A recent decision from the Royal Court of Guernsey in L, M, N & Mrs B v Credit Suisse AG  GRC026 sheds light on the difficulties of tracing and investigating the provenance of an inheritance bequeathed by someone accused post-mortem of criminal offences. How do you – the innocent beneficiary – prove that your inheritance is not the proceeds of crime?
The patriarch of the family in question, a “Mr B”, founded a commodities trading business that rapidly expanded internationally becoming what Judge Marshall KC described as “one of the largest companies in the world”. After Mr B passed away in 2015, the plaintiffs – the three adult children of Mr B as well as his wife, Mrs B – set up accounts in the Guernsey branch of Credit Suisse for the purposes of distributing their inheritance from Mr B’s estate. Five accounts were set up over the course of 2017 (the “Accounts”). One a joint account held by all the plaintiffs and four separate accounts which they owned individually.
Between 2017 and 2021 Credit Suisse executed a number of transfers out of the Accounts at the direction of the plaintiffs but by August 2021 the bank, without prior warning, ceased to execute any further transactions. There remained all told US$90 million in the Accounts. After months of inquiries, Credit Suisse eventually confirmed that they could not make the transfers due to “legal and regulatory requirements”. This was cryptic speak by which the plaintiffs’ lawyers knew meant there was an anti-money-laundering issue.
The “real” reason however was not revealed to them until they issued an action against the bank, who at last disclosed in its defence that it was unable to comply with the plaintiffs’ instructions because after submitting what is known as a suspicious activity report (“SAR”) to the Financial Investigations Unit (the “FIU”), the relevant authority in Guernsey, it was directed to not make the requested transfers.
In short, Mr B’s consortium of companies had been accused in a foreign (and undisclosed) country, “Country Z”, of being involved in an international criminal conspiracy concerning the bribery of officials for the purposes of winning public contracts. This was the subject of a large civil action within Country Z which had, by the time of these proceedings, not yet concluded.
As expressed by Judge Marhsall KC in his judgment, there is much sympathy to be had both for the innocent customer and the bank. This is down to the landscape of the anti-money laundering and proceeds of crime legislation in Guernsey which is broadly similar to the legislative regime within England and Wales.
Both in England and Guernsey, the bank’s obligations are essentially as follows:
- On the one hand, it has a contractual duty to its customers to fulfil their instructions;
- But, on the other, it has obligations owed to the relevant authorities to not just report its knowledge and suspicions over the provenance of the funds it holds by way of a SAR but to, of course, not in any way dispose of those assets as and until the relevant authority has either consented or not consented to the making of the requested transfer;
- If the bank:
- fails to make a disclosure by way of a SAR promptly, it is liable to commit a criminal offence;
- in any way facilitates the transfer or dealing of the assets which the bank knows or suspects is the subject of money laundering or the proceeds of crime, it is a criminal offence; and
- tips-off – whether inadvertently or deliberately – the customer by revealing its knowledge or suspicions or the filing of an SAR which then, in any way, prejudices the investigation the authorities are conducting, it is also a criminal offence.
In effect, the only recourse the bank has, which under the relevant English and Guernsey legislation gives it the ability to lawfully execute the mandate of its customers, is to wait for the FIU (or in England, the National Crime Agency) to carry out its investigation and confirm whether it consents to the bank making the requested transfer or not.
But here is where the banks have been particularly exposed. If the relevant authority is not forthcoming in makings its decision, and the assets which the bank holds were intended to be used as an investment, should it be liable for the customer’s losses if that investment opportunity is gone or is made worse by the time the relevant authority concludes its investigation and ultimately consents to the transfer?
The delay can and does expose the banks to such litigation in which the damages claimed against them can be considerable. In Shah -v- HSBC Private Bank (UK) Limited  EWCA Civ 31 heard before the English Court of Appeal the claim exceeded US$300 million and as the Court ruled it was not necessarily an adequate defence, for the purposes of entering summary judgment, to simply say that the bank had been awaiting the decision of the relevant authorities.
On this issue however, there is a material distinction between the English and Guernsey legislative regimes. Whereas in England the National Crime Agency has 31 days by which it essentially must decide whether it consents to the bank making the relevant transfer or not, in Guernsey the FIU is under no such time pressure. Although this may give some comfort to English-based banks and financial institutions, frankly, however the length of the delay, it still does not completely shield them from potential claims by aggrieved customers. Shah, again, was a claim that progressed through the English courts.
Speaking of those customers, they too are stuck between a rock and a hard place:
- Following the case of Chief Officer of Customs & Excise v Garnet [2011-12] GLR 250 – a Guernsey decision – it is now well-established that a judicial review application of the relevant authorities’ decision is not the correct ‘claim’ to make. The customer must instead bring a “private law action” directly against the bank.
- But this puts the customer at a unique disadvantage: the customer is strikingly ill-equipped to prove that the provenance of his inheritance is not the proceeds of crime.
- He does not have the resources or visibility that the relevant authority (who directed the Bank to not make the transfer) would have; and
- Having (in the paradigm case) no involvement or knowledge of the alleged criminal activity, he also has little ability to deny that the crime as alleged occurred.
The customer’s plight is best illustrated by the Guernsey decision of Liang -v- RBC Trustees (Guernsey) Ltd (Royal Court of Guernsey – 20/2018) where the Judge had such sympathy for the aggrieved customer that, after being dissuaded by the documentary evidence she initially provided, granted her a further opportunity to come back with supplemental information to try and prove that the funds she was entitled to under a trust were not tainted by the alleged criminal conduct of her estranged husband. It was only at this second attempt that she proved successful.
Fortunately, the plaintiffs in this case did not have as torrid a time as the plaintiff in Liang. The Judge in this case was persuaded that the plaintiffs’ inheritance was not tainted by the alleged criminal conduct of Mr B and his companies.
This was not, however, necessarily because the plaintiffs had shown a break in the causal link between the funds they inherited, and the profits generated by the contracts allegedly won by Mr B’s commodities business through bribery and corruption.
The Judge instead drew a distinction between, on the one hand, sufficiently proving that the assets in question were separate from the proceeds of the alleged crime and, on the other, accepting that while there may be a causal link between the criminal act and the assets in question there still comes an (as he admitted) unidentifiable point in which those assets, having been repeatedly converted, cannot be properly said to represent the proceeds of crime:
The upshot, in my judgment, though, is that there must come a point, in considering any particular potential trail of “representation” of the identified “proceeds of criminal conduct”, where the combination of factual circumstances of time lapse (not sufficient on its own) and the number and nature of the transactions to which the wrong-doer’s proceeds of criminal conduct have been subject, possibly (according to the facts of the case) in combination also with any relationship between the wrongdoer and the person with the apparent legal title to the supposedly “representative” assets, gives rise to the common-sense impression that the relevant asset or funds in the hands of their present beneficial owner cannot fairly be said to “represent”…the “proceeds” of the relevant wrongdoing.
This reasoning is perhaps an olive branch to the aggrieved customer stuck between a rock and a hard place. But it is, in my view, an imperfect one.
The exercise of tracing the profits of criminal wrongdoing to draw a distinction between a legitimate or illegitimate inheritance is akin to (although by no means identical to) the exercise of tracing one’s proprietary interest across fungible assets misappropriated by an alleged fraudster. To what extent the Judge’s reasoning diverges from this and the basis on which it rightly should is at this early stage unclear. But there is the danger that the Judge’s reasoning could be conflated and used to support a rather uncomfortable proposition: that because one’s inheritance or trust assets have been sufficiently comingled with the legitimate and illegitimate, or because the alleged criminal proceeds have been diluted by being converted numerous times, there is no way to determine whether the assets in their present state are truly the proceeds of crime.
While there may be cases where that is genuinely the case, there is a danger that by not actively involving the crime agencies of these jurisdictions in the claims that are brought against the banks the Courts may lack some of the key documentary evidence that could in fact determine the issue.
A full copy of the judgment can be found here.
Written by Alexander Farara
 In Guernsey, s.1 of the Disclosure (Bailiwick of Guernsey) Law 2007 and in England, s.330 of the Proceeds of Crime Act 2002
 In Guernsey, ss.38 to 40 of the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law 1999 and in England, ss.327 to 329 of the Proceeds of Crime Act 2002
 In Guernsey, s.4 of the Disclosure (Bailiwick of Guernsey) Law 2007 and s.41 of the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law 1999 and in England, s.333 of the Proceeds of Crime Act 2002