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Tainted trust assets held in limbo and impede termination of the trust

In a recent decision of the Royal Court of Guernsey (Liang v RBC Trustees (Guernsey) Limited), the Court considered for the first time, the consequences of there being “no consent” from the law enforcement agency for a proposed transaction (for the trust to be terminated and its assets distributed to the Plaintiff who was a beneficiary and who claimed to be the economic settlor) under the legislative regime for anti-money laundering (AML), which resulted in there being a trial of a private law action between the Plaintiff claiming the assets (being the subject of a suspicious activity report) and the Defendant trustee (who adopted a neutral position) holding those assets.

The Court determined that the trustee held a valid suspicion and that the Plaintiff’s “rather sketchy” evidence did not establish the provenance of all the source of funds in the trust. Accordingly, the Court dismissed the Plaintiff’s action, including for a declaration that all the assets were her assets.

In dismissing the relief sought, the Court set out the test for suspicion, as follows:

“…the Defendant bears the burden, on the balance of probabilities, of satisfying me that there are still relevant facts on which to base the suspicion about the source of the funds in the Trust, where there is more than a fanciful possibility that those funds are the proceeds of criminal conduct. Further, for a valid suspicion to be held, it must go beyond mere general mistrust. If the Defendant fails to establish that suspicion exists, it follows that the Plaintiff is entitled to succeed. However, if suspicion is established, the Court moves on to consider the provenance of the funds.”

The Court also explained the shift in the burden between suspicion and provenance of the source of funds whereby it is for the Plaintiff to prove that the suspicion is unfounded because the source of funds is not tainted in the manner believed or suspected.

This case is likely to be persuasive in other offshore centres, such as the BVI and Cayman Islands where similar AML regimes are in place.

 

Rig

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