Un-civil penalties: the imposition of civil financial penalties on principal persons

12 Feb 2019

The Jersey Financial Services Commission has published a consultation on extending its decision making process to include the imposition of civil penalties on principal persons. 

The Jersey Financial Services Commission (“JFSC”) has published a consultation on extending its decision making process to include the imposition of civil penalties on principal persons.  The JFSC has of course had the power to impose civil financial penalties on registered persons since March 2015.

The Financial Services Commission (Amendment No.7) (Jersey) Law 2018 extended that power to principal persons so, were a registered person to breach a Code of Practice, that registered person and any implicated principal persons could all have civil financial penalties levied against them.  The penalties are significant (a maximum of £400,000 for a contravention of a Code of Practice committed either intentionally or recklessly by a principal person), albeit that they are financial only.

Codes of Practice are just that; they are not criminal statutes.  A failure to comply with a Code of Practice may result in a civil penalty and may be used as evidence in relation to a related criminal offence.  So far, so academic; no one sets out to breach a Code of Practice, but these things do happen.  Particularly in relation to the Proceeds of Crime (Jersey) Law 1999 where a breach of a Code of Practice (namely the Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism issued by the JFSC (the "AML Handbook")) might also be a breach of the Money Laundering (Jersey) Order 2008 and an offence under Article 37(4) of the Proceeds of Crime (Jersey) Law 1999.

Can it be right that a breach of a Code of Practice results in not only civil penalties being imposed but also a criminal conviction against the registered person and/or its principal persons?  The decision of the European Court last year in Garlsson Real Estate and others  would suggest that this might be a rather tricky path to walk given that EU law guarantees the right not to be tried twice for the same offence. 

In 2007 the Italian National Companies and Stock Exchange Commission imposed an administrative penalty of €10 million on Mr Ricucci and two companies under his direction for the offence of market manipulation. Mr Ricucci was subsequently criminally convicted in respect of the same acts and sentenced to a term of imprisonment as well as a number of additional penalties.  He appealed, successfully, to the European Court of Justice (the “ECJ”) on the basis that the administrative proceedings and the criminal proceedings were both in respect of the same offence.

In determining the appeal, the ECJ applied a three stage test:

1. Are the administrative proceedings and penalties criminal in nature? 

2. Do the administrative and criminal proceedings and penalties relate to the same offence?

3. Is there a justification for trying someone twice?

To answer the first question, the ECJ looked at the legal classification of the offence under national law (which it then discounted), the intrinsic nature of the offence, and the degree of severity of the penalty that the person concerned is liable to incur.

If breach of the Codes of Practice in the AML Handbook is also a criminal offence in Jersey under the Proceeds of Crime (Jersey) Law 1999, then both the JFSC and the Attorney General, who is responsible for criminal prosecutions in Jersey , may have a difficulty in the light of the Garlsson case. 

Whatever the JFSC might call the breach is irrelevant; its intrinsic nature is the same whether viewed as a breach of the Code of Practice or a breach of the Proceeds of Crime Law; and if it is criminal under the Proceed of Crime Law, it’s a criminal breach of the Codes.  And as for the sanctions, in aiming high with the civil financial penalties regime, the JFSC might well have holed itself below the waterline to the extent that the size of the civil financial penalty means that whatever they might call it, the regime is, really, criminal.  They will obviously relate to the same offence and there is no attempt at any justification in any statute for allowing both.  So, it could be a case of “either/or” not both.

Arguably, if the JFSC was to proceed against a registered person and/or a principal person under the civil financial penalties regime in relation to a breach of a Code of Practice, in certain circumstances (particularly in relation to AML offences), that might prevent any criminal proceedings by the Attorney General, and vice versa.  So there might conceivably be a tactical angle for those facing such issues (and perhaps for the JFSC in reducing the amount of the penalties), particularly given the different reaction speeds of the JFSC and the Attorney General (in a recent case, the JFSC imposed directions on an individual in 2009;  the Attorney General finally secured a guilty plea from that same individual 9 years later in 2018.)

Brexit is also unlikely to have any impact on this, particularly given that Jersey as a jurisdiction, and the JFSC in particular, both operate on a European stage.

The consultation remains open until 12 April 2019.

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