Representation of Kaplan
| Jurisdiction | Jersey |
| Court | Royal Court |
| Judge | The Deputy Bailiff |
| Judgment Date | 29 April 2009 |
| Neutral Citation | [2009] JRC 82 |
| Date | 29 April 2009 |
[2009] JRC 82
ROYAL COURT
(Samedi Division)
Sir Philip Bailhache, Kt., Bailiff, and Jurats Le Breton and Clapham.
Advocate J. Harvey-Hills for the Representor.
Advocate A. J. Belhomme for the Attorney General.
Advocate A. J. N. Dessain for the Viscount.
Proceeds of Crime Act 2002.
Proceeds of Crime (Jersey) Law 1999.
Proceeds of Crime (Enforcement of Confiscation Orders)(Jersey) Regulations 2008.
Re Bird Charitable Trust [2008] JLR 1.
Motorola Credit Corporation v Uzan (2002) All ER (Comm.) 945.
Re the Representation of O'Brien [2003] JLR 1.
Re Illinois District Court [1995] JLR N.10b.
Maxwell on Interpretation of Statutes 12th edition (1969).
Batalla-Esquival.
Acturus Properties Limited v Attorney General [2001] JLR 43.
Investigation of Fraud(Jersey) Law 1991.
Gambling(Jersey) Law 1964.
Criminal Justice Act 1988.
Re O and another (1991) 1 All ER 330.
Proceeds of Crime (Designated Countries and Territories)(Jersey) Regulations 1999.
Re Esteem Settlement [2003] JRC 092.
Ex parte Viscount Wimbourne [1983] JLR 17.
United States -v- Schlotzhauer 2008 WL 320717.
Introduction
There is an old French proverb which runs “ Le jeu est le fils d'avarice et le père de désespoir” or, in English, “Gaming is the son of avarice and the father of despair”. Be that as it may, it remains a popular and profitable (for the operators) pastime. It has been estimated that in 2005 global internet gambling revenue, that is the sum lost by gamblers, was not far short of ten billion dollars. Gary Stephen Kaplan (“Mr Kaplan”) is a US businessman who saw a commercial opportunity in on-line gambling. In 1995 he established a sportsbook business in Aruba and then moved it to Antigua where he obtained a sportsbook operating licence. The business expanded into Costa Rica in 1998 and to the Dominican Republic in 2003. By 2004 the business operated by BETonSPORTS PLC was large enough to float on the Alternative Investment Market (“AIM”). The flotation was successful, and Mr Kaplan made a great deal of money.
Although the business had been based outside the USA, the majority of the 1.2 million registered customers were US citizens. Sports betting via the telephone or internet is unlawful in nearly all American States. When BETonSPORTS PLC was admitted to the AIM in London, it was acknowledged that some of the group's activities were illegal under US law. It was judged necessary to approach the National Crime Intelligence Service (“NCIS”) with a Disclosure Report before any shares could be offered for sale. By letter of 2nd July, 2004, NCIS consented to the sale of the shares pursuant to Section 335 of the Proceeds of Crime Act 2002.
Unfortunately for Mr Kaplan the US Department of Justice did not take the same view as to the legality of his operations. On 1st July, 2006, an indictment was laid against him and others in the State of Missouri. On 28th March, 2007, he was arrested in the Dominican Republic, and the following day he was extradited to the USA. He has been in custody in Missouri since that time.
Mr Kaplan's profits from the sale of shares in BETonSPORTS PLC have found their way into two Jersey trusts entitled The Bird Charitable Trust and The Bird Purpose Trust, to which we shall refer collectively as “The Bird Trusts”. The trustee of these trusts was at the material time Basel Trust Corporation (Channel Islands) Limited (“Basel”). Until recently Mr Kaplan was the Protector of each of these Trusts.
On 24th May, 2007, on the ex parte application of the Attorney General, the Deputy Bailiff ordered a saisie judiciaire of the realisable property of Mr Kaplan pursuant to Article 15(1) of the Proceeds of Crime (Jersey) Law 1999 (“the 1999 Law”) and authorised the Viscount to take possession of the property and to manage or otherwise deal with it in accordance with the directions of the Court. The application was made at the behest of the US Department of Justice in accordance with Regulations which have now been replaced by the Proceeds of Crime (Enforcement of Confiscation Orders)(Jersey) Regulations 2008 (“the 2008 Regulations”).
The Viscount, pursuant to an authority also conferred by the Act of 24th May, 2007, and by a subsequent Order of the Court, has engaged the services of a leading firm of chartered accountants to assist him in the management of the Trusts. The principal assets of the Trusts are an estate in Costa Rica and cash held in Swiss banks. The management of the Costa Rican estate involved the necessity to pay staff and various advisers. Ex parte applications were made by the Attorney General to the Bailiff on 1st June, 2007, 26th July, 2007, 19th November, 2007, and 12th December, 2007 for permission to vary the saisie judiciaire by making a number of payments to individuals and entities in Costa Rica and enabling the Viscount to pay the fees of Basel.
On 17th December, 2007, the Viscount made an ex parte application to the Bailiff in chambers seeking directions as to the management of the realisable property of Mr Kaplan. A number of issues arise in relation to that application, and we refer to them at paragraph 32 below.
On 22nd February, 2008, at the request of the US Department of Justice, a Seizure Order was granted by the Département Fédérale de Justice et Police in Berne freezing the bank accounts holding cash and other liquid assets in Switzerland.
On 2nd July, 2008, Mr Kaplan made this representation to the court pursuant to Article 16(6) of Schedule 2 to the 2008 regulations seeking the discharge of the saisie judiciaire or, failing such a discharge, declarations seeking to limit the scope of the Order in ways which are not at present material.
Before turning to the grounds relied upon by counsel for Mr Kaplan for seeking to discharge the saisie judiciaire, it is necessary to touch briefly on parallel proceedings involving the administration of the Bird Trusts. At the time when the Indictment against Mr Kaplan and others was made in July 2006 the employee at Basel responsible for the Bird Trusts was Mr Edmund Bendelow, then the Chief Executive of Basel. Mr Bendelow and Mr Kaplan had built up a close working relationship and were frequently in contact with one another. Although technically Mr Kaplan and members of his family were not beneficiaries of the Bird Charitable Trust, Mr Bendelow clearly regarded them as such pursuant to the letter of wishes. Basel accordingly fell under an obligation to make a Suspicious Activity Report (“SAR”) to the police pursuant to the provisions of the 1999 Law. Having made a SAR on 20th July, 2006, Basel was unable for some six weeks to communicate with Mr Kaplan for fear of committing a “tipping off” offence under the 1999 Law. It seems that this inability to communicate and to explain why Basel was unable to act without the consent of the police led to a decision by Mr Kaplan to sideline Basel. On 6th September, 2006, Mr Kaplan executed two deeds purporting to appoint Ghirlandina Anstalt (a Liechtenstein entity) as protector of both the Bird Trusts in his place. On 8th September, 2006, Ghirlandina executed a deed appointing Larona Trust Reg. (“Larona”) and Roenne Corporation (“Roenne”), both also entities administered in Liechtenstein, as additional trustees of the Bird Charitable Trust with Basel and a further deed removing Basel as Trustee of the Bird Purpose Trust and replacing it with Larona and Roenne. Further activities involving both the Trusts and the underlying companies of the Trusts were subsequently undertaken by Mr Kaplan, Ghirlandina, Larona and Roenne. They are not material for our purposes, but they are described in the judgment of Birt, Deputy Bailiff, in Re Bird Charitable Trust [2008] JLR 1 to which the reader of this judgment is referred.
What is material for our purposes is that by a representation of 30th March, 2007, (“the Validity Representation”) Basel challenged the validity of the appointments of Ghirlandina and Larona and Roenne respectively. On 1st August, 2007, Ghirlandina and Mr Kaplan issued a representation (“the Removal Representation”) seeking the removal of Basel as a trustee of both the Bird Trusts. On 30th August, 2007, the Viscount issued a summons seeking orders that, on the assumption that Basel were removed as a Trustee, such removal would not affect the saisie judiciaire. The Viscount also sought undertakings from Ghirlandina and Mr Kaplan that they would not seek to impair the Viscount's ability to manage the assets subject to the saisie judiciaire. On 18th September, 2007, the Deputy Bailiff directed that the Validity Representation should be heard before the Removal Representation, and that the Viscount should be convened to the latter. In the judgment to which we have referred in paragraph 10 above, the Court held that the appointment of Ghirlandina as protector of the Bird Purpose Trust and the appointment of Larona and Roenne as trustees of that trust were invalid. Mr Kaplan accordingly remained the protector and Basel remained the sole trustee. In relation to the Bird Charitable Trust, however, the different appointments were upheld. The judgment of the Deputy Bailiff was handed down on 28th January, 2008.
In February 2008, having given the requisite notice to Basel, Mr Kaplan resigned as protector of the Bird Purpose Trust and appointed Ghirlandina in his place. On 8th February, 2008, Ghirlandina appointed Larona and Roenne as additional...
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Proceeds Of Crime And Jersey Trust Assets
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