International Trusts And Litigation: Asset Confiscation Orders And Asset Protection

The concept of the international asset protection trust can be traced back to the early 12th Century common law of England when the English Courts established the principle of ‘separation of ownership and control ’ in trusts. To recap, a trust is a legally binding arrangement whereby a person (the ‘settlor’) transfers legal ownership of property to certain chosen persons (the ‘trustees’) to be held for the benefit of persons named or defined by the settlor (the ‘beneficiaries’) .

Generally, this principle of separate ownership and control allows a trust’s settlor to transfer their legal ownership or interest in assets to a trustee, thereby relinquishing their beneficial ownership or interest in those assets (unless they are also a beneficiary of the trust). This separation between ownership and control of any assets forming the corpus of a trust fund has resulted in the development of asset protection trust legislation in several offshore centres since the mid-1980s and in some US states since the late 1990s. The Cook Islands and Nevis are among the most prominent and leading jurisdictions providing ‘gold standard’ international asset protection trusts which enable trust settlors to place assets beyond the reach of unforeseen future creditors. Unfortunately, some individuals have sought to exploit the legal protection afforded by asset protection trusts by attempting to use them to shield the proceeds of criminal activity.

The recent Privy Council ruling in Tan Chi Fang vs HMAG (Jersey) No 2 [2023] UKPC 21 has reiterated when assets forming the corpus of an offshore trust can be made subject to an asset freezing (or confiscation) order, writ of garnishment, interim/preliminary injunction, or equivalent order.

This case discusses the scope of two confiscation orders (known in Jersey as ‘saisies judiciaires’) granted by the Jersey Royal Court in 2013 and 2014 in respect of a Jersey-based trust called the Jasmine Investment Trust (the ‘Trust’) settled in 2004 by Mr RT (the ‘Settlor’). The Settlor and members of his family were discretionary beneficiaries of the Trust, and the trustee of the Trust was H1 Trust Company Ltd, a wholly owned subsidiary of Helm Trust Company Ltd, based in St Helier, Jersey (the ‘Trustee’). The Trust was discretionary in conventional form and governed by Jersey law. The Trust wholly owned a British Virgin Islands company, which was incorporated in 2004.

The Settlor’s assets were subject to confiscation orders pursuant to the Proceeds of Crime (Jersey) Law 1999 (‘POCL 1999’) following his conviction in Indonesia for offences of fraud and money laundering in 2014 and 2015. The confiscation order was extended to assets held by the Trustee and by the Trust’s underlying companies, including cash, shares and immovable property.

Among the Trust assets at the time the confiscation orders were granted, there was also an apartment located in the Cuscaden district of Singapore in which some of the beneficiaries of the Trust resided (the ‘Apartment’). The Apartment was subject to a charge in favor of Bank Credit Suisse SA in Singapore, as the mortgagee and the loan secured by that mortgage was in default. The confiscation orders also prohibited the Trustee from dealing with any realizable property of the Settlor held by it or transferred to it after the making of the saisies judiciaires, unless it did so at the direction of the Viscount (the chief officer of the Jersey Royal Court).

The Settlor originally applied to the Royal Court for an order releasing trust assets from the saisies judiciaires, arguing that the trust assets were not caught. The issue discussed was whether the Settlor was ‘beneficially entitled’ to all the assets of the Trust because he was a discretionary beneficiary of the Trust. The Royal Court held that a discretionary beneficiary is not entitled to the property that is the subject of the trust for this purpose.

The Settlor further raised the issue of jurisdiction, questioning whether the Jersey law pursuant to which the saisies judiciaires were granted by the Royal Court permitted the saisies judiciaires to be made in relation to property situated outside Jersey where the persons who could exercise rights of ownership or control of that property were subject to the jurisdiction of the Jersey courts. The Settlor argued that the saisies judiciaires ordered by the Jersey courts caught only assets within Jersey under the POCL 1999 and so did not catch the foreign-situated assets, particularly the Apartment, which was situated in Singapore and held through the BVI company owned by the Trust.

The Royal Court observed that Jersey has a very substantial trust industry, and the structure of the Trust was in the common form of a Jersey-based Trustee holding underlying assets situated abroad. Reference was made to the case of ‘re Kaplan (2009) JLR 88’, which concerned an application to discharge a saisie judiciaire made in relation to trust assets held by two companies that were registered and controlled in Jersey. However, the underlying assets were in Costa Rica and Switzerland. One of the grounds for seeking discharge was that the trust assets were not realizable property as they were not situated in Jersey. The Royal Court had rejected this ground but did discharge the saisie judiciaire as a matter of discretion.

It was recognized that countries like Singapore, the USA and France do not share Jersey’s trust business model, and it was unclear whether the possible exercise of the principle of ‘in personam’ jurisdiction arose or had been addressed. Accordingly, the Privy Council’s decision confirms that saisies judiciaires extend to properties outside Jersey.

In a sense, this judgement clarifies the ambiguity of the applicable or governing law or situs in the event of the involvement of multiple jurisdictions. As a matter of fact, this ruling establishes the jurisdiction of Jersey Courts to freeze and confiscate criminal proceeds, especially in such cases where foreign governments seek inter-governmental assistance. This reaffirms the government’s authority to take action against assets related to financial crimes beyond its borders.

To sum up, the Privy Council upheld that the Court had personal jurisdiction over the Trustee as well as over the directors and shareholders of the companies held within the Trust and could, therefore, prohibit them from dealing with any property without geographical limits.

This landmark case will be binding in many offshore trust jurisdictions and persuasive in others. It has made it clear that proceeds of criminal activity settled in an offshore trust are likely to be subject to confiscation orders made in the jurisdiction of the trustee which will be effective regardless of where trust assets are situated. It sends a clear message that any person seeking to exploit the asset protection laws offered by offshore trust jurisdictions for criminal purposes will not be successful.

Many offshore trust jurisdictions, the Cook Islands and Nevis among them, have implemented anti-money laundering legislation requiring trustees having any suspicion that trust proceeds may have derived from criminal activity to report the matter to the local authorities. Any trustee who fails to do so faces criminal penalties and a loss of their trustee licence. On receipt of a report, the financial authorities will generally apply to the local court to seek a freeze of trust assets pending further investigation, and will liaise with their counterparts in other affected jurisdictions as part of that investigation. This case helps to clarify the scope of such freezing orders and sends a message to fraudsters and money-launderers that offshore trust jurisdictions are closed for business.

If you wish to discuss the establishment or maintenance of a Cook Islands, Nevis or New Zealand Trust by a professional fiduciary, please get in touch with your regular Southpac contact or through our website: Contact Us.