Lloyds Trust Company v Fragoso & ors [2013] JRC 211

Analysis

The representor was the trustee (T) of a Jersey law governed discretionary trust (R) established in 1999 and valued at £402,000. The first respondent was the settlor (S). The class of beneficiaries included S’s wife and three children.

When R was established, S described himself as a civil engineer and informed T that the funds settled were proceeds of engineering consultancy contracts which he had worked on over the last 20 years. He did not disclose that he held public office in Mozambique.

In 2010, T discovered that a company had been convicted in England of paying bribes to obtain construction contracts. S appeared to be connected to the activity. T submitted a Suspicious Activity Report to the Jersey Financial Crimes Unit and informed S of its concerns, requiring him to provide evidence of the source of the funds. S failed to do so but requested in 2011 that the existence of R not be disclosed to his wife or children.

In 2012, S’s wife and two of his children emailed T stating that they were not aware of R and had no part in establishing it or any interest in it. Neither they nor S appeared in the proceedings.

T, having reason to believe that the property held in R was comprised of the proceeds of crime, namely bribes paid to S by the English company in return for civil engineering contracts in Mozambique, and the Government of Mozambique (G), sought an order that the trust fund, net of costs, be paid to G. Advocate for the minor, unborn and unascertained beneficiaries submitted that his only proper argument was that the beneficiaries had no beneficial entitlement to assets which were the proceeds of crime.

S accepted his position as a public officer, denied he was paid a bribe and said he was still carrying out the task of proving the origin of the funds.

Held:

1. 1) S’s denial of receipt of any bribe was shown untrue by documentary evidence adduced by G.
2. 2) Whilst it was impossible to trace all of the funds back to the English company, on the balance of probabilities, all of the funds in R represented bribes received by S (Federal Republic of Brazil et al-v- Durant International et al [2012] JRC 211 referred to).
3. 3) The decision of the Privy Council in Attorney General for Hong Kong v Reid [1993] UKPC 2 is of the highest degree of persuasiveness and there are important policy reasons for following it, namely to deter fraud and corruption and ability to strip fiduciaries who have channeled illicit funds through the jurisdiction of all benefits.
4. 4) Declared that T held the funds of R, net of any costs that may be ordered to be paid out of those funds, upon constructive trust for G. The funds no longer represented proceeds of crime.

JUDGMENT The commissioner: [1] The representor, formerly known as Lloyds TSB Offshore Trust Limited, (‘Lloyds TSB’) is the trustee of the Jersey law governed discretionary trust known as the Rex Trust (‘the trust’). The settlor of the trust is the first respondent, Mr Carlos Fragoso (‘Mr Fragoso’) and the class of beneficiaries comprises his wife, …

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