Perils and pitfalls of directing a Jersey energy company

Over the past 10 years the number of energy and natural resources companies establishing a head office in Jersey has grown considerably. With its well-regarded financial services sector and promotional campaigns, Jersey has become attractive to the natural resources sector. However, Jersey is not immune to the challenges and risks posed by extractive industries.

The vast revenues generated from natural resources and the extensive discretionary powers of government and public officials expose the sector to potential criminality.

Jersey’s appeal to energy companies rests not only in its tax regime, financial expertise and governmental independence, but also in its robust regulatory framework. It is therefore essential that companies and their directors in this sector take the necessary precautions not to fall foul of Jersey’s laws and regulations.

Corruption, bribery and fraud

While energy companies may be headquartered in Jersey, their mining/extraction operations are invariably elsewhere. This does not, however, preclude criminal proceedings being brought in Jersey. First, most corruption and sanctions offences have extra territorial effect and apply to acts done by Jersey domiciled companies and directors overseas. Second, to be tax resident in Jersey, a business must be managed and controlled here (e.g. by having Jersey resident directors, holding board meetings in Jersey and so on). This means Jersey individuals (e.g. corporate service providers) are likely to be involved in the company’s operations and thus subject to potential prosecution under Jersey law. The most obvious offences would be under Jersey’s Corruption Law which, like its UK equivalent (the Bribery Act), has extraterritorial effect. Other potential offences include:

• Procurement fraud
• Falsifying records - pumping, mining or harvesting more natural resources from public lands than is reported to the government
• Misrepresenting compliance with licencing requirements, environmental regulations, or safety regulation 
• Embezzlement facilitated by the complex nature of energy or mining contracts

It is therefore imperative that directors of Jersey registered energy companies familiarise themselves with the relevant laws prohibiting such activities such as:

• Fraudulent inducement to make deposits (prohibited by Article 23 of the Banking Business (Jersey) Law 1991, with a maximum penalty of 7 years’ imprisonment or a fine, or both);
• Fraudulent inducement to invest money (prohibited by Article 2 of the Investors (Prevention of Fraud) (Jersey) Law 1967, with a maximum penalty of 7 years’ imprisonment or a fine, or both);
• Providing false or misleading information (prohibited by Article 10 of the Collective Investment Funds (Jersey) Law 1988, with a maximum penalty of 10 years’ imprisonment or a fine, or both);
• Bribery (whether occurring in Jersey or abroad) (prohibited by Articles 5 and 6 of the Corruption (Jersey) Law 2006, with a maximum penalty of 10 years imprisonment and a fine.

The Jersey Financial Services Commission (JFSC), Jersey’s regulatory body for financial services, also has statutory powers to revoke business licences and to impose civil financial penalties for breaches of regulatory and legal requirements.

In addition to these criminal and regulatory sanctions, the Jersey courts have a range of civil remedies available to recover misappropriated gains.

Sanctions

Directors of energy companies must also be mindful of Jersey’s sanctions regime given that the risk of dealing with a sanctioned country or individual in this sector is significant. This is a particular issue currently given the large number of mining and energy interests in Russia, many of which have holding structures offshore, including in Jersey. Jersey implements all UN Security Council and UK sanctions through the Sanctions and Asset-Freezing (Jersey) Law 2019 (‘the Law’). It is an offence to circumvent sanctions. The maximum custodial sentence for a breach of financial sanctions in Jersey is a term of 7 years’ imprisonment.

The Law’s territorial reach is wide and includes conduct carried out wholly or partly outside Jersey by a UK national who is ordinarily resident in Jersey; or a person incorporated or constituted under the law of Jersey.

Looking forward

Jersey prides itself on being a leading international finance centre of integrity. It adheres to the highest regulatory standards, as endorsed by various EU bodies, the OECD, the IMF, and others. With the new offence of failing to prevent money laundering set to go live on 24 June, there is no doubt regulation and scrutiny will continue to increase in the years to come.

In 2015, MONEYVAL made an observation about Jersey’s disproportionately low-level enforcement of money laundering rules. In response, Jersey is taking a more aggressive intervention policy through initiatives such as the recently formed Economic Crime and Confiscation Unit and the JFSC’s introduction of and amendments to the civil penalties law. Such efforts are likely to continue and will not necessarily be restricted to the offence of money laundering.

Lynne Gregory is partner at Baker & Partners: bakerandpartners.com