Lost Trust: Leaked Files Expose Jersey’s Inaction On Fraud Scandal

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A trove of documents passed to the EIC reveals the inner workings of the island’s trust industry.

Jersey’s population is no bigger than that of Dover. And yet companies and people on the Channel Island invest more money into the UK than those in China or Germany – £112bn a year.

It has £1 trillion sitting in its trusts, companies, funds and foundations, according to a report commissioned by Jersey’s finance lobby group, and much of this is pumped into London. With so much money under its domain, Jersey has staked its reputation on being a better-regulated and more transparent tax haven than other offshore jurisdictions.

A huge leak of secret files from a prominent Jersey trust company tells a different story. The 350,000 pages of internal records show that over the span of several decades from the early 1980s the La Hougue group advised numerous clients, many of them based in the UK, on how to minimise their taxes, both through legal avoidance measures and occasionally bordering on tax evasion.

But behind the scenes, it used client money for personal expenses by borrowing from clients under the guise of investments and onboarding new clients to repay the existing ones. It sometimes fabricated paper trails, for itself and for clients, some former trustees admitted in a US court. All of these are breaches of trust law.

In one instance it helped a Canadian company evade a CA$10m tax bill by engineering a fake bankruptcy, the records show.

Many of its practices were so rotten that when La Hougue’s executives moved its operations to a new sister company in Panama, the regulator there banned the firm, fearing it could tarnish the country’s “good name”. A US court sanctioned the then managing director for perjury and the SEC secured a $58m fine against his deputy for an unrelated stock fraud. La Hougue said many of the allegations put to it by the Bureau were “blatantly false”, without detailing what the supposed errors were, and said the truth would be established before the courts.

Jersey Offshore

Despite the allegations made against La Hougue, Jersey’s authorities are believed not to have taken any action, despite being handed some of the documents and details of the accusations.

The Bureau’s investigation raises serious questions over Jersey’s ability to adequately police its finance industry.

Lawyers from a handful of firms advise the biggest trust companies on their dealings, with some then rising to become judges or other senior figures in the establishment. All four of Jersey’s current crown officers, who run the courts and lead prosecutions, previously worked for law firms whose bread and butter includes helping trust companies. Because Jersey is the size of a small town, it is not uncommon for judges to end up presiding over cases in which they, knowingly or not, have in the past done some work for one of the parties. Three of the judges presiding over civil lawsuits against La Hougue in recent years had done work for the firm or trusts connected to it as commercial lawyers for Ogier, a Jersey law firm, albeit many years earlier.

John Christensen, the director and chairman of Tax Justice Network, a research and campaign group told the Bureau: “Most of the key players are partners from law firms or former partners who go on to positions of power in the judiciary.”

It is not suggested any judge has acted inappropriately.

The UK government’s responsibility for Jersey’s integrity is well established. Although as a Crown Dependency Jersey runs its own administration, a royal commission in 1973 concluded that the UK bears ultimate responsibility for its “good government”. In 2017, Lord Eatwell, who was then chairman of the Jersey Financial Services Commission, bragged that the island’s register of beneficial company owners was superior to that of the UK – although unlike the UK’s register, it is not public. Crown Dependencies have agreed to resolve this by 2023.

There are plenty of examples of how Jersey has remained a favourite destination for suspicious funds. In April, Israel’s largest bank pleaded guilty in the US to conspiring to hide $7.6bn in US taxpayer money, in part by using a Jersey subsidiary to establish offshore corporations and trusts. Last year, Lloyds Banking Group reportedly froze 8,000 offshore bank accounts in Jersey, because customers had not provided enough information to confirm their identity.“In my view, Jersey’s authorities have shown quite clearly that they don’t come near to regulating their finance industry properly.”​

“Jersey, as a tax haven, is a key player in the world of finance, particularly for the City of London,” the former Labour minister Margaret Hodge told the Bureau. “In my view, Jersey’s authorities have shown quite clearly that they don’t come near to regulating their finance industry properly and therefore could have facilitated not just aggressive tax avoidance, but tax evasion and money laundering too.”

In a 2018 report, the House of Commons foreign affairs committee warned that the amount of dirty money entering the UK via Overseas Territories and Crown Dependencies posed a national security threat.

“Trusts were designed to facilitate tax avoidance, a widely accepted financial strategy that reduces or eliminates the paying of taxes,” said Gregory Coleman, a former FBI agent who took down Jordan Belfort, the stock market fraudster depicted in The Wolf of Wall Street. He believes that more recently some “unscrupulous lawyers, accountants and advisors have found a way to make money by misusing trusts to create layers of ownership and control that are designed to disguise who’s ultimately behind everything”.

The driveway up to the manor, flanked by a lion statue

Franz Wild

Into the lion’s den

La Hougue was run for a period from St John’s Manor, the grandiose home of John W Dick, 82, a Canadian who made his fortune in US real estate before moving to Jersey and establishing the trust business in 1984.

The clients: Elliott Bernerd

Among the richest people in Britain and the former owner of London’s Camden market, his property company Chelsfield now has developments in some of the world’s most sought-after neighbourhoods. A former business associate of John Dick from the mid-1980s, the files reveal that, by 2000, Bernerd was a client of La Hougue.

Over time, the company attracted an illustrious list of clients including the London property tycoon Elliott Bernerd, former Glencore commodities executive Igor Vishnevskiy and Roman Abramovich’s former father-in-law Alexander Zhukov. James Archer, son of the disgraced MP Jeffrey Archer, had two accounts. There is no suggestion these clients were themselves involved in any illegal activity or had any knowledge of La Hougue’s practices.

Numerous foreign and local dignitaries visited St John’s Manor, passing a giant lion statue guarding the gate and strolling around the 58-acre grounds to visit the swan lake, the stables or the chapel. Rwanda’s President Paul Kagame visited more than once, dining on lime chicken.

Jersey’s chief minister visited Dick there as recently as 2017, according to a register of interests released after a Freedom of Information Act request. (There is no suggestion of any wrongdoing against the chief minister.)

In 2014 Dick’s Jersey lawyers wrote that “Mr Dick was the beneficial owner of the La Hougue entities (“La Hougue”)”. In 2020 his London lawyers told the Bureau they had been instructed to say that this was not the case.

Dick’s reputation won him a place on the board of telecommunications giant Liberty Global Plc, the owner of Virgin Media, a position he still holds, and he was named Rwanda’s honorary consul to Jersey.

But in 2014, Dick’s daughter Tanya Dick-Stock discovered more than 300 boxes of internal La Hougue records stacked in a squash court on the St John’s Manor grounds. During US court proceedings against La Hougue and her father, whom she now accuses of defrauding trusts meant to support her and her brother, she gave access to the documents to European Investigative Collaborations, a journalism collective based in Germany, which shared them with nine partners in Europe and Canada, including the Bureau in the UK.

Her father denies her allegations. His lawyers told the Bureau in a statement: “John Dick, members of his family and many clients of La Hougue are victims of fraud and criminal conduct carried out over many years. John Dick refutes entirely any suggestion of wrong-doing. John Dick is a victim, not the perpetrator.”

La Hougue’s internal filings appear to show that some former trustees on occasion offered clients a creative mix of ways to discreetly move their money across borders, often with the purpose of avoiding tax.St John’s ManorFranz WildThe grounds of the manor houseFranz Wild

One document included in the filings is a client pitch that detailed 11 ways to move assets offshore, including property investments in Mexico, deliberate foreclosure on a mortgage and being paid consultancy fees via separate businesses. All are methods used for tax avoidance and some could be utilised for tax evasion, experts told the Bureau. A US court found that La Hougue had also forged backdated documents to help one of its clients win a case against the Canadian tax authorities.

Evasion and avoidance

Find out how La Hougue advised clients on moving money off-shore

Ray Blake, a compliance specialist who has advised major banks and who has examined some of the La Hougue documents, expressed concerns to the Bureau that in his opinion some of the methods could be exploited for tax evasion as well as avoidance.

In June 2002, the Jersey Financial Services Commission (JFSC), the financial regulator, conducted an inspection of La Hougue, after new rules meant the firm had to obtain a licence. The inspectors threatened to refuse the license because of “serious” shortcomings, according to a letter seen by the Bureau, in which the JFSC listed its concerns:

  • The firm had left out relevant entities from the application.
  • Its loans business had conflicts of interest.
  • Loans were not properly recorded.
  • La Hougue did not have the right documentation showing who was receiving loans.
  • Customers were referred to by codes, meaning administrators could not spot inappropriate transactions between them.

The clients: Igor Vishnevskiy

Vishnevskiy split his time between London and Moscow as the head of Glencore’s Russian operations. He was introduced to La Hougue by Dick in 2003, shortly before leaving the company, when the two bought a Los Angeles factory that built, modified and restored expensive cars. At great expense, they shipped the factory to Jersey; less than 18 months later it closed. Vishnevskiy has also maintained an interest in mining, particularly in Africa, where Dick made introductions through his connections in Rwanda.

Moreover, essential information about the clients was stored in a locked room, which could only be accessed with two different keys, meaning the compliance officer did not have access without the managing director, Richard Wigley.

“There is no doubt your system is extremely unusual and varies significantly from accepted industry best practice,” a JFSC official noted in a follow-up letter. By February 2003, the regulator still had not approved the license, writing: “The commission remains concerned at La Hougue’s willingness to continue the above-mentioned practices.”

But La Hougue responded with a severe letter accusing the JFSC of damaging its reputation with a client base the company had spent more than 19 years cultivating. A week later the regulator approved the licence, but noted that it remained on a list of “higher risk” institutions.

In 2007, La Hougue, fearing the burden of tighter regulation in Jersey, moved the trusts to Panama, naming the new company Pantrust International SA. After the financial crisis struck the next year, Tanya Dick-Stock learnt that trusts meant to support her and her extended family had run dry. She and her husband Darrin Stock launched legal proceedings in the US to try to recover control over the trusts. (Darrin Stock himself vehemently denies unrelated allegations of fraud in the US and says he is challenging a bill for unpaid taxes there.)

The couple also urged regulators in Panama to investigate. In December 2014, Panama’s superintendent of banking banned Pantrust. In its report it said Pantrust International was “exercising the trust business in a harmful manner, hazardous to the public interest, its customers, and to the detriment of the good name of the financial centre hosted in this jurisdiction”.

The clients: Alexander Zhukov

When Italian police arrested the Russian billionaire in 2001 on suspicion of being part of a weapons smuggling ring (he was later acquitted), they believed the financial centre of his global empire was Jersey. Zhukov, formerly father-in-law to Roman Abramovich, has a long history of using offshore trusts. Millions of dollars flowed through his four companies run by La Hougue. They parted ways in 2008. At the time, La Hougue manager Richard Wigley said he was “very upset to lose the business”.

Dick-Stock then handed the La Hougue files to the Jersey police, as well as court documents detailing various admissions by some La Hougue executives during proceedings. After initial inquiries, the police handed the files to a new firm appointed to look after La Hougue’s affairs, with an invitation to come back if an audit uncovered criminal wrongdoing. Separately, in 2018, the police opened an investigation into a small number of the transactions. However, it was decided this summer that there was no realistic prospect of a successful prosecution based on the available evidence, according to a letter informing Dick-Stock’s accountants of the decision.

The JFSC said it was unable to comment publicly on Dick-Stock’s allegations, but said it took “any allegation of breaches of our regulatory requirements very seriously and will investigate fully all credible and substantial allegations”.

This is all too familiar for John Christensen. He was the economic adviser to Jersey’s government in the 1980s and 1990s and remembers La Hougue as a large trust company that, in his opinion, was not prioritised for scrutiny, despite the obvious risks of potential malfeasance around any trust company.

“John Dick was definitely on the radar. He was a big fish, because he appeared to be so wealthy and powerful,” Christensen told the Bureau.

Big fish, small pond

La Hougue’s experience in the courts illustrates how Jersey’s small size makes it possible for a group of lawyers to end up ruling on matters relating to companies or trusts they may have acted for decades earlier. Three judges presiding over cases related to La Hougue had previously advised the firm in their previous roles at Ogier, a Jersey law firm.

When Dick-Stock initially filed a civil fraud suit against one of the former La Hougue trustees in the US in 2013, it emerged that the judge in a connected case in Jersey, Julian Clyde-Smith, was a founding member of La Hougue and its successor, according to La Hougue internal filings shared with the Bureau.“The judiciary itself is captured by the finance industry.”

As a Jersey lawyer, Clyde-Smith set up La Hougue entities and set up a key company on behalf of the firm in the 1980s and 1990s, according to the same set of documents. He ruled against Dick-Stock on a significant point regarding money that one of the disputed trusts supposedly owed to La Hougue for a loan. The former trustees who arranged the loan had also been directors of La Hougue, essentially handling both sides of the deal, and the arrangement was made to pay a secured loan that they admitted to obtaining fraudulently using forged documents.

Clyde-Smith told the Bureau he had no conflict of interest during Dick-Stock’s case. He added that he had no recollection of work done for La Hougue, and it was standard practice at Ogier for any of four lawyers there to sign articles of incorporation, “as a matter of administrative convenience”.

The clients: James Archer

He rose to notoriety as one of the five “Flaming Ferraris”, a group of young hotshot London property traders known for landing big deals in the 1990s. He was later fired from his job at Credit Suisse First Boston after attempting to manipulate the market. Two years later, his father was imprisoned for perjury and perverting the course of justice. By 2007, James was a client of La Hougue. He was the ultimate beneficial owner of two companies, The Octagon Financial Trust and Trinity Financial Management Limited. Archer said he had no idea that La Hougue was alleged to be involved in tax evasion, money laundering or fraud.

In 2016, the standing of the former trustees, who were sued in Colorado, was decimated in the US cases. They were forced to admit to having forged millions of dollars’ worth of backdated loan notes which they had used as the basis of their countersuits. The US court, which described the violations as “truly egregious,” sanctioned them for perjury.

Although the former trustees tried to use the same loan notes which had been found to have been fabricated in the US proceedings against Dick-Stock in Jersey, the consequences there were less severe. The judge, Matthew Thompson, who was also a former Ogier lawyer who had advised La Hougue in a previous role, excluded the loan notes from being used in proceedings.

Thompson gave legal advice to La Hougue’s trustees in 2002 when the US tax authorities indicted and subsequently convicted one of their clients for distributing pornography and evading tax.

Thompson told the Bureau he did not consider his work for La Hougue to be a conflict of interest, as it was less than half a day’s work during a sixteen-year career at Ogier and did not directly concern the Dick family. He added that no allegation of perjury was raised during the Dick-Stock case he oversaw.

Dick-Stock has unsuccessfully sent letters to Jersey’s attorney general to push them to prosecute the former trustees for alleged perjury.

Her last two Jersey court cases in 2018 and 2019 were presided over by Tim Le Cocq, then deputy bailiff, the island’s second most senior judge. Le Cocq is now bailiff, a position that dates back to the medieval era and places him in charge of both Jersey’s judiciary, including the Court of Appeal, and its parliament. It is not suggested that Le Cocq has acted in any way inappropriately.

Le Cocq acted in matters on behalf of two of the disputed trusts in the 1990s as part of Dick’s second divorce. Two decades later, Le Cocq heard Dick-Stock’s cases and ruled against her both times.

Le Cocq told The Bureau that judges need to be made aware of any conflicts of interest, but that he was mystified by the suggestion he may have appeared to potentially had one himself. Asked about having worked for the trusts, Le Cocq said he did not have any recollection of doing so.

St John’s Manor, last listed for £17.5m, was sold at the beginning of the year. Jersey’s small pond had lost one of its big fish. The proceeds from the sale will, in part, pay off a pile of debt. The system referred to, sometimes warmly and sometimes cynically, as “the Jersey way,” may be around for a while longer.

Source: https://www.thebureauinvestigates.com/

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