother.ThecasealsoledtotheCourtprovidingfurtherguidanceandobservationsonthegoverningprinciplesinrelationtoinprivatehearingsreportingrestrictions,andcontempt of court issues.
High ProfileThecasewasrelativelyhighprofileintheIslandasitconcernedtheoperationbytheRespondentwhowasaformermemberoftheStatesofJersey(theJerseyParliament)andwhohadservedasamemberoftheJerseyGovernment.TheRespondenthasoperatedacertainblogsite(the Blog)inwhichherepeatedlyidentifiedanumberofindividualsandalleged they had amongst other things engaged in extremecriminalbehaviour.Certainoftheindividuals(theRepresentors)withtheassistanceoftheDataProtectionCommissioner,servedStopProcessingNoticesontheRespondentunderArticle10oftheDPLallegingthattheRespondentsactionsinconnectionwith the Blog were causing them substantial damage and distress, and requiring him to cease processing their personal data.
TheRespondentfailedtocomplywiththeNoticesandtheRepresentorsbroughttheproceedingsseekingordersthattheRespondentshouldceaseprocessingthe data and that the material already on the Blog should be deleted.
The Court ordered at an early stage that, not-withstanding the general importance of ensuring that proceedings in court take place in public, in the unusual circumstances of the case all the hearings shouldbeheldinprivate.TheCourtwassatisfiedthat
ifanypublicityweretobegiventothefactsofthecase, including the nature of the relief sought and the evidencegiven,thentheobjectoftheapplicationforinjunctivereliefwouldbedefeated.
The DPL extended to posts on blog sites. The CourtheldthatJerseylawshouldgiveawidemeaning to the term data to include information capturedand/orheldinaudiovisualandtextualfileformatsoncomputers.Sincepostsonblogsites were disseminated to others by computers and/or the internet it was held they fell within the scope of the DPL.
In determining public interest the Court had