Opportunity to compare fiduciary and trustees duty with the duties of a foundation council

The publication of the opinion of the Privy Council on an appeal brought by trustees of two Guernsey settlements in Spread Trustee Company Limited v. Hutcheson and others [2012] 1 All. ER 251-378, in the All England Law Reports, allows an opportunity for a greater insight into the liability of trustees of settlements and a better opportunity to compare their liability to the liability of a foundation council.

Views on this would be welcome. Any offers?

The case in the Privy Council very much concerned the validity in those particular settlements of an exoneration clause but the background to this was the source of the liabilities of the trustees. The duty of trustees was considered as part of their fiduciary duties and particularly their specific duties as trustees.
Lord Clarke put it this way:

‘First, where, as here, what is alleged against the trustee is a breach of the duty of care owed to the beneficiaries by the trustee, the fiduciary duties of the trustee are of no relevance. Nothing in the fiduciary duties owed by the trustee alters the standard of the duty of care owed by it. In the opinion of the Board, the suggestion that the standard of the duty of care owed by the trustee is somehow elevated by reference to concomitant fiduciary duties elides the fundamental distinction between the fiduciary duties owed by the trustee on the one hand and the duty to exercise care and skill owed by the trustee on the other. Secondly, the exemption from liability in respect of a trustee’s gross negligence is not inimical to the fiduciary duties owed by a trustee for the simple reason that the absence of honesty and good faith inherent in the failure to perform fiduciary duties would take such conduct outside the scope of such an exemption.’

Looking forward to learned and practical comments.

Isle of Man’s first foundation

The Isle of Man Department of Economic Development recently announced that Appleby has launched the Appleby Charitable Foundation, the Island’s first Foundation to be approved and established under the new Foundations Act 2011.

Appleby states in its Press Release that effective from 1st January 2012 the Act introduces a civil law entity to a jurisdiction renowned for its common law practice opening new opportunities on the Island for businesses and individuals.

A self-owning legal entity formed by the dedication of property to specified purposes, a foundation serves for the purpose of private wealth structuring as well as for charitable and commercial structures. There is a requirement for registration, but this brings certainty and peace of mind for clients as well as ensuring separation from the Isle of Man’s trust law.

The benefits of an Isle of Man foundation are summarised as:

• Limitation on liability – a foundation is a separate legal personality meaning that all liabilities remain liabilities of the foundation and do not attach to foundation members.
• Control – the founder (equivalent to the settlor of a trust) can be a member of the foundation council and reserve powers to himself.
• No perpetuity period – allowing a perpetual arrangement for the management of wealth.
• Self-owning use with additional structures – ideal for private trust companies.
• Limited public filing requirements.
• Flexibility.
• Suitability for planning – ideal for controlled management of assets and careful provision for families.

Appleby working closely with Treasury and the Department of Economic Development to establish the framework needed for the Act to be fully implemented.

Revised FATF Recommendations

The Financial Action Task Force (FATF) released the revised FATF Recommendations on 16th February 2012. As you are aware, the FATF is the inter-governmental body, established by the G7 in 1989, which sets the global standards for combating money laundering and terrorist financing, and the financing of the proliferation of weapons of mass destruction (WMD).

The FATF spent two years reviewing the previous recommendations. Public consultations were held on October 2010 and June 2011. The key amendments which have been made to the Recommendations are:

1. The Risk-based approach: the FATF now requires jurisdictions to conduct a risk assessment and then determine an appropriate AML/CFT framework according to these risks. Regulated entities will also be required to assess their risks and ensure that their AML/ATF programmes appropriately reflect their assessment.


2. Transparency: the FATF has strengthened the transparency requirements for the ownership and control of legal persons and legal arrangements, and the parties to electronic funds transfers.


3. International cooperation: the FATF has enhanced the scope of international cooperation between government agencies, and between financial groups.


4. Operational Standards: the FATF has expanded the requirements in relation to law enforcement and Financial Intelligence Units (FIUs).


5. New Threats and New Priorities: the FATF has addressed the following new and aggravated threats:
   
   a. A new Recommendation to effectively implement targeted financial sanctions in relation to the proliferation of WMD.
   b. Stricter requirements in relation to PEPs (Politically Exposed Persons):  the requirement to apply enhanced due diligence to foreign PEPs has been expanded, whilst new requirements apply to domestic PEPs, international organisations, and to the family and close associates of PEPs.
   c. The list of predicate offences for ML now includes tax crimes.


6. Terrorist Financing: the FATF has incorporated the requirements of the nine Special Recommendations on terrorist financing within the Forty FATF Recommendations (in order to reflect the fact that terrorist financing remains a threat that has a close connection to AML/CFT measures). However, the structure continues to highlight the priority given to such matters within the FATF framework.

Further information is on the FATF website: www.fatf-gafi.org where the official material is published, including the FATF Recommendations and the associated FATFD Press Release.

Credit Suisse Investment Bankers charged in Subprime Bond Pricing Scheme

The US Securities and Exchange Commission has announced a civil action against four former veteran investment bankers at Credit Suisse Group for fraudulently overstating the prices of $3 billion in subprime bonds during the height of the subprime credit crisis.