Jersey financial scandal is poised to ensnare Coopers

Discovery of Coopers & Lybrand’s potential involvement in the Cantrade scandal has far-reaching implications for Jersey’s financial reputation and its plans to offer a safe home to the accountancy profession.

A judicial review appeal submitted to Jersey’s Royal Court reveals the outcry among the Cantrade Private Bank Switzerland’s investors. Jersey’s standing as an offshore tax haven and international business centre could be blown apart if their claims are upheld.

The potential involvement of Coopers can only serve to raise the case’s profile further. Coopers’ 1994 report, commissioned by Cantrade at the request of Jersey’s financial regulators, the Finance and Economics committee, was designed to pacify angry investors. It appears to have had the opposite effect.

The plaintiffs’ lawyer, advocate Philip Sinel, issued several written warnings to the committee pointing out the threat to Jersey’s financial reputation if the matter was not resolved swiftly and cleanly. Coopers’ failure to contact any claimants is heavily-criticised in the investors’ submission.

Sinel told Accountancy Age: ‘If I was commissioning such a report on behalf of my clients, I would make sure the auditors got it wrong. Why did the auditors make no contact with any of the people who made the complaints?’

The investors’ submission states that the committee alleged it discharged its legal duty to investigate Cantrade by commissioning the report. But the investors claim this action was ‘unreasonable, irrational, perverse, illogical and unlawful’.

Complaints include claims that the committee failed to direct Coopers on the ‘content, scope, nature or extent’ of its report and failed to require the firm to investigate adequately, or at all, any of the allegations made by the claimants.

The investors argue that the committee failed to use a wide range of powers available in the 1991 Banking Business (Jersey) Law to investigate Cantrade and Robert Young, the independent foreign exchange dealer facing criminal fraud charges.

The embattled committee launched a strong counter-attack to the investors’ allegations. Its amended submission to the Royal Court said: ‘It is denied that no adequate response has been made by the respondent to the complaints. The functions of the respondent under the Undertakings Law and the Banking Business Law are by their nature confidential and the respondent cannot enter into detailed correspondence with third parties about the exercise of its regulatory powers.’

Coopers’ role in the affair is also scrutinised in the committee’s response.

The firm’s report, explains the submission, was designed to review the transactions and correspondence and all other relevant items relating to the case ‘from beginning to end’.

Officers from Jersey’s Financial Service Department contacted Coopers at the time to see if the firm was obliged to co-operate with the report.

The submission continues: ‘Coopers replied that it was not in a position voluntarily to disclose information or to give an opinion under Article 33 of the Law and that there were no apparent circumstances which would justify mandatory disclosure under Schedule 6 to the 1991 order.’

Further correspondence over the next two months, November 1994 to January 1995, between Coopers and the Financial Services Department confirmed the firm’s position.

The scandal could not have blown up at a worse time for Jersey which is finalising its law on limited liability partnership legislation.

Price Waterhouse and Ernst & Young, the two firms spearheading moves to establish limited liability partnerships offshore in Jersey, have maintained throughout that they will continue with their plans. Coopers has also shown an interest in a Jersey LLP.

Both PW and E&Y claim the current scandal is not an issue, even though the leading supporter of LLPs on the island, Senator Pierre Horsfall, is a key player in the affair.

It emerged last week (Accountancy Age, 29 August) that Horsfall was a non-executive director of Cantrade and a member of Jersey’s finance and economics committee at the time of the # 17m losses created by Young’s alleged fraudulent activity.

Horsfall, who has emphatically denied any claims of impropriety, resigned his paid directorship when he was appointed president of the F&E committee – one of Jersey’s most important political posts – in 1990.

But under his presidency in 1994, the committee agreed unanimously not to investigate Cantrade despite a series of appeals from angry investors.

It is a decision now under close scrutiny by Jersey’s Royal Court.

Strongly-worded allegations listed in court submissions include claims of committee ‘failure, neglect and bias’, caused by Horsfall’s former involvement with Cantrade. The 90 complainants, a global mix of individual and corporate investors, looking to recover their huge losses, argue that Horsfall’s former role with Cantrade influenced the committee’s decision not to investigate the bank.

The investors submission said: ‘The representors allege that the said participation (Horsfall’s) gave rise to a real danger of bias by virtue of the fact that the said Pierre Horsfall was a director of Cantrade while same was allegedly acting in a wrongful manner to the detriment of the representors and by virtue of the said Horsfall’s receipts of emoluments therefrom.’

In even harsher terms it continues: ‘Horsfall was actually biased by virtue of his previous relationship with Cantrade and his desire to protect same from any potential harm, notwithstanding the fact that the facts available to the committee clearly required the fullest investigation possible under the law.’

Horsfall admitted last week that, with hindsight, he should not have taken part in the committee’s discussions on Cantrade. A forthright statement submitted to the Royal Court in response to the allegations rebutted the case against the beleaguered senator.

Horsfall told Accountancy Age: ‘My position as non-executive director was declared as an interest by me before it was compulsory to do so.

My directorship predated the committee’s decision by some five years.

I have no interest or connection with the bank. The decision was a really straightforward one based on professional advice.

‘The committee is always concerned by any such allegations. It just so happens that the route we chose to investigate didn’t meet with the approval of the litigants.’

SEQUENCE OF EVENTS

September 1986: Senator Pierre Horsfall, a member of Jersey’s finance and economics committee, appointed a non-executive director of Cantrade.

1989 to 1993: Allegations that independent trader Robert Young falsified profits in Jersey while receiving ‘bribes’ from Cantrade.

December 1990: Horsfall resigns his seat on Cantrade’s board on appointment as president of the F&E committee.

January 1994: Jersey Fraud Squad begin investigation of Young.

August 1994: Advocate Philip Sinel writes to F&E committee highlighting investors’ concerns and warning of ‘detrimental publicity’ for the island.

A second letter calls for a F&E committee investigation of Cantrade under Banking and Business Law.

September 1994: F&E committee decided not to investigate, but asks Cantrade to commission a report by its auditors, Coopers & Lybrand.

April 1996: Investors make submission to Jersey Royal Court for judicial review of the committee’s decision not to investigate.

August 1996: Young arrested and charged in Jersey.