The Sanctions and Anti-Money Laundering Act 2018
- The Sanctions and Anti-Money Laundering Act 2018 (“the Sanctions Act”), enacted by the UK Parliament on 23rd May, 2018, would appear to put the Government of Bermuda on a direct collision course with the UK over the powers of the latter to legislate for the former.
- The Sanctions Act broadly makes provision to enable the UK 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 31 December 2020, prepare a draft Order in Council requiring the government of any British Overseas Territory that has not introduced such a register within its jurisdiction to do so. As the words emphasized demonstrate, if an Overseas Territory does not accept the assistance of the Secretary of State and establish such a register, it is mandatory for the Secretary of State to prepare the draft Order in Council, which will then require the recalcitrant Overseas Territory Government 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 31st December, 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”. Such people includes a person who holds more than 25% of the shares or voting rights in the company, directly or indirectly; a person who holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company; a person who has the right to exercise, or actually exercises, significant influence or control over the company; and a person who has the right to exercise, or actually exercises, significant influence over a trust or firm which fits any of the preceding descriptions. The net is therefore wide.
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 (for example, the US State of Delaware, the Crown Dependencies, Hong Kong, Singapore etc.) and that its imposition will therefore lead unfairly to the flow of business to those other jurisdictions. The result will be that the provision will be self defeating, in that it will then become more difficult to obtain the relevant information. As Lord Flight said in his remarks recorded in Hansard, when the Bill was before the Lords, it would be “counterproductive in its effect”. He went on to note that “law enforcement agencies do not support public registers … as they do not improve law enforcement capabilities.” He also pointed out that, “tax authorities do not support public registers either, as people report less candidly than when information is available only to public authorities.”
- Closer to home, in a Ministerial Statement dated 4th May, 2018 and headed “The British Government vs The Bermuda Constitution”, Premier David Burt referred to the action taken by the UK Parliament in this regard 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 Premier Burt is reported as having also said:
“The action taken in the UK Parliament signals a significant backwards step in the relations between the United Kingdom and the Overseas Territories.”
“The Government of Bermuda has a strong constitutional position and the people of Bermuda can rest assured that we will take the necessary steps to ensure our Constitution is respected.”
“This attempt to legislate for Bermuda from London is a return to base colonialism and is an action that has no place in 2018. It is especially telling that the Crown Dependencies are not included in this amendment which is restricted to the Caribbean OTs and Bermuda.”
“Bermuda sets the standard in this area and our reputation for sound regulation is well established, internationally recognized and will be vigorously defended.”
“Bermuda for 50 years has had full internal self-government, and Bermuda does not accept the United Kingdom’s attempt to legislate for us.”
“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.”
- Suffice it to say that Premier Burt is not alone in his condemnation of the UK Parliament’s action. Leaders and commentators of other Overseas Territories essentially echo his sentiments.
- Deputy Premier Walter Roban is reported as having added to the discussion when he stated during a meeting with Lord Ahmad of Wimbledon, the UK’s Minister of State for the Commonwealth and the United Nations:
“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.”
“Bermuda is already adhering to international standards that meet the criteria that is required.”
- It would appear that these very senior officials (and presumably therefore their Government) are of the view that the following propositions hold true for Bermuda:
- For the reasons given below, Bermuda has a unique constitutional position in this regard
- The UK Parliament cannot legislate for Bermuda otherwise than with the consent of the Bermuda legislature and this is an entrenched (presumably meaning inviolable) constitutional convention
- The UK Parliament cannot impose anything on Bermuda that does not fall under the areas of Defence, Internal Security, the Judiciary, and External Affairs
- Bermuda is in a position to reject the UK Government’s attempt to legislate for Bermuda
- Bermuda sets its own laws and therefore the only time Bermuda will have a public register of beneficial ownership is when the Bermuda legislature decides to do so
- Bermuda is in a position to not recognise UK legislation designed to enforce public registers of company ownership in Overseas Teritories
- Bermuda is in a position to not recognise the authority of the UK Parliament to legislate for Bermuda outside of the prerogative powers referred to in section 62 of the Constitution
- Domestic affairs and legislative process are the responsibility of local elected officials
- The following crisp statement, which relates to the competence of the UK Parliament to legislate for the Overseas Territories, appears in the latest edition of Halsbury’s Laws of England:
“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 well known authoritative text puts the matter slightly more fulsomely:
“The Westminster Parliament is the supreme legislative authority of the United Kingdom and of all territories under UK sovereignty. Acordingly, Parliament has unlimited power to enact laws for all British overseas territories. In some cases this is done by an Act of Parliament which itself applies to one or more territories. In such cases the Act normally provides for such territorial application, either in whole or in part … An Act of Parliament may apply to an overseas territory expressly … or by necessary intendment. Otherwise it does not. In modern practice, express application is the norm.
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More frequently, 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. This may be for a variety of purposes.
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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. That is particularly so before Orders in Council made under statutory powers are made for a territory. There are good reasons for that practice. It is a matter not only of respect for the democratic system in the territory, but also to ensure that the Order will fit and work well with the existing law in force in the territory. On rare occasions such prior consultation is impracticable due to urgency, or (even more rarely) is considered undesirable for other reasons.
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 quite apparent that every one of the propositions put forward by the Premier and Deputy Premier is (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, au contraire. 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 UK 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. Lastly, domestic affairs and legislative process are indeed the responsibility of local elected officials, but only to the extent that the constitutional arrangements in place which inhere in the concept of dependency permit it.
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 whilst still retaining its overseas territory status, apparently the position presently being taken.
- 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.
- Reported in Bernews (http://bernews.com/2018/05/overseas-territories-accuse-uk-colonialism/).
- Halsbury’s Laws of England, Title: “Commonwealth”, Volume 13 (2017), paragraph 709.
- British Overseas Territories Law (Second Edition), Hendry & Dickson, pages 57 to 59.