PIRACY - FEBRUARY 1999 FOREIGN POLICE RAID
IN THE TURKS AND CAICOS ISLANDS.
(What is the Pounce Potential Elsewhere!)
Residents of the Turks and Caicos Islands were shocked. The impact of the invasion on their quiet life, is now caused ever-widening ripples in the offshore world. The raid was extensively reported in Canada’s national daily, The Financial Post on Saturday, April 3, 1999. It illustrates the long hand’s ability to reach into any U.K. common law jurisdiction and do what it wants. Quoted below are excerpts from the article entitled "Islanders Irked by RCMP Raid on Tropical Tax Haven" by Peter Kuitenbrouwer written from Providenciales, TCI.
"Wealthy Canadians and Americans who bring their assets to this necklace of arid islets, east of the Bahamas in the Atlantic, have one thing in common with the 18th-century pirates, or turks, from whom the islands derive their name. Both like to bury their treasure on a desert island, where no one can find it.
In the past few years, a considerable number of Canadians have quietly moved here to avoid Revenue Canada. These snowbirds don’t bring snorkels. They still wear ties and set up law firms, accounting offices, and brokerages up and down the beaches. The draw is a jurisdiction without income taxes and some of the most secretive banking laws on Earth.
But now a raid by Canadian and local police on a trust company - as part of a money-laundering case - has turned into an international battle over police jurisdiction in this tiny remnant of the British Empire. And the case raises questions about law enforcement on these few strips of sand where police are trained to catch speeders and burglars while the main industry, other than sunning oneself on the beach, is high finance.
So far just one man, Richard Hape of Fergus, Ontario, the chief executive of a trust company based here, has been charged with conspiracy to launder money. Still, police, who have spent three years and considerable resources on this problem, say they are on the trail of a much wider money-laundering operation.
But "the invasion," as some call it, has sparked outrage in the growing professional community. "If I was the RCMP, I wouldn’t want to be up there in Canada freezing my ass off on a horse," says Hugh O’Neill, an Irish-trained lawyer whose 18 years here make him one of the senior statesmen. "I’d rather be down here sunning myself at the expense of the poor bastards who pay 56% taxes for it."
Of four British officers in the Royal Turks and Caicos Police, two have returned to the United Kingdom since the February raid. "They’re leaving like rats," says a police source.
Still, before he quit, Lt. Det. Davis insisted the police action, the biggest in the island’s history, is necessary. "We must build confidence within the international community that we will root out such transgressions as may be uncovered," he says. "This is the ill that could ruin much larger establishments".
Eager to finish their work, for the past two weeks at least 13 Toronto officers, most from the Royal Canadian Mounted Police, have been holed up at The Allegro Resort, an all-inclusive luxury hotel on Providenciales, the most densely populated of the Turks’ 30 islands. They are scanning thousands of pages of documents seized from Mr. Hape’s trust company, British West Indies Trust ("BWIT").
According to Inspector Gary Nichols, they are working 24 hours a day in two 12-hour shifts to copy every document. He is the RCMP co-ordinator of the Turks and Caicos action.
Insp. Nichols is the officer in charge of the Newmarket, Ontario-based Proceeds of Crime Section, a task force set up to fight money-laundering that groups the Mounties with five local police forces, plus Canada Customs and the Crown Prosecutor’s office. "We are sorting, scanning, and photocopying to complete this as quickly as possible," says Insp. Nichols. "We’re flying in another printing machine from Miami". Hotel security at the Allegro prevents entry to everyone other than guests. A reporter last week, posing as an interested guest, took a tour of the resort, an imposing spread of Spanish colonial splendour where rooms cost $250 (US) per person, per night. Included are meals at either a Caribbean or an Italian restaurant, all drinks, plus use of the catamarans, windsurfers, snorkeling equipment, a disco, and a nightly dance performance. Hotel reception said the police were not in their rooms, and they were not visible elsewhere.
While locals questioned the Mounties’ choice of hotel, they are livid about the police copying all of BWIT’s files. "There’s an awful lot of very legitimate business people in Canada who have been doing very legitimate business with BWIT for many years," says Mr. O’Neill. "Their lives are being opened. If this turns out to be a fishing expedition it is an appalling abuse of process".
Meanwhile, defence lawyers say they have restricted police action, and released details of the investigation. "It’s all been cloak and dagger, dead of night, supposition and innuendo," says Andrew Rogerson, Mr. Hape’s lawyer in Providenciales. "It’s a sting operation that the RCMP have got out of their depth in."
Through interviews with Canadian and local police and lawyers involved, the Financial Post has pieced together an account of the raid and its aftermath.
On February 16, 1999 a group of Mounties and Turks and Caicos police armed with a search warrant arrive at Arawak House, a colonial two-storey building on the tiny, sleepy island of Grand Turk (population 3,146) that houses the offices of the British West Indies Trust Co. Ltd. (BWIT). The police scoop everything into boxes - including an air conditioner repair file, pilot’s books on how to fly an airplane, instructions for deck furniture, and copies of the local statutes.
In the building, police also search and take documents from both the office of lawyer Raimo Heikkila, and an apartment on the building’s second floor. All told, they carry 101 boxes of documents out of Arawak House and, according to defence lawyers, load them on a Canadian police plane, preparing to fly to Canada. The same day as the Grank Turk raid, Mounties in Toronto arrest Lawrence Richard Hape, 47, chief executive of BWIT, charging him with conspiracy to launder $311,000, "knowing that all or part of that property or those proceeds was obtained .... as the result of a commission in Canada of an offence under Part 1 of the Controlled Drugs and Substances Act."
Police also say they searched "an accountant’s office" in Toronto. Mr. Hape spends the night in jail. The next day, he appears at a bail hearing at Toronto’s Old City Hall. The court grants bail. At the same time, police obtain restraint orders in Canada and in the Turks and Caicos freezing the assets of Mr. Hape, other BWIT employees, and BWIT itself, including Arawab House. Originally, police said they had also seized a company airplane, but now admit that so far they have been unable to put their hands on it.
Right after his release, Mr. Hape puts in a call to Providenciales, an island at the other end of the Turks and Caicos chain where most of the professionals work. His call is to McLean McNally - the most prominent law firm in the colony - housed in a colonial building where the Maple Leaf flutters out front. Hugh McLean, the senior partner, is Canada’s honorary consul. The firm puts Mr. Rogerson on the case. Mr. Hape then retains Conrad Griffiths of Misick & Stanbrook, the second-largest local firm, to act for BWIT. In so doing, Mr. Hape sews up the two top litigators in the colony. "Clients often hire both Conrad and myself," says Mr. Rogerson, "so the other side won’t have an experienced litigator."
But he notes there is nothing odd about the Canadian consul’s law firm representing Mr. Hape against the RCMP. "The RCMP asked us to act on their behalf but telephoned us two hours too late, as we were already giving assistance to Mr. Hape, a Canadian national," says Mr. Rogerson. "It’s called the cab ride principal, you have to take on the first person who is in need".
Events since then suggest police didn’t count on the hurricane that would bear down on them from these two gold-cufflink-sporting English barristers. Mr. Rogerson and Mr. Griffiths are just a half-hour hop by airplane from the Grand Turk courthouse and well-schooled in the intricacies of the colony’s byzantine legal system. While based on British Common Law, the system is still unique - marriage dissolution, for example, is governed by the Jamaican divorce act of 1840.
In a flurry of motions - all restricted from public viewing - the defence says it has already severely clipped the police’s wings, leaving authorities scrambling to fight back. "The British government at one stage had five [lawyers from the Crown Prosecutors Service] in from London to help out’" says Mr. Rogerson. In seven court appearances since Feb. 18, the two lawyers say they have:
* Stopped the RCMP plane from taking off for Canada with BWIT’s documents
* Won a court order forcing the RCMP to return items seized from Mr. Heikkila’s office and erase a copy of his database, in the Turks and Caicos in the presence of his representative, and pay all his costs
* Won another order forcing the return of material taken from Mr. Hape’s apartment above the BWIT offices
* Obtained about 125 pages of transcripts of wiretaps and secret recordings of meetings
* Filed civil suits here against the RCMP and officers Scott Boyle and Donald Clark, seeking return of documents and damages. Officer Boyle has since been pulled off the case and been returned to Metro Toronto
* Uncovered details of a secret RCMP night search of BWIT one year ago.
Sources confirm that in March, 1998, Mounties and local police broke in to Arawak House at night, downloaded all the computer files and took them back to Canada, leaving no trace of their presence. "BWIT says searching in that way is unlawful," says Mr. Griffiths. "At the very least they should have left a warrant and no warrant was left."
A source close to the investigation, though, says such a secret search is legal under certain conditions. "[The police must] satisfy a judge that it’s not in the public’s interest to divulge that [they] were there," the source says. "This is all as a result of court authorization".
The Financial Post has confirmed that the investigation of Mr. Hape began in April, 1996. Sources on both sides confirm the police case is based on a tape-recorded interview with Mr. Hape and a police informant posing as a dealer who earned money selling drugs in Canada. "The alleged crimes would have never taken place were it not for the incitement of the RCMP," Mr. Rogerson says. But a source counters that "it’s a police technique acceptable in Canada, acceptable abroad."
Mr. Griffiths further counters that the RCMP were never sworn in as Turks and Caicos police as is common practice. "Nobody’s saying they couldn’t apply for a lawful warrant and carry out a lawful search," Mr. Griffiths says. But he added: "There are a significant number of private clients who have nothing to do with the investigation whose businesses are being disrupted and potentially damaged."
David Jerimiah, attorney-general, did not return calls. The police admit the legal backlash has slowed their work. "They’re dropping motions and lawsuits on us at an alarming rate," Insp. Nichols says.
After a court ordered that BWIT’s original documents must not leave the colony, Insp. Nichols says police then flew the boxes from Grand Turk to Providenciales, "because there are no facilities on Grand Turk" Police then flew down a planeload of electronic equipment from Canada, including a super gravity optical scanning system, in a bid to catalogue the material. "We’re opening the boxes and scanning them in one by one", says Lt. Det. Davies. "This is the first time anything of this magnitude has ever been done. It’s like when you’re fishing, it’s easy to catch the little fish."
But the source close to the probe says that when the full story comes out, critics will understand why police have acted in the way they have. The source says Mr. Hape’s assets in Canada are minimal, but he is suspected of owning properties abroad. The source says the police search warrant restricts officers to copying documents relating
directly to those named in the investigation. Others,whose assets are now frozen, are not under scrutiny, the source says. "Crimes are committed every day and there are innocent victims," says the source. "This is not a witch hunt or a fishing expedition"."The only information we’re interested in is with respect to people named in the investigation," the source says. "Our people will see documents but will return those documents from people not linked to the investigation, and no disclosure will be made."
Financial Post, Saturday, April 3, 1999
THE CORPORATE VEIL HAS BEEN PIERCED
A co-ordinated action by Canadian and local police to seize a trust company here, and over 100 boxes of records, has sent shock waves through these islands where secrecy is the currency. Like the Cayman Islands and the Bahamas, this is a tax shelter, but one that hopes to avoid the Caymans’ reputation for Ferraris, flash, and undercover officers.
"This doesn’t happen very often that we get a bunch of bloody Mounties coming down here at the weekend like thieves in the night," bellows Hugh O’Neill, Irish of origin. He is referring to last year’s secret police search, since confirmed by other sources, of the British West Indies Co. Trust Ltd. on Grand Turk. The building has since been seized by Police.
O’Neill & Co. is housed in one of these islands’ classic white houses with a sloped roof that stands alone on the Leeward Highway, surrounded by sagebrush. Mr. O’Neill sits behind an L-shaped desk piled high with papers, chain-smoking Marlboros. "In this jurisdiction we’re not in the business of money-laundering, washing the proceeds of crime," he says. "There’s more than enough legitimate work to keep everyone on the island busy full time without people needing to take this kind of business. "Look at the cars. Jeep Cherokees, Oldsmobiles, Toyota Four Runners. Do you see any Porsches?"
But a Canadian police source puts it differently. "The Turks’ financial institutions are not happy because this is basically a haven country,"
The police source says. "The corporate veil has been pierced. We have made substantial seizures. One bad guy is not isolated. The whole infrastruture put in place is custom-made for money laundering." Another police source says that in this and other drug cases, police find that traffickers prefer to move their profits to an area where they can’t be found. Here they can set up shell companies, never have to declare income, and then move the funds around the world and prevent police from finding out who’s behind the corporation.
But others on the islands say they are upset with Canadian police moving in in such numbers and seizing such a huge volume of material. Now the RCMP are pawing through all the companies’ files, he says, "Canadian lawyers’ phones are ringing off the hook, with clients saying, ‘My confidentiality has been breached. I want you to move my accounts to another jurisdiction where I’m going to get confidentiality’."
The rage is starting to spill out. Last Saturday night, Mr. O’Neill says he cornered one of the Mounties, Alastair Bland, after a silent auction at the golf course, which is across the highway from the resort where the Mounties are working. "I’d had about seven beers," says Mr. O’Neill. "I asked him where his horse was. I asked him why he wasn’t over on Grand Turk eating salt".
IN T.C.I. OFFSHORE BANKING IS THE ONLY BUSINESS AFTER TOURISM.
This is Providenciales, Provo for short. On the western edge of the island chain, it was nowheresville until 20 years ago, when a group of developers kick-started the real estate business. These days, resorts such as The Sands, Le Deck, and Club Med pack in the tourists, while boats at the Turtle Cove marina load passengers for diving in the legendary reefs. The islands are well-suited for tourism: The water is azure and warm, the temperature is hovering at 30 degrees, and besides, nothing really grows here except cactus and sagebrush anyway.
The first arrivals here were the Arawak Indians, thought to be from Venezuela. When the Spaniards showed up they enslaved the Arawak to dive for pearls, wiping out the population. Later, the English took over importing slaves from Africa to export salt.
The main salt trade took place on Grand Turk, which today exists mainly as a government town, with a hospital and a court but only four lawyers (there are 70 lawyers on Provo).
The real history of this island, which continues today, is as a tiny independent place whose people are loathe to pay taxes or accept outside control, and have for centuries cherished its secretive coves for smuggling and for privacy. In 1769, the governor of the Bahamas, William Shirley, who also had control of the Turks and Caicos, expressed his concerns about the place in a letter to the Secretary of State for the Colonies, in London:
"I find the steps that have been undertaken in order to put a stop to the unbounded illicit trade, which has been carried on in the Turks Islands under the cloak of the salt trade, has caused a great deal of murmuring among the traders who have frequented the place". In response, the local agent here, Andrew Symmer, shot back that he had "succeeded in making a barren Island of more consequence to commerce than most .... islands in America.
Those were prophetic words. Turks were furious that "the only Bahamians [they] ever saw were tax collectors" - according to one account - and by the 1850’s shrugged off control from Nassau to become a colony of their own for about 20 years. Then, after a 100-year period under Jamaican authority, the Turks acquired their own governor in 1962. Today, they have no income taxes. After tourism, offshore banking is the only business here.
On Provo, building scaffolding is everywhere. Misick & Stanbrook, one of the oldest law firms here, is building a big new office on the highway. Deloitte & Touche, KPMG, Price Waterhouse Coopers - the accountants, they’re all here.
The island is a strange place. There’s a Wild West feel to it with no sidewalks, no stop signs, not a single traffic light. There are four different worlds here, which intersect but rarely mix: the white professionals who put in long hours in shirts and ties in air-conditioned offices, the white tourists, the black locals,and the black illegals.The last group, locals say, are often "enslaved" by the black locals, being threatened with deportation if they complain.
The population is estimated at up to 20,000, but in the elections last month just 5,421 people were eligible to vote, according to the local ‘Turks and Caicos Weekly News’ which is printed in Miami because there is no press here. The other people here are either illegals - Haitian creole is a common language on the jitneys that ply the highway - or Canadians or British, who have retained their home nationality but have been declared "valid non-residents" of those countries, purely for tax purposes.
As a result, local culture is pretty much restricted to conch, raised at the world’s only conch farm, and then transformed into everything from spicy soup to deep-fried finger food. Everything else is imported. The clutter on the walls at a local bar, Hey Jose’s, illustrates the strange hybrid of cultures here: A stuffed reindeer head is mounted beside a pair of snow-shoes. Further along are a British flag, a rowboat oar, a bowling pin, Russian dolls, a leprechaun, sombreros, and bright-painted wooden toucans.
All in all, though, it’s hard to find fault in a place with pristine water lapping on endless, deserted beaches and sunny weather all the time. Drawbacks? "No hockey", says Hugh O’Neill, a longtime resident. "No movie theatres. The nearest shopping mall is 500 miles away. We don’t have OHIP [the Ontario Health Insurance Plan]. You can get island fever - everywhere you go you know everyone after a while. And twice or three times a year a little storm comes out of the Atlantic pushing winds at 140 miles an hour and it might rip your house to shreds."
Is the Turks and Caicos Islands Raid an Isolated Case or
a Sign of the Last Times?
Following the charging of Richard Hape, which by the way was most unjust as the police were really interested in a former executive of one of Canada’s biggest stockbroking firms who worked for British West Indies Trust, though not based in the TCI - following Mr. Hape’s being charged with "conspiracy to launder money" (I refer you back to the E.U. Commission’s definition of money-laundering) British West Indies Trust which is a substantial and reputable financial services company was closed down (the raid happened or started on February 19, 1999 when Ontario, Canada was at its bleakest) as stated in "Offshore Finance U.S.A." magazine (Vol.1 No.3). Remember when the entire "industry" was shut down in the TCI?
Now some of the fascinating and deeply "worrying" aspects of this piratical action were summarised by the magazine’s July/August issue for focus purposes, thus:
(1) The U.K. government’s pressure on Dependent Territories to "cooperate in tax evasion investigations conducted by foreign authorities" has become extreme (the TCI police force numbers 4, and they are not resident on that island in which the business, commercial and legal centre is, "Provo" as its known).
(2) Some professionals are asking whether this "raid" could be the first of many - a multi-task invasion force of police officers, pilots and "other technical personnel"
(3) Lawyers for BWIT contend that the alleged crime of conspiracy to commit another "crime" (money laundering) could not have occurred without the enticement and entrapment of the RCMP
(4) The application for an arrest warrant in Canada was based on a secret tape recording of Mr. Hape and a police informant (rumoured to be connected to the former executive) who posed as a sophisticated drug trading businessman and who claimed to have "earned" the $310,000 money selling drugs in Canada! (It is not clear whether this was Gross Revenue or Gross Margin before legitimate deduction of expenses).
(5) Certain records located at the Grand Turk office of BWIT were seized (for that read all) and were just about to be flown out of the "independent country" of the Turks and Central Islands by an RCMP plane - this was stopped in the nick of time by BWIT’s lawyers who peppered the High Court with injunction requests.
(6) TCI airspace is under the domination of U.S. Federal Aviation Centre (Atlantic Division) operating from Miami. It would have required permission to take off having filed a flight plan. This required the co-operation of U.S. authorities.
(7) The RCMP aircraft contained in excess of 100 file boxes of documents (client files) including masses of material quite unconnected with BWIT clients but relating to investment and merchant banking activities, all of it of the utmost confidentiality.
(8) It is therefore not known just how many other records, supposedly unrelated to the case (a conspiracy to launder money) were taken on to the plane, subsequently unloaded and then laboriously photocopied and the paper files re-built. The police subsequently flew in advanced optical scanning and other sophisticated electronic equipment.
(9) Although these records were ultimately returned by court order to BWIT (before the trust company itself was shot down) hundreds of thousands of pages of doucments were photocopied and electronically scanned - i.e. all the files!
(10) Events of this kind are unfortunately frequent and always open to the dreaded spin, both positive and negative. However its difficult to see any other purpose than to frighten Canadians and not a few Americans, who are contemplating expatriating their assets. It could not have been to cause vast disruption to legitimate businesses on the island could it? - this is unthinkable?!
(11) The reaction of the professional community (trust managers, lawyers and chartered accountants, administrators, and bank managers) is one of supreme shock - they are dumbfounded that a foreign (U.S. - Canada - U.K.) axis power could with absolute ease enter the offices in a night (un-search warranted) clandestine operation. This required the "cooperation" of the local police. After this "shopping" raid, they return a couple of months later, seize everything and with reckless disregard steal them from under the noses of the regulatory authorities.
(12) By the way the appeal process after the TCI Grand Court is, yes you’ve got it, to the U.K’s Court of Appeal and then to the Judicial Committee of the Privy Council in London, England! The Crown’s authority is unchallengable in both Canada and the TCI.
(13) The former Attorney General of the TCI (for 5 years), David Ballantyne, has just been appointed, Attorney General of the Cayman Islands (late 1998).
(14) Is this the kind of scrutiny you can henceforth expect in all U.K. common law overseas territories? Maybe it would be worth first establishing a foundation in the civil law Republic of Panama - then, and only then, perhaps consider moving behind this structure to a Caribbean or to a Pacific or to an English Channel or to an Irish Sea supposed tax and banking haven ....... would privacy prevail? or would the pounce potential yet deter you?
Continued in part six of ten
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