Use it or lose it

Since 17 July 2017, Jersey banks have been able to close dormant bank accounts by depositing the account balance into a central fund – the Jersey Reclaim Fund – under the Dormant Bank Accounts (Jersey) Law 2017.

Any money that is not reclaimed from the fund is used for local charitable and social purposes. An account will be classified as dormant if, in the last 15 years, no transactions have been carried out by the holder of the account customer or there has been no communication with the customer in relation to the account.

But an account will not be deemed dormant even if these conditions are met if, under the terms and conditions of the account, either withdrawals were not permitted or there was a financial penalty or other disincentive for making a withdrawal from the account.

The legislation is retro-active, meaning that if an account satisfies the test for dormancy after July 2017, the new regime will apply regardless that the period of 15 years dormancy may have started well before the legislation was ever contemplated. Precious assets Banks are required to notify customers with dormant accounts three months before transferring account balances to the central fund.

The regime covers not just cash but also precious stones and metals (excluding jewellery) as well as deposit accounts. Non-sterling balances will be converted into sterling before the transfer, at a market mid-rate. Transfers to the Jersey Reclaim Fund are made annually in December. 

But what then? Once dormant funds are transferred to the Jersey Reclaim Fund, the customer has no right of recourse against the bank. But they do have a right of recourse against the minister who administers the fund to repayment of the sums transferred.

However, it is not possible to recover funds paid into the fund in specie. This means that if, for example, precious metals or stones have been paid to the Jersey Reclaim Fund, it is not possible to claim those same stones back.

The number and value of accounts that are deemed dormant or are approaching the 15-year threshold of dormancy in Jersey is unknown. In November 2019, it was confirmed that since the 2017 law was passed, money totalling £16.28m has been collected from 10,456 bank accounts in the Island.

The regime is designed to impact upon only those accounts in which funds were deposited long ago and effectively forgotten about. The scope of the law is directed at what otherwise might be described as inert assets: cash, precious stones and precious metals that are not, by their nature, productive.

The purpose of the law is to provide a mechanism whereby the assets that would otherwise remain inert and inactive are made productive by being applied to good local causes.

Given Jersey’s status as an international finance centre with banking customers all over the world, it may not be possible for the bank to trace all its customers if records have not been updated when, for example, the original account holder has died without leaving their heirs any information that the account exists.

Frozen not dormant A recent decision of the Jersey Royal Court highlights some practical issues for trustees where assets under administration are inactive, not because the accounts are dormant but because the accounts are effectively frozen.

AG v Allied Trust Company Limited [2020] JRC 020 concerns an application to approve a compromise agreement between the prosecution authorities of Jersey and a trustee for division of assets which had been effectively frozen having been deemed ‘tainted’. 

By way of background, the Forfeiture of Assets (Civil Proceedings) (Jersey) Law 2018 establishes a non-conviction based confiscation regime whereby the attorney general can serve a notice on the holder of an account held at a bank in Jersey (and the bank itself) where: 

• there are grounds to believe the property held in the bank account is tainted property; and
• there has been a ‘no-consent’ in place in relation to the account, following the filing of a suspicious activity report, for at least 12 months.

Property is tainted, without the need for any conviction, where it is suspected to be or have been:

• used in, or intended to be used in, unlawful conduct; or
• obtained in the course of, from the proceeds of, or in connection with, unlawful conduct.

Unlike in the UK, Jersey’s anti-money laundering (AML) regime does not provide for a prescribed period in which consent to deal with property that is the subject of a suspicious activity report (SAR) must be given. 

This can give rise to an indefinite effective freeze on property subject to a SAR where a financial institution will not take the risk of dealing with the account without police consent, and consent is withheld without there being any determination whether the suspicion in relation to the property is justified.

The possibility of a no-consent lasting longer than a year, so as to trigger the jurisdiction under the 2018 law, is not uncommon. Forfeiture The 2018 law sets out a summary procedure by which if the account holder does not attend a hearing, the court may make a forfeiture order without further notice.

If the account holder does appear, they are effectively required to persuade the court that the property is not tainted in order to avoid a forfeiture order. Property forfeited under the 2018 law is paid into a central fund, the Criminal Offences Confiscation Fund.

The way the 2018 law works is to place the burden of showing the legitimate provenance of funds onto the account holder, rather than placing the burden on the prosecuting authorities to show that the funds are not legitimate. 

There may be practical limits on the ability of account holders to obtain the necessary financial records from which the provenance of the funds can be justified. Funds may have been, for example, settled into trust many years ago, before the advent of the requirement for detailed information and record keeping on the source of funds.

It may be that the beneficiaries of trusts, who may be charities or descendants of the settlor have no idea where the money used to settle the trust came from; and are therefore not in a position to satisfy the burden placed upon them to show that the funds are legitimate.

The Allied Trust Company Limited case concerned the jurisdiction of the Royal Court to approve a compromise between the attorney general of Jersey and the trustee concerning what was to happen to the trust funds that had been deemed tainted.

The Royal Court made clear that the purpose of the 2018 law is not to increase the value of the Criminal Offences Confiscation Fund. It follows that an accretion of monies to the fund is not a precondition of the court’s approval of a compromise under the law, although the court acknowledged that the public interest undoubtedly includes the desirability of an accretion to that fund.

The 2018 law potentially poses difficult issues for trustees who are not proactive or able to establish the provenance of the funds they hold. A trustee stands to effectively lose the trust assets to the fund if they are not able to establish that the funds are not tainted.

To the extent that the trustee does not have sufficient information on the provenance of the funds it holds, where the trustee has made a SAR and an investigation into the funds is ongoing, the risk of committing a tipping off offence could conceivably hamper the ability of a trustee to notify the beneficiaries to obtain that information for the purposes of persuading the authorities to lift a no-consent.

The court in Allied Trustees was clear that in approving a compromise under the 2018 law it is not sitting as a Beddoe court (a court that approves steps a trustee may take in relation to civil proceedings, including the approval of any compromise of those proceedings). Beddoe court Any compromise a trustee is able to reach is not endorsed by the court in the same way that a Beddoe court would.

The court does not give the trustee any confirmation that in the exercise of its powers as trustee to make the compromise it has acted appropriately. It follows that a trustee is not protected from the wrath of its beneficiaries in reaching a compromise which, as in the Allied Trustees case, saw 65 per cent of the trust fund ‘lost’.

It should be possible for a trustee to convene a Beddoe hearing to obtain the court’s approval of a compromise. Notifying the beneficiaries of such a hearing is unlikely to engage the tipping-off offences, which are premised upon there being an ongoing investigation which tipping-off might harm. 

At least a year will have passed by the time a forfeiture application is made. At that point, any investigation may well have concluded, but in any event it should be possible to obtain consent from the relevant authorities to inform the beneficiaries.

It is unlikely that the attorney general of Jersey would move to forfeit funds as tainted that are subject to ongoing investigation, even if a no-consent has continued for more than 12 months.

A pending investigation is likely to be accompanied by a saisie judiciaire which effectively freezes the funds in Jersey, avoiding the risk of dissipation (which is what the anti-tipping off offences are principally directed at avoiding).

Commonality Evidently, while these two regimes are directed at separate issues, what they have in common is that leaving assets dormant in Jersey places them at risk of loss. It remains to be seen whether the recent expansion of the UK’s dormant asset scheme to cover different classes of assets will be replicated in Jersey. 

On the civil forfeiture side, the risk of a trustee doing nothing to establish the provenance of funds they hold is that they risk losing them if they are deemed tainted.  

James Sheedy is a barrister and Jersey advocate at Baker & Partners bakerandpartners.com