What’s New For Philanthropy In Guernsey?

The biggest single development in Guernsey affecting philanthropy (as well as charities more broadly) has been the adoption of a new regime covering the registration and regulation of charities and not-for-profit organisations, ushered in by the entry into force of the Charities etc. (Guernsey and Alderney) Ordinance, 2021, as supplemented by the Charities etc. (Commencement and Transitional Provisions) (Guernsey and Alderney) Regulations, 2022 and Charities etc. (Amendments, Exemptions, Governance and Specified Amount) (Guernsey and Alderney) Regulations, 2022.

The main driver for this development is the impending visit by inspectors from MONEYVAL to Guernsey scheduled for the first half of 2024, having been delayed by the COVID-19 pandemic by around a year. This visit will be Bailiwick-wide and represents Guernsey’s latest inspection by the Financial Action Task Force’s regional body MONEYVAL, which is part of the Council of Europe, in its 2023/24 round of inspections. Whilst not looking solely at charities, MONEYVAL is concerned about the effect of potential money laundering and terrorist financing channelled through charitable and philanthropic organisations, among many others, either calling Guernsey home or using its financial services base to nefarious ends.

Main Changes Under The New Legislation

As a high-level summary, the new legislation has brought in many beneficial changes:

• reiterating the need to consider registration with the Charities Registrar, particularly those with (i) assets in excess of £100,000 or (ii) a gross annual income of £20,000 or over, for whom registration is mandatory;
• it will require each philanthropic body to carefully consider its position and to implement any amendments in governance needed to ensure compliance with the regulations. These include:
  • having a written constitution (or functional equivalent) and lodging it with the Guernsey Registry at charitable first registration;
  • notifying the Registry of any changes to that constitution within 21 days;
  • keeping and retaining certain records on board members’ details, members’ general meeting outcomes and any connections to UK-based parent organisations or affiliates;
  • putting in place measures to ensure financial probity and transparency of dealings;
  • in certain cases, adopt and maintain an anti-financial crime policy, measures to identify large donors and keep these under regular review; and
  • be prepared to review the constitution and internal policies and procedures at appropriate time intervals;
• the thresholds for registration have been increased, but with added impetus given to voluntary registration;
• the adoption of a statutory definition of charitable purposes - broadly in line with the English test, stemming from the preamble to the Statute of Elizabeth in 1601, as augmented and revised over time;
• a disqualification regime has been adopted, to eject those who are not fit and proper from exercising functions in the sector;
• there are certain new disclosure requirements for public-facing charities; and
• the Registrar has been granted certain information-gathering and sanctioning powers, to bring it in line with other regulators in connected arenas in Guernsey.

Whilst there is a phased approach to the introduction of obligations under these new arrangements, a key date for compliance kicks in on 1 August 2022, with a series of further dates for additional observance, although the full timetable is beyond the scope of this review.

Guernsey has had a statutory registration framework for charities and not-for-profit organisations since 2008, but the new laws represent an additional step on from that basic framework. There is strengthened status to being a registered charity or not-for-profit organisation with a registration in Guernsey, particularly when faced with due diligence and other scrutiny from banks and other financial service providers. Notwithstanding the increased powers of the Registrar, those organisations supporting philanthropic ventures not raising funds from the general public will continue to maintain appropriate levels of privacy and sensitivity. Final judgement rests in the hands of MONEYVAL but it is hoped that Guernsey’s new charity registration regime will represent a good benchmark in the development of keeping charities out of the spotlights for the wrong reasons.

Case Law Developments

Of persuasive weight in Guernsey are the recently decided Jersey cases of:

• Kea Investments v. Watson [2021] JRC 009 (Kea), which considered whether a beneficiary’s interest under a discretionary trust could be the subject of distraint by a judgement creditor;
• In the matter of the May Trust [2021] JRC 137 (May), which concerned the application by the trustee of the May Trust to seek the Royal Court of Jersey’s blessing for a momentous decision involving a large distribution indirectly to be made to a related charitable foundation which was to be structured in a way that would oblige the intermediate recipient to pay tax in the UK on the sum received; and
• Cohen and Crooks as Joint Administrators of the Estate of James Donald Hanson & ano’r v Arbitrage Research and Trading SA & o’rs [2021] JRC 319 (Cohen), which involved a purportedly charitable trust and certain sham arrangements relating to its supposed establishment, administration and running over many years.

Kea went to great lengths to borrow from English equity whilst balancing alongside with the traditions of Norman customary law, producing an end result that shows the uniquely Channel Island blend of what a trust is in these bailiwicks as distinct from the original English concept. Many equity and trust practitioners would agree with the conclusions in Schmidt v. Rosewood Trust Ltd [2003] UKPC 26, a case hailing from the Isle of Man, in which it was held that, on his or her own, a beneficiary of a discretionary trust has no assignable or transmissible interest in the trust, merely the doctrinal spes of consideration for distributions in respect of membership of the class of beneficiaries of the trust in accordance with the terms of that trust.

The heart of May went to the definition of benefit from a trust under Jersey law, and in particular whether the payment of additional taxation could be considered a benefit to a trust’s beneficiaries: in essence, it can, notwithstanding that it might not be in everyone’s judgement that the discharge of a tax obligation was considered a benefit to the trust or its members, although the court was keen to observe the subjective preferences of the beneficiary in this case.

Cohen took an orthodox approach to considerations of sham trusts and concluded that, whilst certain of the trustees at times had not executed their offices diligently (on the facts of Cohen, acting with “reckless indifference”), they had lacked a positive intention to mislead third parties as to the settlor’s true intentions concerning the proposed uses of the trust. Noting the involvement of charitable aims, the Royal Court of Jersey sought submissions in this case from the Attorney-General. The bar for evidencing a sham trust from the outset has been set reasonably high. For obvious reasons, it is difficult to discover and provide the requisite evidence of sham. Also of note is that whilst a trust may have been settled for ostensibly charitable purposes, failure to follow the strict terms of the trust instrument will not necessarily be fatal to charitable consideration; if the operation of the trust has afforded charitable purposes, the Royal Court maintains a discretion to save a trust and procure its continuation and rescue.

As might be expected in such cases, the quantum involved was significant, the case often took in parties based across multiple international borders and appeals may yet be heard in some or all of them.

Consideration Of Impact

More broadly, benefactors are taking both the time and the trouble to work out their desired impact of their philanthropic efforts. This often starts with what they do not want to support or see as better resolved by others.

The measurement of impact is key to confirming whether or not a philanthropic venture is fit for purpose. The growth in awareness of motives beyond financial, including people and our shared planet, is palpable and has been keenly felt already across the aims, purposes and delivery of philanthropy by clients and benefactors using Guernsey.

Due Diligence And KPIs

Another set of related developments within philanthropy, not only in Guernsey but also further afield, has been (i) improved planning and gathering of due diligence and measurements of key performance indicators (KPIs) and (ii) the flourishing of an ecosystem of advisers and companies to dedicate their time and resources to this market fruitfully, likewise near and far.  

Continuation Despite Lockdowns

Guernsey’s financial services sector as a whole managed to learn plenty of lessons from the global COVID-19 pandemic, including how to continue functioning as a dominant part of an economy throughout numerous lockdowns. This means that professionally-run philanthropic organisations can benefit from the fact that almost all corporate service providers are set up for working from anywhere with advanced IT and communications equipment. The ecosystems supporting existing family office structures and offshore trusts and companies can equally be turned to assist philanthropic outfits in the same jurisdiction.

Philanthropic Trends Of Note

A growing trend across Guernsey, mirrored elsewhere, has been the continued professionalisation of charitable and philanthropic organisations and those involved with them. There seems to be recognition that operations in the third-sector need at least equal service levels and governance supporting them when compared to those in the private sector.

The Guernsey Registry has been leading a concerted effort, also including domestic charities, in promoting awareness of the new ordinance and regulations, whilst quietly demonstrating the direction of travel to enable Guernsey to operate at the forefront of global philanthropic practice.

Conclusions

Guernsey has seen an eventful year as far as philanthropy is concerned. With a new ordinance, regulations, persuasive case law and emerging standards, practices and guidelines, philanthropic entities run from Guernsey remain well placed to face the challenges of the near future, girded by an enthusiastic and professional community of supporters, directors and trustees.

Kit Hobbs
Kit Hobbs is Head of Legal at Bellerive Trust Limited in Guernsey, specialising in private wealth structuring and with experience in private equity and regulatory matters. He has previously worked in England and Guernsey in legal private practice. Kit is a Solicitor of the Senior Courts of England & Wales and holds an MBA from the University of Cambridge’s Judge Business School. He has a keen interest in sustainability and philanthropy as a member of the Sustainable Finance Guernsey Council and one of the Guernsey representatives on the UN FC4S TNFD panel.