Lost trust: leaked files expose Jersey’s inaction on fraud scandal
06 Oct 2020

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.

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.

“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”.

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.

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.

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.

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.

By Isobel Koshiw, Ben Stockton and Franz Wild, The Bureau of Investigative Journalism, 5 October 2020

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