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The Sanctions and Anti-Money Laundering Act 2018

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What does it mean for Bermuda?

By Ronald H Myers

 The Act

The Sanctions and Anti-Money Laundering Act 2018(“the Sanctions Act”), enacted by the UK Parliament on May 23, 2018, would appear to put the Government of Bermuda on a direct collision course with the United Kingdom over the powers of the latter to legislate for the former.

The Sanctions Act broadly makes provision to enable the United Kingdom to continue to implement United Nations sanctions regimes and to ensure that anti-money laundering and counter-terrorist financing measures are kept up to date.  More controversially, Part 2 sets out the duty of the Secretary of State to provide all reasonable assistance to enable the governments of British Overseas Territories to establish publicly accessible registers of beneficial owners of companies, for the purpose of detecting, investigating or preventing money laundering. The relevant provisions go on to state that the Secretary of State must, no later than December 31, 2020, prepare a draft Order in Council requiringthe government of any British Overseas Territory that has notintroduced such a register within its jurisdiction to do so.

Bermuda is of course a British Overseas Territory. These provisions therefore apply to it. They would appear to have the effect that Bermuda has until December 31, 2020 to establish such registers or an Order in Council will be made forcing Bermuda to do so.  Such registers must be registers which provide information broadly equivalent to that available in accordance with the provisions of the UK Companies Act 2006.  That in essence requires that companies keep and maintain registers “of people with significant control over the company”.  The provisions are broad and include a person who holds more than 25 percent of the shares or voting rights in the company; a person who holds the right to appoint or remove a majority of the board of directors of the company; a person who has the right to exercise, significant influence or control over the company; and even a person who has the right to exercise significant influence over a trust or firm which fits any of the preceding descriptions.

Reaction to the Sanctions Act

Unsurprisingly, the Act is not without controversy.  From the moment the provisions concerning the Overseas Territories became known, they engendered various public statements from or on behalf of the Overseas Territories affected.  The relevant section’s primary goal is to combat financial crime in the territories: opening the registers to public scrutiny makes it harder to conceal corruption, money laundering, tax evasion and similar activities, and so makes the territories less attractive to criminals.  That is, in any event, the theory espoused by its supporters.  Financial services stakeholders argue, however, that such a requirement would violate their clients’ privacy rights, which in turn could cripple the industry. They also point out that other jurisdictions around the world engaged in the same industry are not required to meet this standard and that its imposition will therefore lead unfairly to the flow of business to those other jurisdictions.  The result, it is said, will be that the provision will be self-defeating, in that it will then become more difficult to obtain the relevant information.

In a Ministerial Statement dated May 4, 2018 and headed “The British Government vs The Bermuda Constitution”, Premier David Burt referred to the action taken by the UK Parliament as one “imposed in the absence of any applicable international standard [which] can only be viewed as a direct assault on the conduct of legal business in the Overseas Territories.”  He went on to refer to “the wider issue of the UK Parliament’s wanton disregard for the unique constitutional position of Bermuda”, which he described as being “of greater concern to the Government and people of Bermuda”.  He called the action taken “an egregious breach of well-established constitutional coventions”.  He continued, “the constitutional position is founded in entrenched conventions that any legislative power sought to be exercised by the UK Parliament over Bermuda can only be done with the consent of the Bermuda Legislature.”  His defiant conclusion was:

“There will be no public register of Beneficial Ownership in Bermuda until this Honourable House, elected by the people of Bermuda votes to implement one! The Government rejects the regressive colonial mindset that some in London hold, that a Parliament 3000 miles away can impose anything on Bermuda that does not fall under the areas of Defence, Internal Security, the Judiciary, and External Affairs.”

In an interview with Bloomberg[1]Premier Burt is reported as having also said:

“The era of colonialism ended quite a while ago; Bermuda sets its own laws and the only time that we’ll have a public register of beneficial ownership is when the Bermuda Parliament decides to do so.”

Deputy Premier Walter Roban added[2]:

“We don’t recognise the authority of the UK Parliament to legislate over Bermuda outside of the prerogative powers that already exist in our constitutional order section 62 — that is understood by the elected minister and agreed with.”

“Bermuda will only do what is passed in the Bermuda Parliament.”

The Premier and Deputy Premier are not alone in their condemnation of the UK Parliament’s action.  Leaders and commentators of other Overseas Territories essentially echo their sentiments.

It would appear that the view being taken is that Bermuda sets its own laws; that the UK Parliament cannot legislate for Bermuda otherwise than with the consent of the Bermuda legislature and that Bermuda is in a position to reject the UK Government’s intention to legislate for Bermuda.

The law

The law in this area has been crisply stated as follows[3]:

“The competence of the Parliament of the United Kingdom to legislate for the British overseas territories and other dependencies of the Crown has not been in serious doubt since the seventeenth century. From the middle of the nineteenth century, however, there was a convention against Parliament legislating for the self-governing colonies and colonies with responsible government without their consent. However this convention does not restrict the legal powers of Parliament, and may in any event be inoperative in some circumstances.”

Another text explains[4]:

“The Westminster Parliament is the supreme legislative authority of the United Kingdom and of all territories under UK sovereignty.  Accordingly, Parliament has unlimited power to enact laws for all British overseas territories.

Acts of Parliament confer power to make subordinate legislation for the overseas territories. Such a power is usually conferred on Her Majesty to legislate by Order in Council.

There is no rule of law that requires the consent of a territory, or even prior consultation with a territory, before Parliament legislates for it.  In modern practice consultation is normally undertaken where practicable.

The power of Parliament to legislate for a British overseas territory is a principal mark, if not the principal mark, of the dependence of the territory on the United Kingdom.  Acts of Parliament granting independence routinely provided for the removal of that power.”

The Premier and Deputy Premier’s propositions in light of the law

It is apparent that the propositions put forward by the Premier and Deputy Premier are (legally at least) misconceived.  In this area, Bermuda holds a constitutional position in common with the other overseas territories, one which is therefore not unique. There may be a convention as to consent, but this does not restrict the UK Parliament’s legal powers, indeed, there is no rule of law requiring even consultation.  No entrenched or inviolable constitutional convention therefore prevents the UK Parliament legislating for Bermuda.  The subject matter of imposed legislation is unlimited and in particular, is not limited to the topics referred to.  Given that the power of the UK Parliament to legislate for Bermuda is the principal mark of Bermuda’s dependent constitutional status, the idea that Bermuda is in a position to reject this power must be entirely without foundation.  Bermuda does set its own laws, but only in so far as the United Kingdom does not set laws for it, which it is perfectly entitled to do.  Morever, it should also be noted at this point, Bermuda’s legislature does not have the power to override inconsistent UK legislation extending to Bermuda, because of the Colonial Laws Validity Act 1865, which continues to apply.  Such Bermuda legislation would be “absolutely void and inoperative” to the extent of the inconsistency, to use the language of that Act.  So any attempt by the Bermuda legislature to pass a law inconsistent with an Order in Council under the Sanctions Act would be entirely ineffective.  It follows that Bermuda is in no position to not recognise UK legislation designed to enforce public registers, nor is Bermuda in a position to not recognise the authority of the UK Parliament to legislate for Bermuda on any topic.

A possible means of attack

However, the decision to make an Order in Council under the Sanctions Act could be attacked in UK courts on the basis that, in the particular circumstances of the case, to proceed with it would be in breach of the usual public law principles of irrationality, illegality or procedural propriety.  In relation to irrationality, for example, an argument could perhaps be made to the effect that to make such an Order in Council, given the concerns about the disproportionate impact of the measure, its self-defeating nature and so on, would be irrational in the public law sense.  In relation to procedural propriety, it could conceivably be argued that Bermuda has a legitimate expectation of consultation, given the accepted constitutional convention.  It is respectfully suggested that to test the matter in this way is an approach which ought to commend itself to the Bermuda Government, as its chances of success are far higher than to seek to assert that Bermuda may simply ignore the UK Parliament while still retaining its overseas territory status.

Implications

Bermuda derives advantage from its connection with the United Kingdom, to the extent that it is able to advertise that it offers the security and stability traditionally associated with the British flag. Decisions made by Bermuda’s overseas clients typically give weight to this important factor.  It is that very residual or ultimate control by the United Kingdom that offers the security and stability, at least perceptually, that Bermuda is able to promote.  That control is the primary marker of the relationship of dependence.  It is therefore an inherent part of the perceived advantage associated with such status.  Bermuda must decide whether it continues to carry its weight, whether economically, socially, culturally or socio-economically.  If it does not, then logic suggests that the way forward is to terminate the relationship of dependence which confers such control. Nothing else will eliminate the legal fetters which, it seems, the Premier and Deputy Premier at least, given their statements, would seem desirous of shaking off.

Ronald H Myers is the Director of Marshall Diel & Myers Ltd.

[1]           Reported in Bernews (http://bernews.com/2018/05/overseas-territories-accuse-uk-colonialism/).

 

[2]           During a meeting with the UK’s Minister of State for the Commonwealth and the United Nations reported in The Royal Gazette(http://www.royalgazette.com/news/article/20180615/roban-attends-conference-for-ots-in-london&source=RSS).

 

[3]          Halsbury’s Laws of England, Title: “Commonwealth”, Volume 13 (2017), paragraph 709.

 

[4]          British Overseas Territories Law(Second Edition), Hendry & Dickson, pages 57 to 59.

This article was originally published in the September 2018 edition of the RG Business Magazine.

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